Consumer Law & Policy Blog

Take consumer watchdog off the Fed's leash: Sen. Chris Dodd's bill will weaken a critical new agency

by Jeff Sovern

I have an op-ed in today's New York Daily News on the placement of the consumer financial protection bureau within the Fed.  Here are the first three paragraphs:

Just imagine that years before the subprime crisis hit, Congress had directed a federal agency to prohibit unfair or deceptive mortgage loans, as well as abusive practices in home refinancings. Would we have had all those loans that later blew up, leading to the Great Recession?

Now suppose the same agency had been charged with creating forms that would help borrowers understand what their monthly payments would be, so that borrowers could avoid taking out loans that they would later find unaffordable. Would the economy be just as bad as it is now?

The answer is yes. How do we know this? Because we had such an agency. It's called the Federal Reserve. But the Fed didn't use its powers to bar bad mortgage loans until 2008, far too late to prevent the Great Recession. Similarly, the disclosures it required mortgage originators to provide did not correctly state borrowers' monthly payments, making it far harder for borrowers to figure out whether they could make those payments.

Posner on Car Title Loans, Predatory Lending, and the Commerce Clause

by Deepak Gupta

Yesterday, Judge Posner issued an opinion that may be of some interest to those following the great debate over predatory lending and behavioral economics. As with many Posner opinions, its significance is of course enhanced by the author's identity. Although it doesn't actually take sides, the opinion devotes an unusual amount of space (for a judicial opinion) to citing and summarizing the leading research on predatory lending, including work by scholars such as Elizabeth Warren and Ronald Mann and consumer advocates such as Jean Ann Fox and Kathleen Keest, as well as their opponents on the right (e.g. Todd Zywicki). The opinion even takes note of the pending legislation to create a Consumer Financial Protection Agency, citing opinions pro and con, again without taking a position. But as we've noted here before, Posner has already taken a position on the legislation in his extrajudicial writings: He doesn't like it, and doesn't feel contrained by his judicial role from saying so.

The case concerns the constitutionality of an Indiana statute regulating car title loans (also known as car title pawns) -- loans with interest rates in the neigborhood of 300%, secured by cash-strapped consumers' vehicle titles, in which a lender advances a fraction of the vehicle's value to the consumer, who forks over a set of car keys to facilitate easy reposession in the event of default.  Indiana strictly regulates such loans through licensing requirements and interest-rate caps. But in neighboring Illinois, thanks to industry influence on state politics, it's a free-for-all. Concerned that Illinois-based lenders were evading the Indiana law by advertising directly to Hoosiers and entering into transactions on Indiana-titled vehicles, Indiana added a "territorial application" provision extending coverage to lenders that advertise to Hoosiers and then enter into transactions with them out of state.

Yesterday's decision strikes down that provision. It acknowledges that there's no economic protectionism or outright discrimination against interstate commerce at work here. Nevertheless, the court relies on a series of decisions forbidding extraterritorial regulation, including the Supreme Court's decision in Healy v. Beer Institute, 491 U.S. 324 (1989). The opinion concedes that Indiana isn't interfering with transactions with residents of another state, as in Healy, but focuses instead on the extraterritorial effect of interference with a commercial activity taking place in another state: "The contract was, in short, made and executed in Illinois, and that is enough to show that the territorial-application provision violates the commerce clause." 

The opinion makes some characteristically Posnerian analogies to illustrate that point, likening the law to an attempt by Indiana to ban its citizens from gambling in Las Vegas. "Of course the loan proceeds were probably spent in Indiana, but the same would be true of the winnings of a Hoosier at a Nevada casino. The consequences of a commercial transaction can be felt anywhere. But that does not permit New York City to forbid New Yorkers to eat in cities in states that do not ban trans fats from their restaurants."

