Consumer Law & Policy Blog

More on NAF, AAA, and Forced Arbitration

Yesterday, during NPR's All Things Considered, reporter Wade Goodwyn and host Madeleine Brand discussed the recent developments involving NAF and AAA, as well as the Arbitration Fairness Act. Goodwyn also filed another story this morning including excerpts from the testimony at yesterday's House Oversight Commitee hearing. Marketplace also had a shorter piece including an interview with Public Citizen researcher Taylor Lincoln. (The latter piece also quotes a credit industry expert who claims that making arbitration voluntary would increase the cost to consumers, but says nothing about the extent to which the threat of class actions would deter credit card companies from overcharging consumers or engaging in other unfair practices.)

More on Why Barney Frank Has Postponed Consumer Financial Protection Agency Bill

We reported yesterday that Rep. Barney Frank has delayed for a couple months his committee's consideration of the legislation that would authorize the Consumer Financial Protection Agency. To learn more about the reasons for the postponement go here, here,  here, and here. It seems like industry opposition is a major factor in the postponement.

AAA Joins NAF in Quitting Arbitration of Consumer Debt Disputes

by Deepak Gupta

The Wall Street Journal is reporting that the American Arbitration Association "will stop participating in consumer-debt-collection disputes," at least--according to an unnamed AAA official quoted in the story--"until some standards or safeguards are established."  I'm not sure what that caveat means, but it suggests a lobbying strategy, consistent with AAA's prior positions, to get Congress to adopt minimum standards instead of making arbitration truly voluntary.  It's also unclear whether the AAA's withdrawal will extend beyond consumer debt, as NAF's does, to include other forms of consumer or employment disputes. AAA doesn't currently handle a lot of collection cases--certainly nowhere near as many as NAF. 

Whatever the scope of AAA's pullout, this is big news in the battle over arbitration fairness.  And the timing is no coincidence. The news follows close on the heels of the Minnesota AG's lawsuit against NAF, the resulting consent decree, and today's report from the House of Representatives. Indeed, the Minnesota Attorney General released a letter to the AAA on Sunday asking it to take this very step. The announcement also appears to have been deliberately released on the eve of tomorrow's House oversight hearing.  Even before the news from AAA, the tort deformers at Point of Law were forced to concede that consumer arbitration is "in retreat" and "has taken a big hit in the political and PR world."

So far the Journal appears to be the only news outlet reporting on the AAA announcement. The Chicago Tribune and the San Francisco Chronicle, among other papers, had additional coverage today on the victory over NAF. You can learn more about the arbitration fairness legislation pending in Congress here.

So what happens now in consumer disputes involving NAF and AAA clauses?

Big Delay on Consumer Financial Protection Agency

 As reported by U.S. PIRG's Consumer Blog, Rep. Barney Frank, Chair of the House Financial Services Committee, has announced that his committee's consideration of legislation establishing a Consumer Financial Protection Agency has been delayed from next week until September.

House Oversight Committee Looks Into Forced Arbitration

The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee will hold a hearing tomorrow afternoon entitled "Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts." The witnesses are Minnesota Attorney General Lori Swanson, Michael Kelly of the NAF, co-blogger Paul Bland, Christopher Drahozal (a pro-forced-arbitration law professor), and Richard Naimark of the AAA. In light of this week's developments, it promises to be a very interesting hearing. Lucy Colby has the details at the Fair Arbitration blog.

In advance of tomorrow's hearing, the Committee has released this staff report, which documents numerous problems with NAF's handling of consumer cases.

Is CARS a Good Idea?

The Consumer Assistance to Recycle and Save Act of 2009 (CARS) is meant to encourage people to trade in their gas guzzlers and buy new "fuel efficient" cars. You trade in the gas guzzler and the federal government funds a $3,500 to $4,500 credit toward the new car. And the car dealer is required to scrap the gas guzzler, so that it doesn't continue its gas-guzzling ways. The idea is that the consumer saves money, new car purchases increase, and the environment is benefited.

