The answer is that the sites are down for now, and the reason has its roots in both the deep pockets of an infomercial purveyor and, apparently, the efforts of the new owners of the web site to exploit the site for extra profits. But as discussed at the end of the post, there remains some hope that a new version of the site may be restored to the web soon.

Changes in the Infomercial Scams Web Site Under New Owners 

The tale begins in the spring of 2008, when Leonard decided to get out of the business of running sites for the review of infomercial purveyors, and sold the InfomercialScams and related web sites to a new owner, a company called Infomercial Consumer Awareness ("ICA").  As Leonard had organized it, both critics and proponents of goods and services sold through television infomercials — including the purveyors themselves — could post either "complaints" or "defenses" relating to both the quality of the products and the sales practices of their marketers. Leonard and his sites had acquired a good reputation for providing an impartial forum for consumers to express their views — positive as well as negative. 

The web site was supported by generic advertising, with the same set of ads appearing on every page no matter what the name of the company or product criticized or praised on the page. Leonard refused to allow the competitors of individual criticized infomercial purveyors to direct advertising to the particular pages where they could be seen adjacent to the discussion of the targets of the criticism.  The site thus operated produced a modest return for Leonard while he was a student. 

The new owners, however, apparently had ideas about how to make more money out of the operation of the web site.  At some point during the months after they bought it, they offered what they cynically called a "Consumer Protection Program" that would, at the very least, allow a company that had been criticized on the message boards to purchase special privileges.  Review of the web site as it existed under the new owners revealed that, on many parts of the site, numerous laudatory messages were added to the top of every page of "complaints," so that only by scrolling through all of the positive messages could consumers find the criticisms that members of the public had posted. 

According to the allegations of a complaint filed by Video Professor — an infomercial purveyor that had previously faced trenchant criticism on the infomercialscams message boards   —  when inquiry was made about how the "Consumer Protection Program" worked, a representative of the new owners described an extraordinary scheme whereby negative comments could be removed, and praise substituted in its stead, in return for payments of hundreds of thousands of dollars per year.

Comparison to Ripoff Reports 

As described by Video Professor’s allegations, the ICA-run InfomercialScams site took to an extreme a model offered by another host for consumer commentary message boards: XCentric Ventures, which runs Rip-off Report.   Xcentric’s site includes a "Corporate Advocacy Program" (the name, at least, is a fairer depiction of who is getting the protection).  Under XCentric's program, the proprietor of Rip-off Report can be hired to conduct an "investigation"of a criticized company. Although XCentric stresses that critical messages are not removed, it appears that critical messages are buried where most consumers will not see them.

Take as an example the purveyor of "Cash4Gold," currently linked directly from the home page of Rip-off's Corporate Advocacy Program.  Rip-off Report’s index page for the company lists several references to XCentric's investigation, and each of the pages containing a consumer criticism features several paragraphs of laudatory text before the posted criticism appears. The criticism may contain only a few lines, but the identical laudatory text about the company  — with no specific reference to the criticism or how it was checked or remedied — precedes each criticism. Rip-off Report's web site claims that "[a]s a part of the Corporate Advocacy Program Rip-off Report verifies all Reports and Rebuttals, and will expose those posted erroneously," but on the pages I examined there was no evidence that this had happened. 

Similarly, complaints about "Primerica" have been left on the Rip-off Reports web site, but each complaint is preceded by a long discussion that never responds to the specific complaint but includes such truisms as that "the number of complaints against this company, whether through the Internet or other channels, is small when put into the context of its enormous size."  Of course, the same point could be made about most of the infomercial purveyors discussed on Rip-off Reports (not to speak of other such message boards). But this point is only displayed above criticisms of companies that have paid their way into the Corporate Advocacy Program.

There is at least a serious conflict of interest that could lead the judicious observer to be skeptical of claims that XCentric has conducted a dispassionate investigation into those who are paying to be investigated.  It may well be that XCentric never takes payments specifically for the suppression of criticism, and that its "investigations" are genuinely motivated by the desire to clear improperly accused companies of unfounded allegations.  But when I raised these questions, an XCentric representative insisted that it does turn down prospective participants in its Corporate Advocacy Program for a variety of reasons, including a perceived unwillingness to correct or remedy abuse of their customers, and that on rare occasion participants have even been expelled from the program for failure to live up to the commitment to correct abuses. XCentric also claims that companies that enter its program actually do better by their customers as a result.