So much for Indiana's attempt to protect its own consumers from one of the worst forms of predatory lending. But I wonder if Indiana can still get at the problem another way. The opinion notes that the loan company notifies the Indiana DMV of the loan as soon as it was made, so that the lender's security interest is protected against subsequent creditors, and that the repossessions occur in Indiana and the cars are auctioned off in Indiana. Surely Indiana would be well within its rights to regulate such conduct--particularly the use of its own DMV to prioritize the security interest--all of which occurs through the machinery of its own state government or within its own borders.

The case is Midwest Title Loans, Inc. v. Mills.  (Disclosure: Public Citizen, along with several other consumer groups, joined an amicus brief in this case authored by the Center for Responsible Lending.)

Alaska Supreme Court Rejects Debt Collectors' First Amendment Defense

by Deepak Gupta

With increasing frequency, debt collectors accused of engaging in abusive tactics in the context of consumer collection litigation have been raising a novel defense based on the Petition Clause of the First Amendment, which guarantees a right of access to the courts. They argue that their conduct constitutes protected petitioning activity and is thus completely immune from liability under the Petition Clause, and the Noerr-Pennington doctrine that developed out of it. In the last few weeks, I've seen new notices of constitutional challenges raised along those lines in several federal district courts.

In May, I flew out to Anchorage to argue the issue in the Alaska Supreme Court, on appeal from a lower-court decision dismissing a consumer's case on petition-clause grounds. (You can find our briefs here and here.)

I'm pleased to report that, on Friday, the Alaska Supreme Court ruled that debt collectors who employ unfair or deceptive tactics during collection lawsuits are not shielded by the First Amendment. The decision is the first appellate ruling on the issue by any court nationwide.  As I say in the Public Citizen press release about the case, "the Alaska Supreme Court’s ruling sends the message that debt collection companies can’t get away with abusive tactics simply by hiring lawyers. The court rejected a dangerous new immunity defense that would have created a gaping hole in consumer protection law."

Our case arose out of an attempt by an Anchorage collection agency to sue Robin Pepper, a mentally disabled woman, without providing her with proper notice. The agency sent papers to a nonexistent address, misrepresented to the court that Pepper was competent, and tried to get a default judgment against her. Pepper, represented by Alaska Legal Services, then brought a separate lawsuit, alleging that the collection agency’s practices violated the state Unfair Trade Practices Act. The collection agency asked the court to dismiss Pepper’s case on the theory that its litigation conduct was protected by the First Amendment, and the lower court agreed. Alaska Legal Services asked Public Citizen to handle the case on appeal.

The Alaska Supreme Court broadly rejected the debt collector’s immunity defense, ruling that the First Amendment’s petition clause does not extend to conduct that was unfair, deceptive, and in violation of the Unfair Trade Practices Act. Quoting our brief, the court ruled that debt collectors have “no legitimate interest in pursuing collection litigation without notifying debtors, or in seeking to default incompetent debtors without notice to their lawyers or guardians.”

Court to Greenmailers: Drop Dead

by Stephen Gardner

A bane of honest class action lawyers (and there are plenty of them, the vast majority) is the creature that I call a greenmailer -- a lawyer who objects to a good class action settlement only in hopes of getting some fees out of it, without a care for improving the settlement itself. (Some call these weasels "professional objectors," but I don't like that term because it suggests that outfits such as Public Citizen are "unprofessional" objectors. Quite the opposite, in fact.)

Today we see a federal court opinion that warms our hearts and brings goofy grins to our faces.

U.S. District Judge James M. Rosenbaum issued an order denying objectors' request for fees. In addition to being a substantively excellent decision, it is also one of the most entertaining and readable opinions to emit from the judiciary in some time.

You know it's not going to go well for objectors when the opinion starts out, "The remoras are loose again."

And it gets worse from there. (A personal note: While on a fishing boat, I saw a pelican that had lit on the transom of the boat in search of nibble -- because pelicans will eat damn near anything -- grab a remora that the captain had tossed to it, but immediately spit it out. Now, I'm not saying that a pelican would spit out these lawyers as well, although it's worth noting that it's possible.)