But in a column entitled "One Lemon of a Law," the Washington Post's Michelle Singletary really takes after CARS. She says that "in truth, this is welfare for the limping auto industry. The National Highway Traffic Safety Administration (NHTSA) has been given $1 billion to fund the program. But the law does not apply to the purchase of used cars, encourages people to take on more debt and doesn't require the new cars to get substantially better gas mileage." On this latter point, under CARS, new passenger cars can get as little as 22 combined city/highway miles per gallon (mpg) and SUVs, small and medium pickup trucks, and small and medium passenger and cargo vans can get has little as 18 combined mpg. Check out the government's CARS website for all the details.

The Obama's Administration Consumer Financial Protection Agency Bill and Abusive Practices

by Jeff Sovern

Subtitle C of the Obama administration's bill to create a Consumer Financial Protection Agency would give the CFPA the power to promulgate rules "identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service."  The bill would also permit the agency to take action to prevent someone from engaging in such a practice.  The phrase "unfair and deceptive" has a long history in litigation under the Federal Trade Commission Act, and in fact the bill copies the FTC Act's definition of unfair, drawn in turn from a 1980 FTC Policy Statement, that acts cannot be declared unfair unless "the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers ot to competition."  So those phrases seem relatively well understood.  But what are abusive practices?  The Fair Debt Collection Practices Act bars abuse in debt collection, § 1692d, but presumably the CFPA's authority to ban abusive practices would extend beyond debt collection.  For example, suppose the CFPA declared that it is an abusive practice to provide for a balloon payment in a mortgage in which the borrower has no real expectation of a substantially higher income when the balloon payment comes due (as might be true of a medical student, for example).  Should courts uphold such a determination?  Here's a definition of abusive from dictionary.com:

1.	using, containing, or characterized by harshly or coarsely insulting language: an abusive author; abusive remarks.

2.	treating badly or injuriously; mistreating, esp. physically: his abusive handling of the horse.

3.	wrongly used; corrupt: an abusive exercise of power.

It seems unlikely that the word as used in the bill should be confined to use of bad language, and obviously it isn't directed to physical abuse.  That third definition--wrongly used; corrupt--seems more relevant.  Most practices that satisfy that definition would also seem unfair.  But abusive must mean something that is neither unfair nor deceptive; otherwise, why include it?  And it should also mean something different from unconscionable, because the drafters didn't use that term either.  My own guess is that it would give the CFPA the power to ban clauses that permit a business to take advantage of a consumer because the business has power the consumer doesn't, perhaps because of information asymmetries.  But it's just a guess.

Elizabeth Warren on the Consumer Financial Protection Agency

In this Business Week column, Prof. Elizabeth Warren lays out why she thinks Congress ought to establish a Consumer Financial Protection Agency. She stresses the need for simple disclosures regarding financial products. She says in that regard that "[m]illions of consumers who qualified for traditional market-rate mortgages were pushed toward . . . subprime loans because they weren't able to compare products and make real choices." She also says that having one regulator and simple disclosures would cut regulatory costs for lenders.

Bob Herbert on the Proposed Consumer Financial Product Agency

Bob Herbert in the Times has an interesting take on the proposed Consumer Financial Product Agency in his column in today's Times, Chutzpah on Steroids.   The whole column is worth reading, but here's a sample:

There is nothing free or fair about a market in which one side uses double talk and mumbo jumbo to obscure important information and deliberately dupe the other side into making decisions against its own interests.

When I think of the banking industry fighting to kill this proposed agency, it brings to mind the decades in which tobacco companies insisted that cigarettes were safe, and those days long ago when the auto companies fought against seat belts, and all the dopey arguments that were made against protecting the public from unsafe drugs and kitchen appliances that might burst into flames, and so on.

Barney Frank Introduces CFPA Bill

by Deepak Gupta

House Financial Services Committee Chairman Barney Frank has formally introduced President Obama's plan for a Consumer Financial Protection Agency (CFPA). The bill adopts the Administration's proposal with a few limited exceptions. Unlike the Administration's draft, the bill preserves the current federal banking regulators' role to enforce the Community Reinvestment Act (CRA). In addition, the Administration's proposal presupposes the creation of the National Bank Supervisor (NBS), a new prudential regulator that would merge the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The introduced bill takes no position on that issue, making references to the OCC and OTS instead of the NBS.

You can read the full text of the bill here. An excerpt from Rep. Frank's press release is below the jump.