It is hard to assess the motives of a company that operates on this business model, without a far more detailed investigation than I am in a position to conduct. Is there a consumer-friendly marketing professor out there that might take on an impartial audit of the program to verify XCentric's characterization of its program, as part of a case-study on the impact of consumer review sites?  It would surely be interesting to learn more about the realities instead of having to rely on self-serving characterizations from either Rip-off's representatives or its litigation adversaries.

Moreover, XCentric vigorously defends its practices in court, and even if it has suffered some adverse preliminary rulings rejecting its section 230 immunity defenses — such rulings once threatened to make Rip-off Reports a font of bad law — it appears that XCentric has never been brought to judgment by any of the several companies that have accused it of extortionate practices.   Rip-off Reports proclaims that it has managed to beat back almost every one of the lawsuits filed against it.  

Video Professor Forces the New Owners to Take Down the InfomercialScams Site 

Video Professor, an infomercial purveyor with a decidedly checkered reputation, claims to have pretended an interest in signing up for the new InfomercialScams "Consumer Protection Program" in order to find out how much "protection" money it would have to pay.  In its complaint  against the new owners, Video Professor alleged that its representative was presented with an account of a variety of techniques the new owners were using — including the use of meta tags and keyword advertising techniques to advertise critical accounts to drive more consumers to those criticism (hence increasing pressure on the criticized companies), deliberately selling advertising to direct competitors of the targeted companies, and then charging exorbitant sums to the targets so that they could buy immunity on the web site message board.   Whether these allegations are true I cannot say, but they certainly paint an ugly picture.  In response to a request for comments on these specifics, ICA would say only that "the allegations of the complaint . . . are inaccurate."

Video Professor sued the new owners, charging them with extortion and racketeering, trademark infringement, and defamation, arguing that the new techniques deprived the owners of the section 230 immunity they would otherwise have enjoyed even for comments genuinely posted on the message boards by consumers. For good measure, Video Professor added Leonard as a defendant, despite the fact that he had sold the web site before any of the new techniques alleged in the complaint had been adopted.

Although the extortionate scheme alleged by Video Professor, if true, was certainly horrific, it would surely have been interesting to litigate the legal questions posed by Video Professor's motion for a preliminary injunction relating to loss of the immunity that section 230 of the Telecommunications Act of 1996  provides for web hosts against liability for content provided by others.  Extortion is certainly punishable, but it is not at all clear that allegations that the purpose of hosting a commentary web site was to enable a scheme of extortion would take the host out of section 230 immunity for suits over the content of critical postings that the host did not, in fact, author.

However, representing Leonard, we moved for dismissal and/or summary judgment on grounds of lack of personal jurisdiction, statute of limitations, and section 230 immunity only in light of the fact that Leonard was no longer involved with the web site when the alleged wrongdoing began. Meanwhile, the new owners of the web site concentrated their efforts on settlement discussions, and by mid-June a draft settlement agreement, including removal of all comments about Video Professor from the web site and a promise not to disparage Video Professor — or to host disparaging comments on any web site — was presented to Leonard as a fait accompli.

Leonard refused to have anything to do with the settlement, both because he plans to host comments about companies like Video Professor in the future, and because, having engaged in none of the wrongdoing alleged in the complaint, he was unwilling to be party to a settlement agreement that effectively admitted that the site's criticisms of Video Professor were wrongful. 

The draft of the settlement agreement that I saw in June required only that comments about Video Professor itself be removed from the web site.  However, apparently, the final settlement also required the new owners to take down the entire infomercialscams.com web site.  Shortly after we were told that the settlement had been finalized, the infomercialscams.com web site went dark. Then, a week later, review of WHOIS records revealed that Video Professor itself is the new owner of the infomercialscams.com, infomercialratings.com, and infomercialblog.com domain names.

Troubling Comparisons

One of the most troubling aspects of what ICA did with the InfomercialScams web site is that it poisons the well for web hosts whose main interest is in providing a forum for consumer commentary.  We at Public Citizen believe that these sites provide a useful service, because they allow those with experience with specific products and services to post information that may provide useful guidance to other consumers.  To be sure, we are inclined to think that any sensible consumer will take anonymous reviews with a certain grain of salt, because one can never be sure about the motives or, indeed, the judgment of a given anonymous poster, and anonymity can be used to mask the fact that a given poster is a shill either for the product’s seller or for a rival.  But misconduct of the sort allegedly perpetrated by ICA — or even the less egregious example provided by Rip-off Reports — easily feeds a suspicion that companies targeted by criticism would like to entertain, regardless of whether it has any basis in fact, that anybody who hosts comments slamming them, must be engaged in a covert extortion scheme.  After all, “why else would anybody diss our wonderfully profitable product, unless they were hoping to get a cut of the action?”  Even worse, it tends to confirm the suspicion that some judges harbor about misuses of section 230 immunity. 

