Some Details on Yesterday's House Hearing on Credit Cards

    As Deepak previously reported, yesterday the Financial Institutions and Consumer Credit Subcommittee of the House Committee on Financial Services held a hearing regarding credit card practices. U.S. PIRG's  consumer blog has this nice report on the hearing, including links to testimony and other information. 

House Committee to Examine Preemption & the Future of Consumer Protection

Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, has announced that the committee will hear from federal and state regulators on the future of federal consumer protection in the financial services sector.  The hearing entitled, Improving Federal Consumer Protection in Financial Services, will take place on Wednesday, June 13, 2007, at 10:00 a.m. in room 2128 of the Rayburn House Office Building.

The hearing will examine consumer protection in the financial services sector in light of regulatory and judicial decisions over the past several years that have preempted state consumer protection laws for federally chartered institutions, and thereby reduced the role of state officials in policymaking, complaint resolution and enforcement.  The hearing will seek ideas for improving consumer protection given these recent changes. The Committee will focus on the adequacy of current federal consumer protection rules (including agencies' use of authority against unfair and deceptive financial trade practices), the effectiveness of existing consumer complaint resolution mechanisms, improvements that may be needed in both of these areas, and the future role of state agencies in protecting financial consumers.

Credit Card Hearing Now Underway

The House Financial Services Commitee's hearing on Improving Credit Card Consumer Protection: Recent Industry and Regulatory Initiatives started half an hour ago.  You can watch it live at this link.  Among a panel packed with industry representatives, there are only two people representing consumer interests:  Kathleen Keest of the Center for Responsible Lending and Ed Mierzwinski of U.S. Pirg.

NHTSA's Safety Recalls for May 2007

The National Highway Traffic Safety Administration has just released its May 2007 vehicle safety recall report.  As previously noted, the CL&P Blog has begun to post monthly recall reports from both NHTSA and the Consumer Product Safety Commission.

Debt Collectors and Answering Machines

by Jeff Sovern

My co-blogger, Deepak Gupta has previously blogged about the FTC's request for comments on debt collection in preparation for a workshop it plans to hold in October.  Today is the deadline for submitting comments,  though the Commission is willing to receive original research, surveys, and academic papers until September 7.  I submitted a comment earlier today (the number assigned my submission suggests only fifteen had been received to that point, though perhaps many last-minute statements have since been or will be filed).  The FTC will make the comments available on its website and in fact seven statements received in April and May have already been posted there.  The following excerpt from my comment deals with debt collectors who, when attempting to telephone a consumer, instead reach an answering machine: 

The FDCPA was enacted in 1977, when telephone answering machines were not yet common, and so the drafters of the statute understandably did not anticipate all the consequences of that technology.  In the intervening decades, answering machines and voice mail have, of course, become omnipresent.  Answering machines present a dilemma for debt collectors.  Debt collectors who repeatedly reach an answering machine and respond by hanging up without leaving a message risk violating § 806, 15 U.S.C. § 1692d, barring harassment, and particularly subsection (5) of that provision (“Causing a telephone to ring . . . repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.”) and subsection (6) (prohibiting “the placement of telephone calls without meaningful disclosure of the caller’s identity”).

Some Further Thoughts on Safeco v. Burr

by Scott Nelson

Blogging about lost cases is about as satisfying as kissing your sister, but I wanted to add a few additional thoughts to those expressed by Deepak in Monday's post on Safeco v. Burr.  In the interest of full disclosure, I should note that I was co-counsel for the respondents, who lost the case despite winning a couple of the key issues.

  Willfulness and Recklessness: The principal reason the insurance companies gave for seeking review by the Supreme Court in the first place was that the Ninth Circuit's ruling that FCRA's willfulness standard is satisfied by a showing of "reckless disregard for the law" was erroneous and out of step with the holdings of other circuits.  For a change, the Supreme Court ultimately agreed with the Ninth Circuit on that point and adopted a much more consumer-friendly standard for recovery than the insurance companies advocated.

Under the companies' view of the world, enhanced remedies should only be available under FCRA if a defendant violated the statute knowing that its conduct was illegal.  The Supreme Court's ruling makes enhanced penalties available without regard to whether a defendant actually knew or believed it was violating the law, as long as the defendant's conduct was reckless, which the Court's opinion equates with a highly unreasonable interpretation of the law.

  Interestingly, the Court's opinion appears to resolve, without actually acknowledging the existence of, considerable confusion about whether recklessness is a subjective or objective standard, or even a little of both.  Justice Souter comes down squarely for an objective standard of recklessness in civil cases, defining recklessness as disregard of a high risk of harm that the defendant either was or should have been aware of.

Our Casebook is Out!

This is a completely self-serving plug for our new casebook, which I co-authored with John A. Spanogle, Ralph Rohner, and Dee Pridgen.  I'm delighted to report that it is now available, with a teacher's manual to follow shortly and a compilation of statutes expected to be available later this summer.  The book, titled Consumer Law Cases and Materials and published by Thomson/West, covers established consumer law topics, including deception, disclosure (such as TILA), consumer credit (including credit reporting, debt collection, and credit discrimination), and warranties.  It also contains materials on emerging consumer law areas, such as privacy, predatory lending, and mandatory arbitration.  We tried to include a balance of cases and problems to introduce students to the area, while also citing to recent writings on consumer law (including this blog).  Professors teaching in the area should receive review copies shortly if they haven't already.  If you would like to order a copy, you can do so here.

