The Development of Consumer Protection Law, The ...

Georgia State University Law ReviewVolume 26Issue 4 Summer 2010 Article 2

March 2012

The Development of Consumer Protection Law,The Institutionalization of Consumerism, andFuture Prospects and PerilsMark E. Budnitz

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Recommended CitationMark E. Budnitz, The Development of Consumer Protection Law, The Institutionalization of Consumerism, and Future Prospects and Perils,26 Ga. St. U. L. Rev. (2012).Available at: https://readingroom.law.gsu.edu/gsulr/vol26/iss4/2

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THE DEVELOPMENT OF CONSUMERPROTECTION LAW, THE

INSTITUTIONALIZATION OF CONSUMERISM,AND FUTURE PROSPECTS AND PERILS

Mark E. Budnitz*

INTRODUCTION

This article examines major developments in the laws that regulateconsumer financial services beginning with the Federal Truth inLending Act (TILA) that took effect in 1969.1 Dramatic changes haveoccurred both in the law and in industry products and practices overthe forty years covered in this survey. Some have benefitedconsumers, while others have not. The current economic crisis hasbrought renewed attention to the adequacy of these laws and theirenforcement. Understanding the context within which consumer lawhas evolved will better prepare policymakers to make sounddecisions when considering improvements to it.

Part I describes the lack of consumer protection law and lawyersbefore 1969. The few consumer organizations that existed were notfocused on consumer financial services. Part II traces the birth andinfancy of consumer protection law. That Part includes an

* Bobby Lee Cook Professor of Law, Georgia State University College of Law. The author thanks

his past and current research assistants, Miltonette Craig and Elizabeth Lewis, for their contributions tothe article. The author also is grateful for the support of the College of Law.

1. Arguably, the first federal consumer protection statute was the Wheeler-Lea Amendment of 1938that clearly established the Federal Trade Commission's authority to protect consumers from unfair anddeceptive acts and practices. Pub. L. No. 447, 52 Stat. 111 (1938); MICHAEL M. GREENFIELD,

CONSUMER TRANSACTIONS 53 (2009); DONALD P. ROTHSCHILD & DAVID W. CARROLL, CONSUMER

PROTECTIONS: TEXT AND MATERIALS 59 (2d ed. 1977). In addition, the states had a variety of usurylaws regulating interest rates and retail installment sales acts requiring disclosures. GREENFIELD, supra,at 2. One commentator described the chaotic state law situation this way: "These laws combined in acomplex tangle of independent, noncomprehensive, and noncoordinated regulation within any one state,with the pattern varying from one state to the next." Paul A. Mondor, Lock-in Laws: Adding MorePatches to the Mortgage Lending Quilt, 37 CATH. U. L. REv. 543, 545-46 (1988). The focus of thispaper, however, is on federal statutes and regulations that provide consumers with a private right ofaction, which the FTC Act does not do. GREENFIELD, supra, at 99. For a brief description of the eventsleading up to enactment of TILA, see ROBERT J. HOBBS & STEPHEN GARDNER, THE PRACTICE OF

CONSUMER LAW: SEEKING ECONOMIC JUSTICE 10-11 (2d ed. 2006).

1147

HeinOnline -- 26 Ga. St. U. L. Rev. 1147 2009-2010

THE DEVELOPMENT OF CONSUMER PROTECTION LAW, THE

INSTITUTIONALIZATION OF CONSUMERISM, AND FUTURE PROSPECTS AND PERILS

Mark E. Budnitz *

INTRODUCTION

This article examines major developments in the laws that regulate consumer financial services beginning with the Federal Truth in Lending Act (TILA) that took effect in 1969.1 Dramatic changes have occurred both in the law and in industry products and practices over the forty years covered in this survey. Some have benefited consumers, while others have not. The current economic crisis has brought renewed attention to the adequacy of these laws and their enforcement. Understanding the context within which consumer law has evolved will better prepare policymakers to make sound decisions when considering improvements to it.

Part I describes the lack of consumer protection law and lawyers before 1969. The few consumer organizations that existed were not focused on consumer financial services. Part II traces the birth and infancy of consumer protection law. That Part includes an

* Bobby Lee Cook Professor of Law, Georgia State University College of Law. The author thanks his past and current research assistants, Miltonette Craig and Elizabeth Lewis, for their contributions to the article. The author also is grateful for the support of the College of Law.

I. Arguably, the first federal consumer protection statute was the Wheeler-Lea Amendment of 1938 that clearly established the Federal Trade Commission's authority to protect consumers from unfair and deceptive acts and practices. Pub. L. No. 447, 52 Stat. 111 (1938); MICHAEL M. GREENFIELD, CONSUMER TRANSACTIONS 53 (2009); DoNALD P. ROTHSCHILD & DAVID W. CARROLL, CONSUMER PROTECTIONS: TEXT AND MATERIALS 59 (2d ed. 1977). In addition, the states had a variety of usury laws regulating interest rates and retail installment sales acts requiring disclosures. GREENFIELD, supra, at 2. One commentator described the chaotic state law situation this way: "These laws combined in a complex tangle of independent, noncomprehensive, and noncoordinated regulation within anyone state, with the pattern varying from one state to the next." Paul A. Mondor, Lock-in Laws: Adding More Patches to the Mortgage Lending Quilt, 37 CATH. U. L. REv. 543, 545-46 (1988). The focus of this paper, however, is on federal statutes and regulations that provide consumers with a private right of action, which the FTC Act does not do. GREENFIELD, supra, at 99. For a brief description of the events leading up to enactment of TILA, see ROBERT 1. HOBBS & STEPHEN GARDNER, THE PRACTICE OF CONSUMER LAW: SEEKING ECONOMIC JUSTICE 10-11 (2d ed. 2006).