The Judge, in an "egregious paraphrase of Winston S. Churchill," noted that, "Seldom in the field of securities litigation was so little owed by so many to so few."

He goes on. Noting that the objector-remoras' request for fees was "a pleading which may charitably be described as disingenuous," the Judge found it "preposterous that any legitimate lawyer would charge $74,500 to prepare an eight-page submission, and submit it tardy to boot."

As the Judge also noted, "Objectors' request and their motion ill-befit attorneys admitted to the bar."

It ended no better for the objector-remoras than it began, with the Judge concluding that they "are entitled to an award equal to their contribution . . . nothing."

May it displease the Court, huh?

Chrysler Assumes Post-Bankruptcy Product-Liability Claims

by Adina Rosenbaum

In a reversal of its position in the bankruptcy proceeding, Chrysler has agreed to assume liability for people injured after the Chrysler bankruptcy by vehicles sold before the bankruptcy.

As background, in late May and early June, Public Citizen represented a bunch of consumer organizations in objecting to the Chrysler bankruptcy sale because the sale documents purported to sell Chrysler "free and clear" of product liability claims. We particularly got involved to represent the interests of future claimants -- that is, the claims of people who would be injured or killed in accidents that occurred after the bankruptcy but were caused by defects in Chrysler vehicles sold before the bankruptcy. The bankruptcy court approved the sale free and clear of such future claims, and I argued the issue in front of the Second Circuit. Within minutes after that argument ended, the Court announced that it was upholding the sale for substantially the same reasons as the bankruptcy court and that opinions would be forthcoming. Four days later, we filed a petition for certiorari.

Illinois sues Wells Fargo for Discrimination

Illinois Attorney General Lisa Madigan filed a Complaint on July 31 alleging that Wells Fargo violated state fair lending and consumer protection laws in its mortgage operations.  The 62-page complaint elaborates in great detail the compensation systems that induced Wells Fargo loan officers to steer prime borrowers to subprime loans.  The complaint also alleges that Wells Fargo engaged in marketing campaigns targeted at African-Americans to sell them subprime mortgages, and that foreclosures by Wells Fargo are now falling hardest on Blacks in Chicago and throughout Illinois. 

Meanwhile on July 2 Federal District Court Judge Benson Legg denied Wells Fargo's motion to dismiss the City of Baltimore's lending discrimination complaint, and discovery is now proceeding on that suit.

Senator Specter Introduces Bill to Overrule Twombly & Iqbal

by Brian Wolfman

Senator Arlen Specter has just introduced this bill to reestablish the notice-pleading standards of Federal Rule of Civil Procedure Rule 8 as interpreted by the Supreme Court in Conley v. Gibson, 355 U.S. 41 (1957). As plaintiffs' lawyers are aware, the Supreme Court overruled the relevant part of Conley in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and made its point more emphatically this past Supreme Court Term in Ashcroft v. Iqbal,  129 S.Ct. 1937 (2009). Many plaintiffs' lawyers, particularly civil rights and consumer rights lawyers, believe that Twombly and Iqbal will make it more difficult to stay in court at the motion-to-dismiss stage of a case before discovery can be taken. The operative portion of Senator Specter's bill is short and sweet:

Except as otherwise expressly provided by an Act of Congress or by an amendment to the Federal Rules of Civil Procedure which takes effect after the date of enactment of this Act, a Federal court shall not dismiss a complaint under rule 12(b)(6) or (e) of the Federal Rules of Civil Procedure, except under the standards set forth by the Supreme Court of the United States in Conley v. Gibson, 355 U.S. 41 (1957).

The Blog of the Legal Time has this nice write-up.

