Consumer Law & Policy Blog

New Jersey Supreme Court Allows Mass-Marketing Fraud Class Action

Yesterday, the New Jersey Supreme Court handed down a unanimous 50-page opinion reversing the denial of certification in a mass marketing consumer fraud case.

 

The case involves a dietary supplement known as Relacore -- a pill marketed as causing stress and weight reduction.  According to its advertisting, Relacore attacks the "stress-to-belly-fat cycle."  The complaint alleges that there's no basis to believe the pill delivers any of its claimed benefits.  The trial court and intermediate appellate court both held that class certification was inappropriate because the mass marketing for Relacore took a variety of forms -- sometimes it was advertised as a weight-loss product and sometimes as a stress-reduction product -- and because there was no way of knowing which consumer relied on which claims, individual issues would necessarily predominate.

 

Public Citizen wrote an amicus brief, joined by other consumer groups.  We argued that the lower courts' decision would mean that companies that commit fraud in multiple ways would be better off than companies that make only one false claim.  We argued that pills like Relacore are what economists call "credence goods" -- you don't know anything about them until someone tells you something about them.  Nobody grabs pills off the shelf randomly, so people must have decided to buy the pills in reliance on advertising. 

 

The opinion quotes at length from our argument about "credence goods" and makes that concept central to its predominance analysis. It also relies heavily on our argument that making multiple false claims shouldn't put deceptive advertisers in a better position that those that make a single false claim:

Colbert Report Takes on CFPB, Elizabeth Warren, Mandatory Arbitration, and Barney Frank

Among other things, listen to Stephen read from the mandatory arbitration clause in his credit card agreement. Enjoy:

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Consumer Protection Agency - Barney Frank
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WSJ: Credit Card Companies Have "New Credit-Card Tricks"

 The Wall Street Journal explains here that after the new Credit Card Act became effective last February, credit card companies were barred from making profits in certain ways. For instance, the Act generally bans "universal default" -- that is, credit card companies cannot raise rates on one credit card account (or all of a consumer's other accounts) just because the consumer was late or missed a payment on another, separate account. 

So, the companies are turning to other ways to make money, some of which are perfectly legal, such as raising annual fees, and some that may "skirt[] the new rules." This raises the question whether the new Consumer Financial Protection Bureau established by the Dodd-Frank legislation will go beyond the Credit Card Act and seek to bar some credit card company practices as unfair and/or deceptive.

Ronald McDonald--Creepy Stranger on the Playground?

by Steve Gardner

In June, my organization, the Center for Science in the Public Interest, gave notice to McDonald's that, unless it stopped predating on small children by offering them toys to get them to pester their parents for a Happy Meal, we would bring a state consumer protection lawsuit based on the developmental fact that young kids just don’t understand that an ad or other marketing tool is anything other than helpful advice. 

McDonald's, on the other hand, is all grown up and it knows precisely what it’s doing. Roy Bergold, who was McDonald's advertising head for 29 years, recently bragged:

“Sure, we marketed to kids. As Ray Kroc said, if you had $1 to spend on marketing, spend it on kids, because they bring mom and dad. . . . Parents should totally control their kids. Yeah, right. Research says that seven-year-olds and younger accept what we say in advertising as the truth. Heck, three-year-olds can identify brands using just their corporate logos. According to a survey commissioned by the Center for a New American Dream back in 2002, the average kid asks his parent for something nine times before the parent gives in. . . . What’s a mother to do under this assault?” (My emphasis.)

FTC Issues Major Report on Debt Collection and Forced Arbitration: System is "Broken"

by Deepak Gupta

The Federal Trade Commission today issued a major report on debt collection and the forced arbitration of consumer collection disputes. Concluding that "the system for resolving consumer debt collection disputes is broken," the FTC recommends a series of sweeping reforms. The new report, Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, reflects information gathered at roundtable discussions following a February 2009 report on the same subjects. The vote to issue today's report was 5-0.

