Consumer Law & Policy Blog

Has Scalia Killed the Class Action?

Daniel Fisher at Forbes responds to Scott's post from yesterday.  In the article, Alan Kaplinsky, who prides himself of being an architect of forced arbitration in consumer contracts, unconvincingly attempts to downplay the devastating impact of Concepcion for consumer justice and civil rights in America.

Los Angeles Times: Congress Should Overrule Concepcion

The Los Angeles Times this morning runs the following editorial on AT&T v. Concepcion.  In recent weeks, similar editorials have appeared in the New York Times, San Francisco Chronicle, and Sacramento Bee, among other places.

Editorial: Carving out class-action exceptions

Because a recent Supreme Court decision on a class-action suit involved a federal statute, not the Constitution, Congress can — and should — overrule the court.

May 17, 2011

In a case that began with a disgruntled cellphone customer, the U.S. Supreme Court has made it harder for groups of consumers or employees to band together to seek damages from corporations. Because the decision involved a federal statute, not the Constitution, Congress can — and should — overrule the court.

Almost a decade ago, Vincent and Liza Concepcion entered into a sales contract with AT&T Mobility that contained an arbitration clause forbidding a customer to join with others in a class-action lawsuit against the company. The Concepcions, who were aggrieved because they were charged $30.22 in sales tax on a supposedly free phone, brought a class-action suit against AT&T anyway two years later. Class actions allow many people who suffer the same harm to join as a "class" to seek compensation.

At first glance, the Concepcions would seem to have no legitimate complaint. After all, they had voluntarily signed a sales contract limiting them to standalone complaints. But the California Supreme Court has held that some contracts barring class actions are "unconscionable" and thus unenforceable. The U.S. 9th Circuit Court of Appeals decided that the AT&T contracts were unconscionable because, among other things, consumers couldn't negotiate them with AT&T; they were take-it-or-leave-it documents offered by a party with superior bargaining power.

The Federal Arbitration Act allows arbitration agreements to be disregarded if state law allows it. But Justice Antonin Scalia wrote that that exception didn't apply to the Concepcions' dispute because breaking their contract with AT&T would frustrate the purpose of the arbitration act.

Underlying this legal debate about the interplay of state and federal law is a real-world concern: that consumers not be exploited by vastly more powerful merchants. Class actions allow injured consumers in California and other states who might not bring an action on their own to combine their claims and receive greater damages. (Opponents of class actions say the principal beneficiaries of such lawsuits are lawyers.)

With its narrow reading of the federal arbitration act, the court has put such remedies out of reach for many consumers. Fortunately, Congress can overrule the decision by amending the act to allow states to declare some arbitration agreements unconscionable. Sen. Al Franken (D-Minn.) is preparing to introduce legislation that would go further by banning binding "pre-dispute" arbitration clauses in consumer, employment and civil rights contracts. It's not clear that such a drastic remedy is necessary, but at a minimum consumers should be spared the roadblocks that were thrown in the way of the Concepcions.

Could the Senate GOP Block a Recess Appointment?

Kate Davidson and Cheyenne Hopkins of the American Banker have the story:

WASHINGTON — Republicans are strongly considering using a rare procedural move to prevent President Obama from making a recess appointment to install a director of the Consumer Financial Protection Bureau.

Forty-four GOP senators signed a letter last week vowing to block any nominee absent several significant changes to the bureau, a move that political analysts said all but guarantees the president will use his recess appointment powers. But Republican lawmakers are weighing tactics to make that option much less appealing or prevent it altogether by leveraging their power over other financial services nominees.

"If they were to go the recess appointment route, I believe Senate Republican leadership would use every tool at their disposal and there would be a major response from Senate Republicans," a Republican Senate staffer said Friday. "It could result in costs to other nominees, and I think it would ultimately affect the legitimacy of whoever is recess appointed to run the CFPB."

Republicans are attempting to box Obama in, preventing him confirming a permanent director to CFPB or allowing a temporary one to be put in place. Under the Dodd-Frank law, the CFPB is limited in what actions it can take unless it has a formal director. (While Elizabeth Warren, the architect of the agency, has been its de facto head since last year, she is an administration appointee and does not technically count as its director.)

Republicans are eying a tactic first employed by Democrats when President Bush was in power to hold "pro forma sessions" — short sessions during which no business is conducted — that prevents the Senate from being considered in "recess." Republicans used the tactic successfully last year after agreeing to confirm 54 of the president's nominees, but preventing him from making any recess appointments.

Diane Rehm Roundtable on the CFPB's Future

This morning, the Diane Rehm show on NPR hosted a roundtable discussion on "The Future of the Consumer Financial Protection Bureau," featuring Travis Plunkett of the Consumer Federation of America; Maya Jackson Randall, a financial reporter for Dow Jones Newswires; and Mark Calabria, director of financial regulation studies at the Cato Institute.  The show also features a call-in interview with Rep. Barney Frank. Listen here.

NYT Editorial Links Anti-CFPB Legislation to Campaign Cash

The New York TImes has this editorial, arguing that the true purpose of today's markup is to raise cash for the next election:

Republicans on the House Financial Services Committee are having a campaign fund-raiser this week.

Starting on Wednesday, the committee’s majority is expected to pass bills to cripple the Consumer Financial Protection Bureau, one of the most important innovations in the 2010 Dodd-Frank financial reform law.

The bureau has one purpose: to shield consumers from unfair, misleading and deceptive lending. The purpose of the Republican bills is twofold. One is to deprive the agency of the power to fulfill its mission. Another is to attract campaign money. As long as the Senate and White House are controlled by Democrats, the bills are unlikely to become law. But by advancing them in the House, Republicans can demonstrate how thoroughly they would dismantle reform if they controlled Washington and, in the process, rake in Wall Street donations.

