Consumer Law & Policy Blog

Companies Claim Right to Interfere with eBay Auctions for Charging Too Little

by Greg Beck

I predicted here that companies would soon rely on the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS to justify interfering with competition from less expensive products sold online. It did not take long for that prediction to come true. Although interference with eBay sales is nothing new (see here and here), companies in two recently filed federal cases explicitly invoke Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online. These cases not only show Leegin’s likely effect on Internet sales, but are also, unfortunately, fairly typical examples of the sort of anticompetitive actions companies take to fight lower-priced competition online.

Another Form of Equity Stripping

Tuesday's New York Times had an article, "New Scheme Preys on Desperate Homeowners".  A quote: 

With the housing market in decline, financial predators are finding yet another way to take advantage of people who fall behind on their payments.

The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash. And, almost always, the homeowners still end up losing their homes.

Poisoned Products Imported From China

Against a background of recent reports of poisoned medicine exported from Chinese companies to Panama and Chinese-made toothpaste containing poison imported into the U.S., the lead story in today's Times, headlined "As F.D.A. Tracked Poisoned Drugs, A Winding Trail Went Cold in China," describes a similar poisoning incident in Haiti ten years ago and attempts to figure out how the poison was mislabeled.  The article leaves the impression that the Chinese were stonewalling. 

First Circuit: State cannot regulate bank-issued gift cards

by Richard Alderman

The First Circuit has held, in Metabank v. Ayotte, that a state cannot regulate the terms of stored value, or gifts cards, issued by a bank and sold by a third party retailer.  This decision does not bode well for legislative attempts to protect consumers who often unknowingly purchase gift cards that have hidden charges or early expiration dates.

In its opinion, the court noted that the case was “about the power of a state to regulate activities of national banks and national thrifts if these activities are carried out by third-party agents.” At issue was a New Hampshire statute restricting the sale of "gift certificates," including stored value giftcards issued by national banks and national thrifts that carry expiration dates or are subject to administrative fees. New Hampshire Consumer Protection Act, N.H. Rev. Stat. Ann. § 358-A:2 ("New Hampshire CPA"). The district court granted summary judgment to plaintiff’s concluding that the New Hampshire CPA was preempted as applied to products sold by national banks and thrifts. The First Circuit affirmed.

The court noted that stored value gift cards come in two varieties: retail giftcards and bank-issued giftcards. Retail giftcards are similar to traditional gift certificates in that they are issued by a retailer, are serviced by a retailer or its agent, and can only be used at that retailer Bank-issued giftcards may be sold by a retailer, but they are issued by a bank, typically carry the logo of a payment network such as Visa or MasterCard, and can be used at any location that accepts debit cards of the same payment network. The giftcards at issue issued by were bank-issued giftcards. These cards carried an expiration date and were subject to administrative fees that reduced the redeemable value of the card after a certain period of time or after certain events, such as the loss and replacement of the card. The cards, therefore, were subject to the New Hampshire CPA.

To determine whether the National Bank Act preempts the enforcement of the New Hampshire CPA, the court first determined whether a national bank's enumerated and incidental powers include the issuance of stored-value giftcards with expiration dates and administrative fees and the marketing and sale of those giftcards through third party agents. If a national bank has these powers, we must then determine whether the CPA limits the bank's ability to exercise that power.

The court noted that “There is little dispute in this case that a national bank has the power to issue stored value cards that carry expiration dates and administrative fees. The OCC has determined that the issuance and sale of electronic stored value systems, such as giftcards, is an activity incidental to the business of banking.” Therefore, the question was whether the New Hampshire CPA frustrates the exercise of that power. The court concluded that it did, and, therefore, was pre-empted.

Patient Challenge to Hospital Practices Under the Illinois Consumer Fraud Act Survives Motion to Dismiss, Settles

by guest contributor Alan Alop (Deputy Director, Legal Assistance Foundation of Metropolitan Chicago)

Like most hospitals in America, St. James Hospital in Chicago Heights, Illinois, is a nonprofit, charitable institution.  As a nonprofit corporation, it is exempt from paying state property, sales and income taxes and federal income tax, a status that saves the hospital millions of dollars each year. In return for its tax-exempt status, Illinois law, like many states, requires the hospital to provide free services to low-income patients, a duty known as “charity care.” While St. James Hospital does provide free treatment to some patients, in recent years the amounts provided have dwindled. According to a recent study, in 2004 St. James Hospital provided $6.6 million in charity-care services to the poor; in that same year the hospital’s tax-free status saved it $14.5 million in state and federal taxes.