Truth be told, any consumer complaint message board holds the potential for this sort of abuse, if placed in the hands of an unscrupulous owner. At the very least, companies that are criticized on such message boards may show willingness to pay money to avoid or limit criticism, and some message board hosts walk a fine line with programs comparable to ICA's "Consumer Protection Program." We have certainly had companies offer such payments to our clients, who have always turned them down, because shaking down businesses – legitimate or otherwise – is not what they want to accomplish.  Indeed, if it that were their business model, Public Citizen attorneys would not represent them.  But even companies that have not tried to bribe their way out of criticism typically claim that message board sites are established for that purpose.

Plans going forward 

The lawsuit has now been dismissed, and the parties are preparing to litigate Leonard’s motion for sanctions for having been dragged into the case over the way the site was operated after he sold it.

Meanwhile, precautions were taken to download the entire web site before it was taken down, so that it can be reopened under ownership that is committed to operating the site under the original neutral terms. Leonard is apparently planning to relaunch bigger and better versions of his old sites in the next few months.

Several years ago, David Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhandler wrote a piece indicating that a large percentage of U.S. bankruptcy filings are prompted by medical debt. They argued for universal health care coverage, and they pointed to the low rate of medical bankruptcy in Canada, which has universal, single-payer health coverage. The Fraser Institute has recently issued a study claiming  that comparisons with Canada do not make the case for single-payer national health insurance because bankruptcy rates are, the study claims, higher in Canada than in the U.S. The study is getting some play in the press. Putting aside the question whether a comparison between overall bankruptcy rates in the U.S. and Canada is relevant, Bob Lawless over at Credit Slips has just responded to the Fraser Institute's study, seriously questioning its statistical validity. Here's a couple sentences to give you a flavor: "Before anyone takes this study seriously, a few important facts are needed to place the Fraser Institute findings in context. To be as charitable as possible, the study's use of the bankruptcy data is extremely selective." Worth reading.

We've previously posted here and here about Judge Sotomayor's record in consumer and so-called business cases. A large amount of information on Judge Sotomayor has just been posted on the web, and I thought our readers might be interested. Take a look at a ton of stuff posted by the Clinton Library and smaller releases from the National Archives and the Bush I Presidential Library.

House Financial Services Committee Chairman Barney Frank has formally introduced President Obama's plan for a Consumer Financial Protection Agency (CFPA). The bill adopts the Administration's proposal with a few limited exceptions. Unlike the Administration's draft, the bill preserves the current federal banking regulators' role to enforce the Community Reinvestment Act (CRA). In addition, the Administration's proposal presupposes the creation of the National Bank Supervisor (NBS), a new prudential regulator that would merge the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The introduced bill takes no position on that issue, making references to the OCC and OTS instead of the NBS.

You can read the full text of the bill here. An excerpt from Rep. Frank's press release is below the jump.

"I am pleased to introduce this bill which addresses an issue at the heart of the financial crisis. Recent reports about the lack of mortgage mortifications and increases in various fees only reinforce the need for this bill, which is already very clear," Frank said. "I intend to mark this up by the end of July, and we have already begun to hold hearings on this subject and have had a great deal of consultation among members. I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking."

The following Representatives joined Chairman Frank today as original co-sponsors of the bill: Reps. Maxine Waters (D-CA), Carolyn Maloney (D-NY), Luis Gutierrez (D-IL), Mel Watt (D-NC), Gary Ackerman (D-NY), Brad Sherman (D-CA), Michael Capuano (D-MA), Brad Miller (D-NC), Al Green (D-TX), Keith Ellison (D-MN), Jackie Speier (D-CA), and Alan Grayson (D-FL).

The testimony presented by FTC Chairman Jon Leibowitz briefly described the Commission’s authority and activities regarding financial services, its priorities in this time of economic distress, and some preliminary comments on the impact of the Administration’s proposal on the FTC. The News Release follows after the jump.