Denny's: Public Health Enemy # 1

by Steve Gardner

The Center for Science in the Public Interest filed suit today in the Superior Court of New Jersey in Middlesex County, seeking to compel Denny's to disclose on menus the amount of sodium in each of its meals and to place a notice on its menus warning about high sodium levels. CSPI is working with the New Jersey firms of Galex Wolf, LLC and Williams Cuker Berezofsky.

The great majority of Denny's meals is dangerously high in sodium, putting its customers at greater risk of high blood pressure, heart attack and stroke.

Most Americans should consume no more than 1,500 milligrams of sodium per day, according to the Centers for Disease Control and Prevention. But at Denny's, the great majority of its meals contain more, and in some cases, several times more. Some meals at Denny's provide more than 4,000 or 5,000 mg of sodium—more than most adults should consume in three days. Diets high in sodium are a major cause of high blood pressure, which in turn is a major cause of heart disease and stroke, the first- and third-leading causes of death in the United States.

As my boss (CSPI’s co-founder and Executive Director) Mike Jacobson put it, "Denny's is slowly sickening its customers. For those Americans who should be most careful about limiting their sodium, such as people middle-aged and older, African-Americans, or people with existing high blood pressure, it's dangerous to eat at Denny's. Denny's customers deserve to be warned about the considerable health risk posed by many of these meals."

The plaintiff, Nick DeBenedetto, is a 48-year-old resident of Tinton Falls, NJ, who has eaten for many years at Denny’s restaurants in East Brunswick and Brick, NJ. Nick takes a prescription medication to control his high blood pressure and at home does not cook with salt or use the salt shaker. Some of his favorite Denny's items, such as Moons Over My Hammy or the Super Bird turkey sandwich, contain far more than 1,500 mg of sodium—even without soup, salad, fried onion rings, or other side dishes.

"I was astonished—I mean, literally floored—to find that these simple sandwiches have more salt than someone in my condition should have in a whole day," Nick says. "It's as if Denny's is stacking the deck against people like me. I never would have selected those items had I known."

Public Citizen Releases Statistical Survey of Public Interest Cases in the Latest Supreme Court Term

  The Supreme Court's October 2008 Term ended June 29th, when the Court released the final opinions of the Term. In an attempt to quantify the Court's decisions, Public Citizen's Supreme Court Assistance Project has gone beyond its usual Watch List to conduct a statistical survey of the Court's treatment of public interest cases.

Our survey--prepared by Public Citizen's current Supreme Court Fellow Leah Nicholls--measures how often the Court and each of the Justices decided in favor of expanding individual and environmental rights versus contracting those rights. Via both text and graphs, it examines cases in four categories:

• Access to Courts and Remedies
• Civil Rights
• Constitutional Rights, and
• Environmental Claims.

The report concludes with a brief discussion of the opinion-drafting assignments in the Term's most important public-interest cases. We hope you find the survey interesting and useful.

Public Citizen Litigation Group Gets a New Director

On July 1, 2009, Allison Zieve became the new director of Public Citizen Litigation Group. Allison replaces Brian Wolfman, who had been with the group for nineteen years, five of them as its director. Brian moves on to the faculty of Georgetown University Law Center, where he will be co-director of the Institute for Public Representation clinic (a position recently vacated by David Vladeck, the new head of consumer protection at the FTC and himself a Public Citizen attorney for many years).

Allison's practice at the Litigation Group has focused on health and safety matters, federal preemption, open government, class action fairness, due process issues, and the first amendment. She has argued four cases before the United States Supreme Court, including two recent preemption cases—Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008), and Warner-Lambert v. Kent, 128 S.Ct. 1168 (2008)—and has spoken and published articles on the preemption of state-law damages actions, tobacco regulation, and the Freedom of Information Act, and taught courses as an adjunct professor of law.  Allison is also now the director of the Litigation Group’s Alan Morrison Supreme Court Assistance Project.

Allison joined the Litigation Group as a staff attorney in 1994, after practicing in California for several years. She received her undergraduate degree from Brown University in 1986 and her law degree from Yale Law School in 1989.