Consumer Law Resources from Georgetown Law School

Georgetown University Law Center has this on-line list of research tools concerning consumer law.  Many of the resources are available on line.  It provides a good start for the consumer or consumer advocate looking to do some research.

Federal Student Loan Legislation Moving Through Congress

Today's Washington Post includes this story on the student loan (and grant) reform legislation moving rapidly through the U.S. House and Senate.   Insiders predict that the legislation - - which would cut $19 billion in subsidies to lenders, increase subsidies for students, and liberalize repayment rules - - could be enacted in the next month or two.  Among other things, the legislation would gradually increase the size of Pell grants, the main federal grant program for low-income students.

Oregon Curbs Payday Lenders

    by Scott Nelson

   Oregon Governor Ted Kulongoski yesterday signed into law a package of bills designed to protect consumers against abuses by the payday lending industry and other short-term lenders that target vulnerable borrowers with high-interest loans.  Together, the new laws will, among other things, cap interest rates, limit rollovers of short-term loans, and attempt to regulate internet transactions.  Importantly, the interest rate caps are not limited to specific loan products -- which would facilitate evasion as lenders responded by modifying their loans to take them outside the laws' restrictions -- but apply to all consumer finance loans involving amounts less than $50,000.

  The new laws should significantly ease the triple-digit interest rates charged by payday lenders and their cousins, auto title lenders.  Indeed, payday lenders say the new laws will drive them out of the state altogether.  Whether that is so remains to be seen, but the laws still allow payday lenders, through a combination of interest rates and "origination fees," to charge effective annual interest rates of well over 150% on one-month loans.

Background of the New Laws

  Oregon, like many other states, had effectively repealed its usury laws in 1981, when a law imposing an interest rate cap of 36% on consumer loans was repealed.  In recent years, the payday lending industry had taken full advantage, charging interest rates that often exceeded 500% annually.  One frequently cited measure of the industry's penetration of the Oregon market is that the number of payday lenders operating in the state substantially exceeds the number of McDonald's franchises (though this is true in most other states as well, according to a researcher at California State University - Northridge).

Intellectual Property Abuse, eBay, and Consumers

by Greg Beck

InfoWorld’s Ed Foster has an interesting piece on a growing problem for consumers: intellectual property abuse on eBay.  As I’ve previously written, some companies would rather if consumers did not have the option of buying less-expensive used products online. By taking advantage of the Digital Millennium Copyright Act's takedown provisions, companies claiming copyright infringement can automatically remove used or competing products from the Internet without having to go to court.  Foster correctly notes that wrongful claims of trademark infringement can be a bigger problem than copyright.  Unlike copyright claims, trademark claims provide the target with none of the DMCA's procedural protections for wrongful terminations. Thus, companies are able to terminate any eBay auction at will, leaving the target without any recourse short of filing a lawsuit and obtaining a declaratory judgment.

The examples of abuse are numerous. Last year, Public Citizen filed suit against a company targeting low-priced generic competition in this way.  The company agreed to reimburse the seller for his lost sales.

How Bad Patents Hurt Consumers

by Greg Beck

Carfax has a new patent on an "apparatus and method for perusing selected vehicles having a clean title history." Parsing the patent's jargon and legalese, the Electronic Frontier Foundation concludes that the patent covers the process of searching a database for a used car with a clean title. This idea is obvious, and one that many consumers could benefit from.  But, as the EFF points out: "The current state of patent law allows for all sorts of ridiculous claims that wouldn’t pass muster if basic common sense principles were applied."

Patents are government sponsored monopolies.  When a patent is handed out for an obvious idea, like searching a database for cars, the patent owner can prohibit competition that would create more options and lower prices for consumers.  Or, the patent owner can stay out of the marketplace entirely but extort licensing fees from those who wish to enter the market.  These "patent trolls" create higher costs of entry, meaning that fewer new competitors will enter the market, and those that do will charge a higher price to pass along the licensing fees to consumers.

Ronald Mann and Travis Siebeneicher on Internet Contracting

Ronald J. Mann and Travis Siebeneicher's Working Paper,  "Just One Click: The Reality of Internet Retail Contracting," can be read at:  http://ssrn.com/abstract=988788.  Here's the abstract:

Scholars for decades have noted the possibility that
standard-form contracts disadvantage consumers. For many years,
that literature focused on the idea that sellers with market
power draft contracts that are disadvantageous to consumers. Law
and economics scholars, however, have been skeptical about that
hypothesis, pointing out that a strategy of inefficient terms
rarely would be the optimal technique for exploiting market
power. In recent years, however, the debate has shifted as new
product distribution channels have changed the technology of
contracting. Now, even firms without market power can exploit the
cognitive failures of their customers through ?shrouding? of
terms and similar techniques.