As stated in the testimony, the FTC agrees with the fundamental objective of the proposal: to improve the effectiveness of the current government system for protecting consumers of financial services. The Commission also appreciates the proposal’s recognition of the FTC’s role as the nation’s consumer protection agency and agrees that the Administration’s recommendations to provide additional resources and authority to the FTC would enhance the FTC’s effectiveness.

The Administration’s proposal also would create the CFPA, which would have exclusive authority to issue rules for consumer financial products and services, and primary authority to enforce the consumer protection laws covering financial products and services that the FTC currently enforces.

The Commission is carefully evaluating the proposal, including its implications for the FTC’s consumer protection mission. In assessing the proposal, the Commission has identified some issues that warrant consideration, such as whether certain definitions in draft legislation could limit the FTC’s ability to protect consumers outside the context of traditional financial services, and whether the proposal’s structure of law enforcement cooperation is as efficient as it could be.

The Commission believes that the goal of improving the overall regulatory, supervisory, and enforcement system for protecting consumers of financial services is a worthy one, the testimony stated. It will be critical that the agency or agencies charged with financial consumer protection act vigorously and effectively to protect consumers.

The Commission vote authorizing the testimony was 3-0-1, with Commissioner J. Thomas Rosch not participating. Commissioner Kovacic dissents from that portion of the testimony that seeks across-the-board authority for the Commission to use, for promulgating all rules respecting unfair or deceptive acts or practices under the Federal Trade Commission Act, the notice and comment procedures of the Administrative Procedure Act, although he would be willing to consider whether all the procedures currently required to issue, repeal, or amend these rules are necessary. Commissioner Kovacic also dissents from the Commission's endorsement of across-the-board civil penalty authority, expressing concern that the routine availability of civil penalties, even if subject to a scienter requirement, would risk constraining the development of doctrine, much as judicial concerns about the availability of private litigation with mandatory treble damages appear to be constraining the development of antitrust doctrine.

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.

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.

I recently came across a study by Macro International conducted for the Federal Reserve Board in 2008 titled Consumer Testing of Mortgage Broker Disclosures that sheds some light on that question. Macro had consumers read disclosures stating that mortgage brokers had an incentive to arrange for loans with higher interest rates, because that would increase broker compensation. Macro’s report of its finding stated:

Nearly all participants were surprised to read about the brokers’ conflict. . . . Shortly after reading the disclosure, about half of the participants made statements that directly contradicted what they had read in the agreement about broker incentives. Several, for example, stated late in their interviews that they would expect the broker to show them the loans with the best terms available. However, the disclosure they had just read specifically pointed out that brokers would in fact have incentives not to do so.

So Macro disclosed the conflict more explicitly. The following paragraph describes the result:

As in [the earlier round], most participants understood upon their first reading of the agreement that the broker would have a financial incentive to provide them with higher-interest rate loans. Again, however, participants’ preconceived belief that brokers were working in the best interest of borrowers made this conflict difficult to accept. As a result, many became confused or reverted to their prior assumptions. * * *

And, Macro found, the revised disclosures led to other misconceptions. In short, even under perfect conditions, when no one is attempting to distract consumers from focusing on disclosures, deceive them, or rush them into a particular transaction, disclosures may not be useful to consumers when they create cognitive dissonance.

Just before the holiday weekend, the Massachusetts Supreme Judicial Court issued an opinion in Feeney v. Dell Inc., holding that a statutory right to participate in class action lawsuits may not be be foreclosed by a provision in a consumer contract compelling individual arbitration. The court reached that conclusion based not on unconscionabilty doctrine, but on Massachusetts public policy. It emphasized the strong state policy in favor of class actions and relied on cases such as the First Circuit's decision in Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006), which reject class action bans because of their interference with consumers' ability to vindicate statutory rights: "Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy."  The decision joins the rest of the state and federal appellate courts in holding that the Federal Arbitration Act does not preempt its holding, relying on the analysis of the Ninth Circuit and the Illinois Supreme Court.

The Feeney opinion is also noteworthy for its choice-of-law analysis. The Dell contract at issue specified that Texas law--which appears to allow class action bans--would apply.  The court held that Massachusetts' fundamental policy in favor of class actions for small-value consumer claims outweighed Texas's interest in blocking consumers' access to the courthouse doors.  As the court put it, "[w]e likewise have little trouble concluding that the interest embodied in this policy--the protection of large classes of consumers and the deterring of corporate wrongdoing--is materially greater than Texas's interest, which the defendants identify as 'minimizing its companies' legal expense.'"  Massachusetts joins a growing chorus of courts that reject corporate efforts to use choice-of-law clauses to enforce otherwise impermissible class bans.  Another recent example of this trend is the Third Circuit's decision in Homa v. American Express.

