Consumer Law & Policy Blog

ABA Dispute Resolution Section Appears to Be Backing Down From Arbitration "Opt Out" Proposal

by Deepak Gupta

Today, the ABA's Dispute Resolution Section issued a statement suggesting that it may be backing down from its ill-advised "opt out" proposal on forced arbitration (which we've criticized on this blog here, here, and here.) The memo says that the section's Executive Committee members had a conference call yesterday at which they agreed to recommend that the section "not go forward with the April 15 recommendation that dealt with the enforceability of pre-dispute arbitration clauses in consumer, employment, and civil rights cases."  It also says, somewhat cryptically, that the section's Council will "act" on that suggestion "and consider other options" by the end of this week.

This is encouraging news, and it suggests that the criticism on this blog, and feedback from the consumer and civil rights community, has had an impact. Paul Bland deserves a lot of credit for sounding the alarm. We may not be out of the woods yet, however. Our understanding is that ABA sections wishing to propose resolutions for the August 2009 meeting of the House of Delegates have until May 15 to do so.  And based on the memo, it appears that readers of this blog who are ABA members have until at least May 8 to let the Council know their thoughts on the resolution. You can find a list of the current council members here.

If you're reaching out to those in ABA leadership, it's worth pointing out that the ABA has already taken a position on arbitration fairness legislation. In February, the House of Delegates approved a recommendation to support the Fairness in Nursing Home Arbitration Act. Following up on the recommendation, the ABA sent letters to the House and Senate. The Dispute Resolution Section's "opt out" proposal can't be reconciled in principle with the February resolution. 

Default Rules and the Arbitration Fairness Debate

by Deepak Gupta

Jeff Sovern and Paul Bland have contributed thoughtful posts on a proposal being pitched as a "compromise" in the debate over arbitration fairness.  It goes something like this: Instead of passing a law like the Arbitration Fairness Act that would make arbitration voluntary, let's just allow consumers to "opt out" of mandatory arbitration clauses, presumably by means of fine-print notices that nobody will actually read, let alone respond to. Professor Sovern rightly describes this as illusory consumer protection and, as Paul Bland notes, it's a technique that many corporations are already employing to try to defeat unconscionability arguments.

The proposal strikes me as a great illustration of the importance of default rules in choice architecture, a subject explored in the literature of law and behavioral economics and discussed in Cass Sunstein and Richard Thaler's recent book, Nudge.  Their argument revolves around a pretty simple empirical premise: “[I]f, for a given choice, there is a default option—an option that will obtain if the chooser does nothing—then we can expect a large number of people to end up with that option, whether or not it is good for them.”  Corporations take advantage of this insight all the time in consumer transactions. Thaler and Sunstein give the example of offers for magazine subscriptions that consumers continue to receive unless they take affirmative steps to cancel them; Sunstein says he himself has been paying for subscriptions for years because he hasn't gotten around to canceling them. Another example is employer retirement plans; research shows that participation is greatly increased by making it the default instead of requiring employees to opt in.

So I wonder whether proponents of the "compromise" proposal on arbitration fairness would continue to support it if the opt-out mechanism stayed the same, but the default rule were switched: Instead of opting out of mandatory arbitration, consumers would have to read a notice and affirmatively opt in.  I suspect enthusiasm for the proposal would vanish--demonstrating that a truly voluntary system is not the true objective.

House Judiciary Holds Hearing on Credit Card Industry's Use of Arbitration To Quash Consumer Claims

David Arkush, the director of Public Citizen’s Congress Watch division, is testifying this morning at a hearing of the House Judiciary Committee, Subcommittee on Commercial and Administrative Law, on the need for arbitration fairness legislation. The focus of the hearing is how credit card companies use forced arbitration to avoid accountability for some of their worst practices. David will also explain how forced arbitration is tilted heavily toward businesses in the credit card collection industry, with a focus on the National Arbitration Forum (NAF), the collection industry’s go-to arbitration provider. A Public Citizen study found that in California arbitration cases heard by the NAF, the arbitrator ruled against the consumer 94 percent of the time. David’s testimony will counter the misleading arguments made by corporate lobbyists against giving consumers a choice to arbitrate. The other witnesses are Pennsylvania class action lawyer extraordinaire Mike Donovan, Prof. Rich Frankel (Drexel Law), and GOP witness Prof. Christopher Drahozal (Kansas Law). You can watch the hearing live at this link.

More on the Credit Card Holders' Bill of Rights

We reported yesterday on the House's overwhelming passage of this legislation. Read the statment of Rep. Carolyn Maloney (D - NY), the principal sponsor of the legislation. Another note: While there was substantial difference of opinion among Republicans (voting in favor by 105 to 69), there was almost none among Democrats (voting in favor by 252 to 1).

Fair Arbitration Coalition, Website & Blog Announced

A newly formed coalition is calling on Congress to stand up for employees and consumers and ensure companies are held accountable for misdeeds by passing legislation to end forced arbitration.  The goal of the Fair Arbitration Now Coalition is to pass the Arbitration Fairness Act (H.R. 1020).  Participants represent consumers, employees, homeowners, franchise holders and more. They range from Public Citizen, the National Association of Consumer Advocates, the National Employment Lawyers Association and the American Association of Justice to the National Consumer Voice for Long-Term Care, Home Owners for Better Building and the Leadership Conference on Civil Rights.

Website & Blog:  The coalition also has launched a blog that keeps readers up-to-date on the latest arbitration news and a web site, explaining what forced arbitration is, outlining the kinds of contracts in which forced arbitration clauses appear, providing links to news articles and telling stories of arbitration horrors.