Also like most hospitals, St. James significantly discounts the charges it bills to most of its patients.  Privately insured patients and patients covered by Medicaid and Medicare receive billing discounts as high as 80%.  Uninsured patients, most frequently the poor, receive no discounts and are expected to pay the full hospital bill.   

Barbara Hill is one of an estimated 45 million Americans who lack health insurance coverage. Employed as a babysitter, Ms. Hill fits within federal guidelines defining indigency.  In 2004 she received  treatment at St. James Hospital for a sprained ankle. The hospital billed Ms. Hill its full, un-discounted charge, and hired a collection agency to collect that amount.  Ms. Hill attempted to apply for a charity care write-off of the bill but the hospital ignored her two written inquiries.  She then brought an action against the hospital, challenging: (1) the hospital’s failure to provide her free charity care; and (2) the hospital’s practice of charging uninsured patients triple or quadruple what it charges insured patients for identical services.  The hospital had the action removed to federal court where, on December 20, 2006, Judge Ronald A. Guzman issued an opinion denying the hospital’s motion to dismiss.  Hill v. Sisters of St. Francis Health Services, Inc., 2006 WL 3783415 (N.D. Ill. Dec. 20, 2006).  On May 30, 2007, the parties entered into a confidential settlement agreement that addressed the plaintiff's concerns.

Times Articles on the Use of Marketing Lists to Bilk the Elderly and Coping With Credit Obligations

Last weekend, The New York Times had a pair of front-page articles--both of which were painful to read--that raised consumer law issues.  Sunday's article, "Bilking the Elderly, With a Corporate Assist," described how con artists use lists of elderly consumers obtained from list-sellers to identify elderly consumers who can be swindled.  Two quotes: 

InfoUSA advertised lists of “Elderly Opportunity Seekers,” 3.3 million older people “looking for ways to make money,” and “Suffering Seniors,” 4.7 million people with cancer or Alzheimer’s disease. “Oldies but Goodies” contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: “These people are gullible. They want to believe that their luck can change.” 

* * *

“Only one kind of customer wants to buy lists of seniors interested in lotteries and sweepstakes: criminals,” said Sgt. Yves Leblanc of the Royal Canadian Mounted Police. “If someone advertises a list by saying it contains gullible or elderly people, it’s like putting out a sign saying ‘Thieves welcome here.’ ”

There's a lot more in the article about one of the victims, the role of the list brokering industry and financial institutions, and efforts by government officials to put a stop to the problem.  One surprising side note: the article reports that the telemarketing industry has grown despite the creation of the "Do Not Call" list.

The article in Saturday's Times, headlined "Couple Learn the High Price of Easy Credit," reported on how one middle-class family juggles their debt payments. 

FTC Rebate Debate

The FTC is holding a Workshop today on rebates; you can find more information here and I gather transcripts of the remarks will be available at some point.  Among the participants is Matt Edwards whose article on rebates, The Law, Marketing and Behavioral Economics of Consumer Rebates, 12 Stanford J. L. Bus. & Fin. (2007) can be found here.  Here's the abstract:

This paper deals with the legal regulation of mail-in consumer rebates - a significant, yet controversial marketing practices that has generated thousands of consumer complaints, inspired countless articles in major periodicals, and begun to attract the interest of state and federal legislators. The paper first aims to provide an understanding of the purposes of consumer rebate offerings. It then surveys the main categories of consumer rebate complaints, including that firms impose onerous requirements to discourage rebate redemption and that they fail to pay rebate rewards in a timely manner. The paper then draws on recent marketing, psychological and behavioral economics research to address the potent claim that rebates exploit sub-optimal consumer behavior.

