Consumer Law & Policy Blog

FTC Releases Annual Consumer Complaint Tally, Debt-Collection Reports

by Deepak Gupta

The Federal Trade Commission today released its annual tally of consumer complaints. For the ninth year in a row, identity theft was the number one consumer complaint category. Of 1,223,370 complaints received in 2008, 313,982, or 26 percent, were related to identity theft. The next-largest category, clocking in at 9% of all complaints, was debt collection. The FTC receives more complaints about the debt-collection industry than any other industry. You can view a summary of the results here, and a detailed report on the data, including geographical statistics, here.

The FTC also released two important reports on debt collection practices--a report on a workshop held last year to mark the 30th anniversary of the Fair Debt Collection Practices Act and the Commission's annual report to Congress on enforcement under the Act.  The workshop report, titled Collecting Consumer Debts: The Challenges of Change, makes several specific recommendations for amendments to the FDCPA and raises questions about abusive collection litigation practices and the use of mandatory binding arbitration.

• Give FTC Rulemaking Authority: The report recommends that Congress give the Commission authority to issue rules under the FDCPA.
• Increase Statutory Damages: The report states that private actions, not FTC actions, were intended by Congress to be the primary means of promoting industry compliance with the FDCPA, and notes that the amount of statutory damages (up to $1,000) that consumers can obtain in lawsuits under the FDCPA has not changed since 1977. To increase deterrence, the report recommends increasing the damage amounts to reflect inflation since then, and, in the future, to increase them periodically.
• Information Flow:  Require that collectors have better information, making it more likely that their efforts will be for the right amount and be directed to the right consumer.

• Validation Notices & Reasonable Investigations: Require that collectors provide consumers with better information explaining their rights under the FDCPA, including (1) that the “validation notices” that collectors are required to send to consumers also disclose the name of the original creditor; break down the debt by principal, total interest, and total fees; and inform consumers of certain rights they already have under the FDCPA and (2) that collectors conduct “reasonable” investigations responsive to the specific dispute the consumer raised.

• Adjustments for New Technology: Modernize the law to reflect changes in technology, including prohibiting collectors from contacting consumers via their mobile phones, including by text messaging, without prior express consent; and requiring collectors who use new payment technologies to obtain express verifiable authorization from consumers before accessing their accounts.

Debt-Collection Litigation and Arbitration Practices: The report recognizes that "certain debt collection litigation and arbitration practices appear to raise substantial consumer protection issues."  Among other things, the report cites Public Citizen's report, The Arbitration Trap, on the use of arbitration as a debt-collection mechanism. The report makes no definitive recommendations on arbitration and litigation, but instead announces that the FTC will convene regional roundtables this year with state court judges and officials, debt collectors, collection attorneys, consumer advocates, arbitration firms, and other interested stakeholders to learn more and develop possible solutions.

New Federal Judicial Center Study on the Class Action Fairness Act: One of the Authors Speaks

by Tom Willging

[Ed. note: The following post was written by Tom Willging, a senior researcher at the Federal Judicial Center, the research arm of the federal judiciary. Tom knows as much about the inner workings of the federal judicial docket than anyone. This post on the FJC's recent study on the Class Action Fairness Act is worth reading.]

    Here are some thoughts on the Federal Judicial Center's ongoing CAFA study as we shift gears from Phase One's count of cases into Phase Two's examination of what happens in those cases.

    Phase One concentrated on identifying class actions (not as simple a task as it might seem) and measuring the impact of CAFA on the number of cases filed in and removed to the federal courts. As Brian Wolfman noted in his post on Saturday, CAFA generally has had its intended effect in the sense that more cases are being filed in or removed to the federal courts since CAFA went into effect. Yet, as Brian's post suggests, the question lingers as to how many cases are really being shifted to the federal dockets. Recall that early predictions were that all or most class actions would end up in the federal courts. The Congressional Budget Office predicted that "most" class actions would go that way. Others forecast an "epic reallocation" of class action adjudication resulting from the "wholesale removal" of cases from state to federal courts. Emery Lee and I detailed some of these predictions in our recent article, part of a CAFA symposium in the University of Pennsylvania Law Review.

Bail out Detroit? Not without some conditions.