One of the many interesting provisions of the Credit CARD Act that has not received much attention is the limits it imposes on penalty fees.  At present, such fees are set through contract, subject only to unconscionability limits.  When the new 15 U.S.C. § 1665d takes effect next February, however, penalty fees, including late payment fees and over-the-limit fees will have to be "reasonable and proportional" to the violation.  The statute directs the Fed to issue rules establishing standards for determining whether fees are reasonable and proportional, and identifies several factors for the Board to take into account in formulating those rules, including the costs incurred by the creditor, deterrence, and the conduct of the cardholder.  The Board can also provide for a safe harbor; that is, a presumptively acceptable fee.

This provision represents a significant change from past credit regulation.  It's rare for a governmental agency to specify fees in private transactions.  Congress generally prefers to let the market set them.  But in this case, such intervention seems justified.  Considerable empirical evidence indicates that consumers are generally over-optimistic about the likelihood that something will go wrong in their transactions.  Thus, consumers contemplating a particular credit card might ignore penalty fees, on the assumption (an assumption that will be mistaken for many) that they will not incur them.  The result is that the market will not restrain credit card issuers from charging fees that greatly exceed the costs the underlying conduct imposes on issuers; i.e., lenders can use fees as a source of profits without any check unless Congress intervenes.  This is an example of how the new law take account of actual, rather than theoretical, consumer behavior, as was more true of the original version of TILA.

No doubt the eventual proposal to issue those rules will generate lots of comments.  It will be interesting to see what the Fed does.

Some interesting articles in the New York Times today:  One article, Bank Fees Rise as Lenders Try to Offset Losses, may shed some light on the claim that banks are raising credit card fees in response to passage of the Credit CARD Act.  It seems that banks are raising many fees, including fees that have nothing to do with credit cards, like stop-payment charges and ATM fees.  So maybe the raising of credit card fees has nothing to do with credit cards, specifically, but with attempts to generate money from any available source. 

An article that might pain students now studying for the bar: Aspiring Lawyer Finds Debt is Bigger Hurdle than Bar Exam, about the New York Appellate Division's denial of a candidate's application to be admitted to the bar because of the failure to make substantial payments on student loans.  The candidate's loans jumped from $270,000 to $400,000 in four years, at least in part because of fees added by collection agencies.

This morning, the Pittsburgh Post-Gazette published the following essay I had written: 

Private Sector Commentary: New credit card law has teeth

Tuesday, June 30, 2009

By Jeff Sovern

The credit card legislation President Obama signed into law represents a sharp break from previous federal credit card statutes.

Ever since the landmark Truth in Lending Act was enacted in 1968, Congress has focused largely on disclosures of credit card terms on the theory that informed consumers would select the best credit terms available to them.

But rather than just mandating improved disclosures, the legislation contains outright prohibitions on certain credit card terms, such as increases in the interest rates charged on existing balances or sending monthly statements to consumers less than three weeks before the payment due date.

Put another way, you will not be able to agree to those terms with your credit card lender even if you wanted to. This shift reflects a better understanding of consumer decision-making. Classical economic theory of the sort in vogue 40 years ago presupposed that rational consumers, if properly informed, would choose wisely.

But researchers -- and the subprime crisis -- have raised doubt about that presupposition. Studies have demonstrated, for example, that consumers tend to be overly optimistic and so will pay less attention to the consequences of terms governing what happens when they default.

In the credit card context, that might mean consumers will apply for cards with high late fees, because they assume they will not make any late payments. Yet many do.

In addition, the length, complexity and sheer dullness of credit card contracts may dissuade consumers from reading them or taking more than a few terms into account in deciding which credit card to apply for. Thus, probably few consumers choose credit cards based on how the issuer calculates balances.

The new law requires lenders to post their contracts online, but it is not likely that consumers will wade through all those postings to find an appropriate credit card contract.

As a result, while the market restrains credit card companies on terms consumers care about, like the interest rate, annual fees and rewards for charging items, credit card lenders have had fairly free hands in writing the terms of credit card contracts that escape consumer notice.

Consequently, it makes sense for Congress to regulate those terms. Unfortunately, the task of proscribing objectionable but profitable terms may be like punching one of those children's punching bags that always bounces back. Credit card issuers are likely to devise troublesome new terms that escape consumer attention but generate significant revenue. That means Congress may have to return to credit card regulation before too long.