Utilities and Payday Loans: A Dangerous Combination

The National Consumer Law Center today issued a very interesting report on how utilities are funneling their most financially-vulnerable customers to payday loan stores.

As the report explains, when utilities send their customers to pay bills in the storefronts of ultra-highcost payday lenders, those customers become targets for predatory loans.  The practice is widespread.  A review of lists of authorized payment stations of 21 large utility chains found more than 650 licensed payday lenders.  To utilities, the use of payday lenders as authorized bill payment agents provides an inexpensive way to satisfy customers’ demands for locations where they can pay utility bills in person and in cash.  Payday lenders make the deals in order to bring into their establishments potential customers for their ultra-high-cost loan products.  In fact, payday lenders so covet the traffic generated by bill payment that some bypass making arrangements with utilities and offer “unauthorized” bill payment services.  Why utility customers?  Because there are millions of them.  And those who pay bills in person have some of the characteristics--low-income, minority, female, elderly--that make them prime targets for payday lenders. 

Among other things, the NCLC report recommends (1) that regulators prohibit utilities from using payday loan stores as authorized payment centers and (2) that utilities discourage customers from paying bills where ultra-high-cost loans are marketed and transacted, and provide them with safe alternatives.

Sixth Circuit Reverses Dismissal of Claim Alleging That Discover Card's Harassing Collection Activity Led to Cardholder's Suicide

by Brian Wolfman

Anyone interested in the potential human costs of debt collection harassment should read the Sixth Circuit's recent decision in MacDermid v. Discover Financial Services, No. 06-5792 (May 29, 2007).  The complaint in the case alleged that the plaintiff's wife, who suffered from bipolar disorder, committed suicide because of Discover's harassment of the couple over $15,000 in credit card debt.  The district court dismissed most of the claims on the pleadings and two claims at the summary judgment stage.  The Sixth Circuit reversed the dismissal of the claim that Discover had intentionally inflicted emotional distress or engaged in "outrageous conduct" in violation of Tennessee common law.  The court of appeals ruled that the plaintiff at least stated a claim for outrageous conduct based on Discover's threats of criminal prosecution for the failure of the plaintiff and his wife to pay a purely civil debt.  The court affirmed the dismissal of various claims under Tennessee law (including a wrongful death claim) and the federal Truth in Lending Act and Fair Debt Collection Practices Act.  The facts alleged - - including the wife's heart-wrenching suicide note - - are stated in detail at the beginning of the opinion.

Supreme Court Decides Fair Credit Reporting Act Cases

by Deepak Gupta

  In an opinion by Justice Souter, the Supreme Court this morning handed consumers an incomplete victory in the consolidated Fair Credit Reporting Act cases, Safeco v. Burr and Geico v. Edo.   For our previous coverage of those cases, including all of the briefs, see here, here, here, and here.  (Disclosure:  My colleague, Scott Nelson, is co-counsel for the respondents.)  In this post, I'm going to attempt a quick summary of the decision, but I hope we'll be able to bring you some additional anaysis in the days to come.

1.  Willfulness Entails Reckless Disregard:  The really good news for consumers today is that the insurance companies lost on the principal question in these cases -- whether  a "willful" violation of the FCRA can be established by proof that the defendant recklessly disregarded the law.  The companies had argued that a willful violation could only be established by proof that the defendant's actions were known to violate the Act, but the Court firmly rejected that interpretation as inconsistent with standard common law usage in civil actions.  The Court also concluded that the FCRA's drafting history didn't shed light on the question either way and that the reckless-disregard standard wouldn't lead to absurd results.   In terms of impact on the run of FCRA cases, this was the most significant question decided by the Court today; a contrary ruling would have made it much harder for consumers to obtain statutory or punitive damages.

2. Adverse Action Requirement Extends to First-Time Rates, But Considering the Credit Report Must Be A "Necessary Condition" of the Increase:  Having arrived at the proper standard of recklessness, the Court then had to decide whether the companies had actually violated the statutory requirement that they send notice to consumers before taking any "adverse action" based on their credit reports.   To make a long story short, the companies had charged consumers higher initial rates for insurance based on their credit reports.  The question was whether that action constituted "an increase in any charge for . . . any insurance, existing or applied for."   

As an initial matter, the Court agreed with the position of the Solicitor General and the plaintiffs--that the word "increase" extended to a first-time rate, consistent with the "ambitious" consumer protection objectives that Congress had in mind when it enacted the FCRA:  "[T]he point from which to measure difference can just as easily be understood without referring to prior individual dealing.  The Government gives the example of a gas station owner who charges more thanthe posted price for gas to customers he doesn’t like; it makes sense to say that the owner increases the price and that the driver pays an increased price, even if he never pulled in there for gas before."   This section of the opinion has some great language about the broad scope and purpose of the FCRA and the need for courts to interpret the statute in a manner that's consistent with Congress's goals.