While I did not like the idea of bailing out Wall Street, I really do not like the idea of bailing out Detroit. Yes, the auto industry is a cornerstone of the American economy. Yes, the collapse of GM, Ford, and Chrysler will deal a powerful blow to an already-reeling market. Yes, this will suck.

But if subprime lending got way out of control, at least lenders were selling products people--and Congress--wanted. Detroit has not built cars people want to drive in decades. I am not alone in thinking that Detroit carmakers are prime examples of businesses that are failing because they ought to: they make bad products that nobody wants to buy.

Sure, there are exceptions, but, by and large, American cars are pretty awful. The best GM models barely accomplish average reliability according to Consumer Reports. Many GM models are "well below average in reliability." Chrysler is even worse. Only Ford is getting better; Consumer Reports says that, excluding some trucks, "Ford's reliability is now on par with good Japanese automakers."

Consumers agree. Ford has not made a profit since 2005, which has nothing to do with the present economic meltdown. GM lost $269 million during 2007, and Chrysler lost a whopping $1.6 billion last year.

If this really is a case of "too big to fail," then Congress must impose some strict conditions on the auto industry, including higher fuel economy and emissions standards, limits on large trucks and SUVs, and maybe tire pressure monitors as standard equipment, since properly-inflated tires could save an awful lot of fuel. Maybe some quality control targets, as well. After all, cars that break frequently result in wasted spare parts and extra transportation costs to move all those spare parts around.

In short, Congress will need to do more than just keep the Big Three on life support. It will need to force Detroit to start innovating once again, and return to the novel idea of selling products consumers want.

House Passes Credit Cardholders Bill of Rights

Gov.track.us is reporting that the House passed the Credit Cardholders Bill of Rights, 312-112. You can see the roll call vote here. 

The Failure to Regulate Fannie and Freddie

This major story in today's Washington Post takes the position that the failure of congressional leaders and the Clinton Administration to curb the uncontrolled growth of Fannie Mae and Freddie Mac -- and to withstand the enormous lobbying pressure from the two mortgage giants -- led to their meltdown.

CPSC Establishes Web Page on Consumer Product Safety Improvement Act

The Consumer Product Safety Commission has established a new web page devoted to informing the public about the Consumer Product Safety Improvement Act recently passed by Congress and signed by President Bush. See our earlier post for a synopsis of this important legislation. Thanks to U.S. PIRG's Consumer Blog for bringing the new CPSC web page to our attention.

The Bail Out of Freddie and Fannie

Following up on yesterday's Post, here's a detailed Washington Post article on the planned federal government bail out of Freddie Mac and Fannie Mae. The plan includes dismissal of the companies' top executives and their board members. Shareholders will be wiped out. Here's the most recent New York Times story on the subject.

Obama co-sponsors bill on soldiers and mandatory arbitration

by Deepak Gupta

Although the issue hasn't come up in the presidential campaign, those looking for clues about the presidential candidates' views on the ongoing debate over binding mandatory arbitration will want take note of a new piece of proposed legislation sponsored by Senator Barack Obama.

The Servicemembers Access to Justice Act of 2008 (S.3432), which will be considered by U.S. Senate's Committee on Veterans Affairs, would prohibit the enforcement of pre-dispute arbitration agreements in employment contracts between military service members and their employers. It is intended to improve enforcement of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). In a statement, Obama said: "Unfortunately, far too many of our brave men and women struggle to return to their daily jobs, or are denied the employment benefits they are owed. We must do everything we can to help our heroes when they return home, and I am proud to support this legislation." The lead sponsor of the bill is Bob Casey of Pennsylvania, also joined by Ted Kennedy of Massachusetts.

With regard to mandatory arbitration, the language in S.3432 roughly parallels the Arbitration Fairness Act: "Notwithstanding any other provision of law, any clause of any agreement between an employer and an employee that requires arbitration of a dispute arising under this chapter shall not be enforceable."

A Nudge to Read Nudge

I recently finished listening to the audio version of Richard H. Thaler and Cass R. Sunstein's book Nudge (the audio version lacks references and endnotes, and sometimes I have to take my mind off of the audio for left turns across streets, etc., so take this comment for what it's worth).  The book is a "must-read" for consumer law policy-makers and those arguing for adoption of particular policies in the consumer law arena.