Unless Congress wants to make a habit of scrutinizing credit card terms, it might consider a different approach: convert the legislation from a statute that requires disclosure to one that requires comprehension.

For example, Congress could bar credit card issuers from using particular contract terms unless a specified percentage of their customers, say 80 percent, actually became aware of and understood them.

Such an approach might cause credit card issuers to eschew the use of incomprehensible terms. It also would give lenders an incentive to make their contracts more intelligible rather than less.

If consumers paid attention to and understood credit card contracts, the market would operate to eliminate terms that consumers found objectionable, and Congress would not need to make that judgment for them. As an interim measure, Congress could oblige credit card companies to publish the percentage of consumers who actually understood their contracts.

To increase the likelihood that consumers did not ignore terms that they anticipate will not affect them, such as late fees, Congress could require lenders to state in the contract the percentage of their customers affected by such terms in a recent year. Consumers inclined to ignore late fees disclosures might pay more attention if they knew, for instance, a third of the lender's customers had paid such fees in a recent year.

It may seem strange that credit card issuers should take responsibility for what their customers understand. But isn't it stranger still that we accept that those customers do not understand what they have agreed to?

I have since received a couple of emails from consumers (one under the subject heading "Chase has already bitten back") reporting that credit card lenders are raising their minimum payments or interest rates.  You can find more on such practices at consumeraffairs.com.  Some attribute the changes to the Credit CARD Act.  The Credit CARD Act should limit some such practices once it takes effect, but most of its provisions won't become effective until next year.  Of course, the Credit CARD Act was enacted because credit card companies were already engaging in such activities, which makes me wonder whether the changes in terms since the statute was passed are really attributable to the statute or are just being blamed on the statute.

Included in President Obama's proposed Consumer Financial Protection Agency Act of 2009 is the following provision giving the new agency the authority to ban pre-dispute mandatory binding arbitration clauses:

SEC. 1025. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

The Agency, by rule, may prohibit or impose conditions or limitations on the use of agreements between a covered person and a consumer that require the consumer to arbitrate any future dispute between the parties arising under this title or any enumerated consumer law if the Agency finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of consumers.

This is a big step forward for arbitration fairness.

NPR's All Things Considered recently ran this excellent report on the forced arbitration debate, featuring Public Citizen's David Arkush.

Today, President Obama sent a bill to Capitol Hill that would create a Consumer Financial Protection Agency.  You can read the text of the proposed Consumer Financial Protection Agency Act of 2009 here. The package also includes amendments to the Federal Trade Commission Act. The Washington Post has a story on the announcement here.  

Additional information is available at www.financialstability.gov and at the website of Americans for Financial Reform, a two-week-old coalition of 200 national, state and local consumer, employee, investor, community and civil rights organizations that Public Citizen has helped to launch. 

Here's the administration's press release:

With leaders in Congress committed to enacting regulatory reform by the end of the year, the Administration today delivered to Capitol Hill a bill that would create the Consumer Financial Protection Agency. The agency will be dedicated to looking out for American families when they take out loans or use other financial products or services – with a mission to promote access and protect consumers from unscrupulous practices across the market. This new agency will implement and enforce the new credit card bill signed into law by President Obama and Congress and have authority to combat the worst abuses in mortgage markets. This legislation creates an agency to promote transparency, simplicity, fairness, accountability, and access – laying the cornerstone for the effort to fundamentally reform our system of financial regulation.

“This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want – and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past. And enforcement will be the rule, not the exception.”  - President Obama

“This agency will have only one mission – to protect consumers – and have the authority and accountability to make sure that consumer-protection regulations are written fairly and enforced vigorously. Consumer protection will have an independent seat at the table in our financial regulatory system. By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement, drive greater clarity in the information consumers receive around products they are sold, set higher standards for those who sell those products and promote consistent regulation across the system.” - Secretary Geithner

An Agency Dedicated to the Interests of Consumers

A Balanced Mission to Protect Consumers and Promote Access to Financial Products: The agency’s proposed mission is explicitly balanced to ach ieve the true needs of consumers – protection against unscrupulous practices as well as efficient and innovative markets and increased access. The agency will be responsible for:

• Concise and clear information that consumers can understand and use.
• Consumers from unfair or deceptive practices.
• Fair, efficient, and innovative financial services markets for consumers.
• Access to financial services.