Arbitration Fairness Day (April 29): The Fair Arbitration Now Coalition will hold a press conference and lobby day on Wednesday, April 29, with more than 50 consumers, employees and their representatives, who can speak about the injuries people suffer when they are forced into arbitration in an attempt to hold companies accountable for wrongdoing.

Colbert Report on the Gutierrez "Protect Payday Lenders" Bill

Earlier this year Representative Louis Gutierrez (D-IL) reversed his longstanding opposition to payday lending by sponsoring a bill that would authorize payday loans under federal law for the first time. Represntative Gutierrez is touting the bill as a crack down on payday lending, but a broad coalition of consumer advocacy organizations oppose the legislation because it would legitimize and entrench loans with interest rates of between 390 and 780 percent. The legislation also would reverse President Obama's promise of a national interest rate limit of 36 percent.

Stephen Colbert weighed in on the issue on his Comedy Central program yesterday. Colbert's perspective on the effects of payday lending industry campaign contributions may come as no surprise to CL&P Blog readers. But, fair warning: his remarks may leave you with a whole new perspective on pineapples.

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Judicial Hellholes, Debunked

by Deepak Gupta

Those of us who regularly read amicus briefs by the likes of the U.S. Chamber of Commerce and other self-styled tort reform groups are used to seeing references to "judicial hellholes" -- jurisdictions that supposedly embody a "lawsuit climate" hostile to corporate defendants accused of cheating or injuring consumers.  For many years, the American Tort Reform Association has compiled a pseudoscientic annual ranking of these jurisdictions, with perennial favorite West Virginia topping the list. The lists are used not only in amicus briefs--which often suggest that the decision below is suspect because it came from such a jurisdiction--but also to help influence legislative policy.

In 2005, Public Citizen's Congress Watch released a short report, Class Action "Judicial Hellholes": Empirical Evidence Is Lacking, showing that the hellholes rankings were not backed by any actual evidence and therefore provided no justification for proposed class-action legislation. More recently, Professor Elizabeth Thornburgh (SMU Law) has published an interesting new law review article, Judicial Hellholes, Lawsuit Climates, and Bad Social Science: Lessons from West Virginia, offering a more detailed account of ATRA's "hellholes" campaign, focusing on West Virginia. My favorite part is the section that starts on page 26, "Smoke and Mirrors: The Marketing of Anecdotes," in which Thornburgh colorfully illustrates four different deceptive strategies that ATRA has used to support its "hellhole" designation of that state: treating opinions as facts; grossly distorting quotations by former West Virginia Supreme Court Justice Richard Neely; misstating the issues; and leaving out bad facts entirely. It's worth a read.

Business pursuing anti-consumer legislation in this economy?

It just goes to show you: there is no time like the present. Even if the present is an economic mess caused by the lack of effective regulation and the plan is to introduce anti-consumer legislation to hamstring consumer (and, for good measure, civil rights) laws.

Democratic legislators in Minnesota recently introduced two bills: one that would eviscerate attorney fee provisions, and the other that would protect businesses' who want to insert mandatory binding arbitration provisions in consumer contracts.

The first bill would require courts to “take into consideration the reasonableness of the attorney fees sought in relation to the amount of damages awarded to the prevailing party.” Since most consumer protection laws contain small statutory damages awards, this would give defendants an incentive to dig in their heels on meritorious claims. And, of course, deter consumer rights lawyers from asserting consumers' rights in court.

The second bill would ensure that businesses will be able to force consumers into binding arbitration whether they like it or not. This is my favorite line in the bill: "The court may not refuse to order arbitration because the claim subject to arbitration lacks merit or grounds for the claim have not [been] established." (The word "been" is missing from the bill text.) In other words, even if the claims are completely frivolous, companies could drag consumers into arbitration.

Not exactly the kind of legislation that will help consumers avoid the traps that led to the debt crisis. It would not surprise me to see businesses and special interests trying to catch consumers unaware in other states, as well.

Attorney fee provisions about to be eviscerated | Caveat Emptor

(photo: roger g1)

House Holds Hearing on Used Cars

by Deepak Gupta

Yesterday, the House Subcommittee on Commerce, Trade, and Consumer Protection held a hearing on “Consumer Protection in the Used and Subprime Car Market."  The hearing focused on two types of problems for consumers, especially lower-income consumers: (1) a lack of available information about a vehicle's true history (which can lead to consumers becoming victims of salvage fraud, title-washing, and related practices, and, in many cases, to serious injury or death) and (2) abuses in financing and sales of used cars, some of which are quite similar to predatory mortgage practices.  Here is Public Citizen's statement on the hearing.

I was pleased that there was much discussion at the hearing about the National Motor Vehicle Title Information System, a subject we've blogged about several times here.  Last year, Public Citizen sued the U.S. Department of Justice to force it to implement the system, a long-delayed vehicle history database that Congress first mandated in 1992. The database is intended to gather information from the states, insurers, and junk and salvage yards, and to allow consumers and law enforcement to instantly verify the salvage history of a vehicle.  In our lawsuit, the court ordered the government to issue final regulations and launch consumer access by January 30, 2009, which the government did, right on the deadline. But many states still are not participating. The focus now is on getting all 50 states to comply with the system (including California--which is reporting data but barring consumers from accessing it) and getting the Federal Trade Commission, through its Used Car Rule, to require the placement of NMVTIS data on the car itself.

Senator Durbin Introduces Federal Usury Bill

This post over at US PIRG's Consumer Blog explains that Sen. Dick Durbin of Illinois has introduced a federal usury statute that would cap consumer loan interest rates at 36%. The post links to a supporting letter from about 100 consumer groups and a statement from Sen. Durbin. The bill has not yet be uploaded to Thomas, but it can be found at this page of the Federal Register.