Given the heated debate in Congress and the courts over forced arbitration, the arbitration-related material in today's report is likely to receive the most attention. The report addresses concerns about requiring consumers to resolve debt collection disputes through binding arbitration without meaningful choice, bias or the appearance of bias in arbitration proceedings, and procedural unfairness in arbitration proceedings. The FTC's principal recommendations are:

• Consumers should have a meaningful choice about arbitrating debt collection disputes.
• Arbitration forums and arbitrators should eliminate bias and the appearance of bias.
• Arbitration forums should conduct proceedings in a manner that makes it more likely that consumers will participate.
• Arbitration forums should require that awards contain more information about how the case was decided and how the award amount was calculated.
• Arbitration forums should make their process and results more transparent.

Citing the scandal over the National Arbitration Forum, Commissioner Julie Brill issued a separate concurring statement in which she urged Congress to enact a temporary ban on the mandatory arbitration of consumer debt collection disputes:

Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek. Once these conditions have been met, Congress could lift the ban itself, or it could delegate that authority to the Federal Trade Commission or another appropriate consumer financial protection agency or bureau established in the future.

Today's report also recommended a number of sweeping reforms to consumer collection litigation:

• States should consider adopting measures to make it more likely that consumers will defend themselves in litigation, decreasing the prevalence of default judgments.
• States should require collectors to include more information about the alleged debt in their complaints.
• States should take steps to make it less likely that collectors will sue on debt on which the statute of limitations has run.
• Federal and state laws should be changed to prevent the freezing of a specified amount in a bank account including funds exempt from garnishment.

7500 Consumers' Failure to Read Contracts Leads them to Sell Their Souls

Story here. Still more proof that consumers don't read contracts. I guess the devil really is in the details.  (HT: Concurring Opinions Blog)

Jeff Gelles Column About How a Bank May Have Misrepesented Debit Card Law

by Jeff Sovern

Here's the column, and follow up posts can be found here and here.  Basically, someone made unauthorized charges of $5,208 to a couple's bank account in December, as reflected in the bank's statement which came in January.  The couple didn't open the bank statement until March, when they reported the loss to the bank.  The bank told the couple that they had to bear the loss because they didn't notify the bank until 63 days after the bank statement went out.  The problem is that that's not what Regulation E provides. Reg E, § 205.6(b)(3) does provide that the consumer is liable for unauthorized withdrawals that take place more than 60 days after the statement goes out, but here the withdrawals were all well before that date.  The Reg imposes a $50 cap for consumer liability if the consumer reports the loss within two days of learning of it.  I can't tell whether the couple reported the loss within two days of opening the statement or not, but if they failed to do so, under § 205.6(b)(2), their exposure should be limited to $500.  So the bank was wrong.  Even more troubling is Gelles's experience trying to get federal agencies to comment.  Here's a quote, from one of the blog posts:

It took me several days to sort through the misinformation – partly, I have to suspect, because of the lack of a strong, focused consumer-protection agency for financial services. The Federal Reserve's Washington press office did not return at least two phone messages requesting help – not a good sign for an agency that seems to want to preserve its role in consumer protection and has resisted proposals for an independent Consumer Financial Protection Agency.

A spokesman for the Office of the Comptroller of the Currency, which oversees the bank in question, wasn't familiar enough with the rules to comment initially, and tried to refer questions back to the Fed, anyway. "They write the rules. It's their job to interpret them."  It's a common response from the OCC, and one that reflects our fractured system of bank oversight.

This time, the spokesman was helpful after I reminded him that it's the OCC's job to enforce the rules when it comes to national banks. Enforcing them requires understanding them, doesn't it?

Late Friday, I finally got a response from the OCC – not about the Mannings' case specifically, but at least about the pattern of facts.

Is it me, or do all roads lead to the need for a single federal consumer financial protection agency?

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.”

Milberg Firm Files Class Action Against NAF

The claims include UDAP and FDCPA violations, as well as breach of contract.  Milberg's statement is here while the complaint is here (hat tip to Ray Warner).

"How to Beat the Bank," a Mini-Documentary on Overdraft Fees

Filmmaker Karney Hatch, annoyed with overdraft charges on his bank statements, took Wells Fargo to small claims court and got the charges reversed. In an interview for Hatch's film, Ralph Nader speculates that if a million consumers did what Hatch did, the banks would fold. Watch the video here.