Bring Together Fragmented Responsibility for Consumer Protection: The current financial system spreads responsibility for consumer protection across multiple agencies, many of which are primarily focused on the prudential supervision of financial institutions, not consumers. A single agency will be able to be more responsive to changes in the market and more vigorous in addressing unfair and abusive practices.

Required to Monitor for Risks to Consumers: The agency will be required to monitor the market continuously for risks to consumers, and publish significant findings at least once yearly.

Required to Weigh Benefits and Costs: The proposed legislation explicitly requires the new agency to weigh the benefits of a regulation as well as the costs – in terms of access to credit and burden on financial institutions.

Streamline and Consolidate Regulatory Requirements: The agency will help to simplify and reduce regulatory burdens in areas where current authorities overlap or conflict.

For instance, the agency will continue the work of HUD and the Federal Reserve to create a single federal mortgage disclosure – eliminating confusing and unnecessary paperwork.

Single Point of Accountability For Consumer Protection

Responsibility to Take a Broad View and Create Consistent Standards: As part of the President’s plan, the new agency will have broad authority to protect consumers of credit, savings, payment and other consumer financial products and services, and to regulate all providers of such products and services.

• Full authority to create consistent standards and enforcement with respect to banks and non-banks alike.
• Ability to gather information in any part of the market, from any kind of entity making the loan or providing the product or service, to respond to changes and address bad practices as they develop.
• Rules that serve as a floor, not a ceiling with respect to state laws; states will be empowered to enforce these strong rules.

Create Level Playing Field and Enforce Compliance Across All Institutions: For the first time, a single agency will have authority to examine and enforce compliance against any institution, bank or non-bank, that provides consumer financial products or services. Community banks and credit unions will not need to compete against unregulated, unsupervised providers who pushed the market to bad practices.

Accountability for Effective Rule-writing and Enforcement: The agency will be the primary federal financial consumer protection supervisor. The agency will be fully accountable for:

• Writing rules and implementing existing statutes for consumer protection, and for creating consistent rules for unregulated and lightly regulated institutions.
• Supervising and examining institutions to ensure compliance.
• Enforcing compliance through orders and, if necessary, penalties.

Independent Agency, Accountable to the Public: The agency will be structured to be independent and accountable, with a stable source of funding.

• Director of the agency will be appointed by the President and confirmed by the Senate.
• The agency will be governed by a Board, with one seat on the board reserved for a federal prudential regulator.

Regular Reviews of New Regulations: The agency will be required to assess the costs and benefits of each newly enacted regulation no more than five years after the rule takes effect – to assess its effectiveness in protecting consumers and preserving innovation and allow for public comment on the need to expand, modify, or eliminate the regulation.

Addressing the Causes of the Home Mortgage Crisis:  Many of the worst abuses in the mortgage markets developed first in unregulated or lightly regulated non-bank institutions.

• No agency was charged with looking at mortgage lenders of all types across the market as whole to see whether home mortgage loans were being made fairly and transparently.
• Had the new agency existed, its examiners could have gotten inside the operations of these unregulated mortgage companies and detected unfair, deceptive, and abusive lending practices that so damaged the markets.
• This agency would have the authority to gather information and set rules for all institutions and the responsibility to respond to unfair practices without waiting for problems to spread through the entire market.

What This Means For Consumers

• Protection Against Unfair Credit Card Rate Increases, Late Fee Traps: The agency will enforce the credit card bill enacted by Congress and President Obama this spring, taking responsibility for enforcing the ban on unfair rate increases and for the implementation of new rules preventing late fee traps.
• Guidelines for Simple “Plain Vanilla” Products: The agency could create guidelines for standard mortgages without prepayment penalties; that are fully underwritten with documented income; that collect escrow for taxes and insurance; and have predictable payments.
• Duties of Care for Mortgage Brokers: The agency could require mortgage brokers to owe a duty of best execution amon g available mortgage loans to avoid conflicts of interest between themselves and the homeowners, and a duty to help ensure that only appropriate loans are offered.
• Ban Unfair Side Payments: The agency could ban unfair practices such as “yield spread premiums” – side payments from lenders that encourage mortgage brokers to push consumers into higher priced loans.

Yesterday, the California Supreme Court issued an opinion, Arias v. Superior Court, that seems to have gutted any hopes of a representative action under California Business & Professions Code § 17200, holding:

[W]e construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law "only if the party complies with Section 382 of the Code of Civil Procedure" to mean that such an action must meet the requirements for a class action.