American Bankers Association Supports Warren Nomination

Breaking news from the American Banker:

Frank Keating, the head of the American Bankers Association, said Tuesday he would back Elizabeth Warren as director of the Consumer Financial Protection Bureau, if nominated by the president.

"If she is the nominee, we would be fully support of her," said Keating, who, like Warren, hails from Oklahoma.

Keating, a former governor of Oklahoma, joined the ABA as president and chief executive on Jan. 1. Speaking to reporters after his inaugural speech before the Women in Housing and Finance, Keating made clear he would not object to any nomination made by the president to head the new agency, including Warren's, even if at times they might disagree over certain issues.

Timing of a nomination by the president, which is highly anticipated, could not be any better given the political capital he gained after the death of Osama bin Laden.

"Because of that lift to the president it may well be that he does decide to nominate her," said Keating. "She's very bright, very capable."

 

"A knife in the ribs"

On the Daily Show last week, before the big news from Pakistan sucked up all the media oxygen, Elizabeth Warren told Jon Stewart that opponents of financial reform were attempting to “stick a knife in the ribs” of the new Consumer Financial Protection Bureau. “Right now there are bills pending in Congress to delay the agency, to defund the agency, to defang the agency and," she said, "to kill the agency outright before it is able to take one step on behalf of middle class families.”  At the Daily show website, you can watch an extended online version of the interview here.

 

 

Not-so-Standardized Insurance Form Contracts

Professor Dan Schwarcz of Minnesota Law has posted an excellent empirical study of homeowner's insurance contract forms, finding important variations in coverage, most of which reduce the level of protection from the presumed industry standard.  The paper offers a meticulous review of insurance policy contract forms from the top ten insurers in six different states, revealing a dizzying variety of provisions for events such as water damage, pollution damage, theft losses, and replacement cost standards. 

Even obtaining the actual contract terms in use proved to be a significant challenge.  In part III Professor Schwarcz recounts his exhaustive efforts to obtain copies of contract terms, from insurers themselves, from insurance agents, and from state regulators.  Shockingly, state insurance departments who all profess to require contract forms to be submitted and approved, and to be publicly available, are systematically unable to produce insurance policy forms on request.  The bottom line is that consumers cannot possibly shop for coverage terms because they cannot discover contract terms without purchasing a policy.

This is the sort of careful study of actual consumer financial markets and practices that the research division of the new CFPB ought to be doing, to inform consumer education and regulatory strategies going forward. 

More on Proposals to Gut the CFPB

by Deepak Gupta

As discussed in my previous post, the House Financial Services Committee is holding hearings this morning on GOP proposals to turn the CFPB into a five-member commission and strengthen FSOC veto power, among other things. A staff memo describes the four GOP bills from the sponsors' perspective.

The committee's website now includes the written testimony, including pro-Bureau statements by Adam Levitin of Georgetown Law and Hilary Shelton of the NAACP. The Chamber of Chamber asserts, with a straight face, that it wants to avoid regulatory capture.  If you want an accurate overview of what's really going on here, read Levitin's testimony first.

Bloomberg News reports that Sen. Tim Johnson (D-SD), Chairman of the Senate Banking Committee, has come out strongly against the four GOP proposals under consideration, which suggests the proposals have little hope of making it through the Senate. “This issue was already considered during the thorough Wall Street reform debate we had last year," said Johnson in an email, "and agreement was reached that consumers would be protected best with a director in place at the CFPB.

House Committee Takes Up Legislation to Weaken the CFPB

by Deepak Gupta

The House Financial Services Committee is holding a hearing at 10am tomorrow, April 6, on "Legislative Proposals to Improve [Read: Weaken] the Structure of the CFPB."  The Committee will consider four GOP proposals to weaken the Consumer Financial Protection Bureau's effectiveness in both the short and long term -- even before the agency is officially launched.  Each of the four proposals seeks to relitigate issues that were resolved with the enactment of the Dodd-Frank Act last year:

H.R. 1121: "The Responsible Consumer Financial Protection Regulations Act of 2011." This bill, introduced by Chairman Spencer Bachus, would replace the Director of the CFPB with a five-member Commission.

H.R. 1315: "The Consumer Financial Protection Safety and Soundness Act." This bill, introduced by Rep. Duffy, would beef up the Financial Stability Oversight Council's already unprecedented power to veto regulations issued by the CFPB.  It would change the vote required for the FSOC to set aside CFPB regulations from two-thirds to a simple majority. It would make clear that the FSOC must set aside any regulation that puts the safety and soundness of the banking system at risk. And it would eliminate the time limits established for the FSOC's decision about whether to veto a regulation.

H.R. __ and H.R. ___: Legislation Affecting CFPB's Authorites Prior to the Appointment of a Director. These bills, introduced by Rep. Capito, would (1) remove the prudential regulators' ability to allow the CFPB to participate in examinations of large financial institutions before the designated transfer date and (2) make the date for transferring regulatory authority dependent on whether the CFPB's Director has been confirmed by the Senate.

Tomorrow's hearing will include testimony from representatives of five financial services trade groups -- the American Bankers Association, the Consumer Bankers Association, the Credit Union National Association, the Independent Community Bankers of America and the National Association of Federal Credit Unions - along with input from Jess Sharp, executive director of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness. As far as I can tell, nobody from the CFPB is slated to appear.

For more, see this article in The Hill. You can watch a live webcast of the hearing here.