The authors argue for what they call "the real third way:" libertarian paternalism.  They demonstrate that consumers are often overwhelmed by having to choose among too many options but they don't believe in conventional paternalism, that is, having the state or some one else make choices for consumers.  Instead, they want to preserve the power of consumers to make their own choices but use "choice architecture" to deliver nudges to consumers which they believe will aid consumers in making the best choices. 

Thaler and Sunstein provide numerous examples of how choice architecture can assist consumers in choosing wisely.  For example, if designers of school cafeterias notice that placing food in some locations increases the consumption of those foods, the designers could put fruits and vegetables in those places to increase consumption of healthful foods.  Clever uses of defaults, and providing genuinely helpful advice are other examples of choice architecture.

Much here did not strike me as new, but a lot of it was indeed new to me (especially the material that didn't have to do with consumer protection) and the authors do an excellent job of pulling material together.  One consequence of the book is that it makes it harder to advocate curtailment of consumer choices without first considering whether a libertarian paternalistic approach might achieve the same end at lower cost and less paternalistically. 

In fact, consumer law policy-makers have applied libertarian paternalism to consumer protection problems for decades.  The Truth in Lending Act, by requiring disclosure rather banning certain loan terms, is an example of libertarian paternalism to some extent.  As Thaler and Sunstein note though, TILA has been a disappointment, most notably in recent years in failing to alert subprime borrowers of the obligations they were assuming, and so the authors propose amendments. 

But the book has some flaws.  Some are puzzling.   Lauren Willis's important Maryland Law Review piece (which we blogged about here) is for some reason attributed to "Lauren Wilkins."  The authors complain that the HOEPA warnings don't explicitly say "high risk" and the borrower simply needs to sign the form.  They add that there are many forms for homebuyers to sign and many borrowers sign without reading.  Fair enough.  But the HOEPA warning does say that "you could lose your home"--which is probably more meaningful to many consumers than the words "high risk"-- and the warning comes at least three days before the closing, when the consumer is less likely to receive a mountain of paper and so might be receptive to the warning (but maybe it doesn't matter because so few loans are subject to HOEPA).  The authors seem to like cooling-off periods and say they pass a cost-benefit test, except that, as far as I know, no one has ever demonstrated that cooling off periods confer any benefit.

A more serious problem is that sometimes libertarian paternalism might devolve into something else altogether.  Thaler and Sunstein, like many, are unhappy with the current med-mal system.  If I understand correctly (and I am not certain that I do; those left turns again), the authors suggest that it should be replaced with a system which would permit patients to waive in advance their ability to sue doctors for negligence; presumably doctors accepting such a waiver would be charged less for malpractice insurance and could pass those savings on to patients in the form of lower fees.  But I wonder if the result of such a system would be that all doctors would refuse to see patients unless patients signed the waiver, and so we would no longer have a med-mal system.  Some would see that as a good thing, but if that's the result, would we be better off debating moving to it instead of debating having everyone sign another piece of paper?  I can't help but think about the HIPAA form that everyone signs that says you've seen the doctor's HIPAA policy--but no one ever sees the policy, much less reads it (though to be fair the authors call for real waivers, not waivers that aren't read) 

Notwithstanding these flaws, the book offers an important approach to solving consumer protection problems, and is worth attention.

House of Representatives Passes Bill to Give FDA Authority to Regulate Tobacco

by Brian Wolfman

For years, tobacco control advocates have pushed to give the FDA authority to regulate tobacco. Yesterday, the House of Representatives voted to do it -- with a veto-proof majority, but it is unclear whether the Senate will do the same. Read the 210-page bill and this Washington Post article about the bill. Here's part of the Post article to give you the gist:

The House approved legislation yesterday that would for the first time empower the FDA to regulate the tobacco industry, a measure long sought by anti-smoking advocates. After about 40 minutes of sometimes passionate debate, the House voted 326 to 102 to approve the measure, which would give the agency broad authority over cigarette makers, including the power to ban marketing of cigarettes to children, require disclosure of tobacco ingredients and mandate larger, more specific health warnings. It would also enable the agency to require tobacco companies to reduce or eliminate harmful ingredients and ban candy- and fruit-flavored cigarettes. The White House has signaled that President Bush will veto the legislation if it is approved by the Senate, which may not have a veto-proof majority in support of it.