So, to bring a 17200 case, you must have suffered "injury in fact" and must have lost "money or property" (again, thanks to Prop. 64) and you have to bring it as a class action. Which means getting certified, giving notice, etc. The Court decided against a strict reading of Prop. 64, which would have required a rep plaintiff to meet the requisites of a class action without actually bringing the case as a class action.

Thus, I don't see that there is now a lick of difference between a representational plaintiff, who must also bring suit as a class rep, and any other class rep, except to the extent that the standing requirements as a rep plaintiff under 17200 are stricter than those for many class reps. Bummer.

The case was issued  with a companion case, Amalgamated Transit Union v. Superior Court, which holds that representational plaintiff status can't be assigned to another.

But, who would want that, since it confers effectively no benefit?

I gotta go sit shiva for consumer rights in California now.

General Motors’ retreat from its effort to use bankruptcy proceedings to shed tort liability represents a great victory for consumers.  But the Washington Post reported that, in the course of the consumer campaign to achieve that result (which Public Citizen and other groups pursued in the courts as well as in the court of public opinion), GM successfully suppressed an ad by consumer groups.  The story provides a stark reminder about the crucial role played by section 230 of the Communications Decency Act in protecting free speech by consumer interests online. 

A group representing consumers who may have future product liability claims against General Motors and Chrysler ran an ad on Comcast criticizing those two companies for abusing the bankruptcy system – with the collaboration of the Obama administration – to shed liability for injuries occurring after the bankruptcy, caused by vehicles manufactured before the bankruptcy.  GM, seeking to suppress the ad, complained to Comcast about supposed inaccuracies in the ad.   But instead of telling GM that if it disputed some claims in the ad it should run a counter-ad explaining why it disagreed with the consumer groups, Comcast reacted to the request by pulling the ad down.  Comcast apparently indicated that it might allow the paid ad to continue running once it verified the claims about which GM complained.

Contrast what would have happened if the ad had been running on a web site hosted by Comcast.  Under section 230, Comcast would be absolutely immune from liability for any inaccuracies in the ad – even if GM had reason to argue that the consumers had deliberately falsified facts about GM instead of simply disagreeing about matters of emphasis or oversimplification.  GM’s remedy would have been either to sue its critics – if it really thought it had a tenable defamation claim – or to post comments online explaining its position, or run its own web-based advertising to state its contrary views.  Indeed, the ad can still be viewed on any number of web sites (such as here).

In the circumstances, GM was able to suppress an ad during the time when the dispute was most controversial, and hence when the ad had the greatest potential to grab public attention and be most successful in advancing its sponsors’ political objectives.

Unfortunately, GM has not responded to my attempts to obtain the letter so that I can assess its contentions about the ad.  However, I assume that the complaint is about certain nuances of the controversy between GM and its potential victims.  Because the controversy centers on a thirty-second TV spot, it is fair to assume that the ad simplified a very complicated issue.  But that just makes the spot a fair game for trenchant criticism.  There is no reason why GM should have been allowed to get the speech suppressed just by raising questions about its accuracy.

This raises the question of why a section 230-like regime should not apply to broadcast advertising.  There are, of course, significant differences between the burdens that a cable company like Comcast faces with respect to assessing ads and the situation facing an Internet host (such as Comcast, wearing a different hat) that enjoys the protection of Section 230.  There are only so many hours on which ads can be shown on cable; and when Comcast receives a proposed ad, it must take the step of placing those advertisements amidst its programming.  Thus, Comcast is in a position to perform pre-broadcast review of the text.  This is very unlike the situation facing the provide of an online interactive computer service, which allows thousand or even millions of users to place content online with not opportunity for review.  And equally important, Comcast earns significant revenues from each broadcast of a single ad, and hence is able to offset its profits from those broadcasts against the cost of review.   This is unlike the situation for most statements posted online, with respect to which the host earns tiny sums, at best, either through a modest monthly fee for web server space, or through advertising on the web page.

But the potential impact on speech is the same – the sponsor of a message on an important issue of public policy sees its message suppressed merely by claims of inaccuracy.  Why should the broadcaster face the prospect of secondary liability for carrying the ad, and why shouldn’t the opponent of the speech be put to the burden of responding in the marketplace of ideas and, if it really wants to suppress the speech, why shouldn’t it have to go to court and persuade a judge that the speech is both false and defamatory before it gets the relief of suppressing the speech?