That concern has become more prominent with the rise of Internet
retailing, where electronic standard-form contracts are used
extensively, often undermining the notion of assent on which the
contract paradigm traditionally depends. Scholars have worried
that Internet retailers obscure one-sided terms so that customers
will continue to shop at their sites, and do so more effectively
than their brick-and-mortar counterparts. This, among other
concerns, has led many to argue for a new contracting regime that
deals with electronic contracting. Indeed, because software is
often distributed online, this is a major topic in the ALI's
current project on Principles of the Law of Software Contracts.

Poisoned Products Imported From China

Against a background of recent reports of poisoned medicine exported from Chinese companies to Panama and Chinese-made toothpaste containing poison imported into the U.S., the lead story in today's Times, headlined "As F.D.A. Tracked Poisoned Drugs, A Winding Trail Went Cold in China," describes a similar poisoning incident in Haiti ten years ago and attempts to figure out how the poison was mislabeled.  The article leaves the impression that the Chinese were stonewalling. 

Mandatory Arbitration of Investor Disputes

by Brian Wolfman

Michele Singletary reports in today's Washington Post about a study of securities arbitrations conducted mainly under the auspices of the National Association of Securities Dealers (NASD).  The study looked at arbitrations from 1995 to 2004.  (Most investors are subject to mandatory arbitration and cannot go to court to litigate their individual securities claims.)  During that 10-year period, both the win rate for investors and the amounts recovered as a percentage of the claim dropped fairly dramatically.  The entire study is available here.

The Post article discusses a number of possible reasons for these results, including most prominently that three-person NASD arbitration panels include someone who is working for or has ties with the securities industry.  One of the authors of the study, Daniel R. Solin, a securities arbitration attorney and registered investment adviser, is quoted as saying that "[t]his study paints an alarming picture of a steadily worsening situation for investors who have no alternative to securities arbitration administered by the very industry that they are suing."

Here's a synopsis of the study's findings from the Post article:

[T]he win rate for investors in securities arbitration cases dropped to 44 percent in 2004 from a high of 59 percent in 1999.  When it came to their claims for damages, investors were awarded 22 cents on the dollar in 2004, as a percentage of the amount claimed, compared with a high of 38 cents in 1998. (Ninety percent of the cases reviewed went through the NASD arbitration process.)  The recovery percentage plunged to 12 percent for claims of more than $250,000. The larger the award and the bigger the brokerage firm, the smaller the recovery . . ..

Other news reports on the study are available here, here, here, and here.  And here's a column by Solin from the Huffington Post.

More on Proposed Military Predatory Lending Regs

We've previously blogged several times (including here, here, here and here) about the new federal legislation regulating predatory lending to the military, known as the Military Lending Act or MLA (10 U.S.C. 987).  Comments to the Defense Department's proposed regulations implementing the statute were due this week, and the docket is now overflowing with views from the entire gamut of the consumer credit industry, from banks to pawnshops, all seeking various carve-outs for their business.  Here's a sampling of some of the other views:

• The other day, Jon Sheldon posted about the comments of the Center for Responsible Lending, National Consumer Law Center, and Consumer Federation of America, and other consumer groups.
• Public Citizen's comments, which you can read here, echo some of the policy arguments made in considerable depth in the NCLC/CRL/CFA comments, but emphasize an administrative-law approach, arguing that proposed regulations would be arbitrary and capricious and contrary to the MLA.
• Yesterday, I learned that the Federal Trade Commission has also filed comments that largely endorse the narrow scope of the proposed regulations.  On the bright side, FTC specifically rejects the suggestion that the DOD should carve out banks from the regulations' coverage, noting that banks offer many of the same products that are covered by the regulations and that exempting them would create an enormous loophole in the law.  The FTC specifically points to "the absence of market studies or other evidence that military consumers benefit when banks and similar entities engage in the practices that Congress generally found harmful."
• Our co-blogger Christopher Peterson, whose research informed the report that led to the legislation and who testified before Congress on the subject, filed comments that are accessible here.

Home Foreclosure Rate Hits 50-Year High

The Washington Post reports here this morning that, according to none other than the Mortgage Bankers Association, the percentage of home mortgage foreclosures in the first three months of this year hit a 50-year high.  As the Post article explains, this tragic problem is most acute in the sub-prime market:

The most dramatic fallout took place in the subprime market, which caters to people with blemished credit or other factors that make them a risk to lenders.  Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter.

The Post story goes into considerable detail on the issue, discussing, among other things, the connection between the popularity of adjustable rate mortgages and the increasing foreclosure rate.  The Wall Street Journal reports the same story, and notes that the Mortgage Bankers Association's chief economist predicts that the foreclosure rate will continue to rise into next year.