The latter part of the paper evaluates several possible regulatory options for consumer rebates, including unfair and deceptive trade practices litigation, informational or de-biasing laws aimed at reducing sub-optimal consumer behavior, and legislation that sets mandatory rebate promotion terms. The paper also discusses how the market has already begun to respond to consumer dissatisfaction with rebate promotions. In the end, the paper argues that the most egregious rebate promotion abuses can be managed with a minimum level of paternalistic intervention while preserving the welfare-enhancing benefits of rebate promotions.

My own view of rebates is rather sour: as explained in my article Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 William & Mary L. Rev. 1635 (2006), I believe that sellers often use rebates instead of sales because rebates persuade consumers to purchase the product--but then many consumers (perhaps as many as 97%) never collect the rebate.  The result is that sellers sell their goods at a higher price than consumers intend to pay.  Our casebook raises the question of whether a seller engages in bait and switch tactics when it offers a rebate and imposes onerous conditions for obtaining the rebate or the seller emphasizes the "after rebate" price even though it knows from past experience that many consumers will not obtain the rebate.  [Disclosure: I was initially invited to participate in the Workshop and then was "uninvited;" I also suggested to the FTC Staff that they invite Matt Edwards.]

The Spy Act Protects Corporations, Not Consumers

by Greg Beck

  Ed Foster at Infoworld analyzes H.R. 964, the Spy Act, Congress' latest response to spyware, and finds it seriously lacking.  The bill includes exemptions that would allow hardware and software vendors to spy on their customers and collect private information, without notice, "for network or computer security purposes, diagnostics, technical support, or repair, or for the detection or prevention of fraudulent activities."  Worse, the law explicitly preempts state laws regulating unfair or deceptive conduct similar to that covered by the law.  All private rights of action will be eliminated, and enforcement authority will be exclusively vested in the FTC and state attorneys general.

It is pretty apparent that the law is not designed to protect consumers, but to protect companies from liability for spying on their customers.  For example, it appears that Sony would be immune from liability under the law for its secret installation of its software "rootkit" on customers' computers, which in 2005 opened the computers up to attacks by viruses and sparked multiple lawsuits.

The bill was approved last week by a subcommittee of the Energy and Commerce Committee and now goes to the full committee for approval with strong bipartisan support.

More Google Privacy Fears

By Greg Beck

Google won at least partial praise from privacy advocates last month with its announcement that it plans to purge identifying information from its database of web searches after 18 to 24 months.  But recent news again raises concerns about Google's privacy policies.

First, Google announced that it plans to acquire DoubleClick, Inc., which distributes Internet-based ads and tracks which ads web browsers click.  The merger raises fears that Google could combine its existing massive databases of its users' search habits with Doubleclick's equally massive database on users' behavior to create a combined database of Web users and their browsing habits. 

Google and DoubleClick claim that they will not merge the data in this way, but critics are not mollified.  The merger prompted three consumer groups, the Electronic Privacy Information Center, PIRG, and the Center for Digital Democracy, to file a complaint with the Federal Trade Commission raising privacy and antitrust concerns.  Although Google's privacy policy discloses that it saves personally identifying information, the objecting consumer groups argue that Google's practices are nevertheless deceptive because the disclosure is difficult to find and because survey data shows that most Google users don't know that Google stores personally identifiable data along with a user's search history.

Second, Google has announced a new service to track every website that web browsers click on from its search results.  The service includes one critical feature that is worthy of praise:  it is completely voluntary.  Google's privacy policy, however, doesn't rule out saving this data even without a user's consent, and, in fact, specifically provides that "Google may present links in a format that enables us to keep track of whether these links have been followed."  Google does store information about which websites users visit in at least some circumstances.  Moreover, when a user clicks on a link from Google's search results, the user's browser is sent to Google's own server before being sent to the requested web page, in a way that would allow Google to track which sites users click.  Google's policy raises concerns that it can link data on which websites its users visit with personally identifying information and that, once again, consumers might not realize the amount of privacy they are sacrificing whenever they search the web.

Foreclosure Scam Artists

by Jeff Sovern

The Christian Science Monitor reports here about so-called "mortgage consultants" who purport to rescue consumers from foreclosure and the laws designed to prevent foreclosure rescue fraud.  Apparently the rise in foreclosures is leading to a corresponding rise in such scams.  [Disclosure: the article mentions the St. John's University Elder Law Clinic and quotes two St. John's professors, Ann Goldweber and Gina Calabrese.]