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Budnitz: The Development of Consumer Protection Law, The Institutionalizat

Published by Reading Room, 2010

GEORGIA STATE UNIVERSITY LAW REVIEW

explanation of how the federal anti-poverty program resulted in thefirst consumer protection lawyers as well as an analysis of the Truthin Lending Act, state legislation, Supreme Court cases, and the roleof federal administrative agencies. Part III describes how consumerprotection law was undermined starting with the Reaganadministration. Part IV describes the lack of significant developmentsduring the presidencies of the George H.W. Bush and Bill Clinton, aswell as the major setbacks that occurred while George W. Bush waspresident. Part V examines the challenges of the 21st Century,including developments in technology and the obstacles posed bymandatory arbitration.

During the forty years covered in this survey, consumers havecontinued to face severe problems, and the consumer financialservices industry has never slowed its promotion of new practicesconsumers regard as unfair and deceptive while opposing strongerconsumer protection law and enforcement. Given the vast disparity ofresources between individual consumers and the industry, thecontinued viability of efforts to promote consumer protection law is amajor concern to those who believe stronger laws and enforcementare essential. Part VI examines the keys to the survival of thoseefforts. It describes consumerism and its role as a movement forsocial change and law reform as a means to realize social change. Italso describes the development of a permanent organizationalstructure for engaging in litigation as well as legislative andregulatory advocacy. Part VI contends that consumerism has becomeinstitutionalized and its values have become embedded in society'svalues, better ensuring its survival.

Part VII turns to the present, exploring the prospects for continueddevelopment of strong consumer protection law and the perils suchprogress faces. It does this by analyzing the Credit Card Act of 2009and President Obama's proposed Consumer Financial ProtectionAgency Act.

[Vol. 26:41148


1148 GEORGIA STATE UNIVERSITY LAW REVIEW (Vol. 26:4

explanation of how the federal anti-poverty program resulted in the first consumer protection lawyers as well as an analysis of the Truth in Lending Act, state legislation, Supreme Court cases, and the role of federal administrative agencies. Part III describes how consumer protection law was undermined starting with the Reagan administration. Part IV describes the lack of significant developments during the presidencies of the George H.W. Bush and Bill Clinton, as well as the major setbacks that occurred while George W. Bush was president. Part V examines the challenges of the 21st Century, including developments in technology and the obstacles posed by mandatory arbitration.

During the forty years covered in this survey, consumers have continued to face severe problems, and the consumer financial services industry has never slowed its promotion of new practices consumers regard as unfair and deceptive while opposing stronger consumer protection law and enforcement. Given the vast disparity of resources between individual consumers and the industry, the continued viability of efforts to promote consumer protection law is a major concern to those who believe stronger laws and enforcement are essential. Part VI examines the keys to the survival of those efforts. It describes consumerism and its role as a movement for social change and law reform as a means to realize social change. It also describes the development of a permanent organizational structure for engaging in litigation as well as legislative and regulatory advocacy. Part VI contends that consumerism has become institutionalized and its values have become embedded in society's values, better ensuring its survival.

Part VII turns to the present, exploring the prospects for continued development of strong consumer protection law and the perils such progress faces. It does this by analyzing the Credit Card Act of 2009 and President Obama's proposed Consumer Financial Protection Agency Act.

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Georgia State University Law Review, Vol. 26, Iss. 4 [2010], Art. 2

https://readingroom.law.gsu.edu/gsulr/vol26/iss4/2

20101 THE DEVELOPMENT OF CONSUMER PROTECTION LAW

I. THE WAY WE WERE: LIFE BEFORE CONSUMER PROTECTION LAW

Before passage of the Truth in Lending Act in 1968, there were nofederal laws regulating the consumer financial services industry thatprovided consumers with a private right of action.2 State laws wereinadequate. 3 There were few, if any, lawyers whose practice wasprimarily protecting consumers.4 Law schools offered few, if any,courses devoted to consumer law.5 No consumer organizationproduced continually updated manuals for lawyers taking consumercases or regularly scheduled conferences at which those lawyerscould learn from experienced consumer attorneys and network withothers. 6 No organization regularly represented consumers in Congressor before administrative agencies. 7 The Federal Trade Commission(FTC) was ineffectual. 8

This lack of activity was not the result of consumers living in anenvironment devoid of major consumer problems. Major issuesincluded the following: state-assisted seizure of consumer propertythrough pre-judgment repossession and garnishment; 9 assignees of

2. Adam Goldstein, Why "It Pays" to "Leave Home Without It": Examining the Legal Culpabilityof Credit Card Issuers Under Tort Principles of Products Liability, 2006 U. ILL. L. REV. 827, 834-35(2006) (noting TILA's inclusion of a private right of action).

3. BARBARA A. CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION 3 (1965) ("Enactment oflegislation relating to credit arrangements has not followed the pattern of expansion of the market.Regulation has been devised on an ad hoc basis to take care of problems and abuses or to clarifyrelationships as the need for such regulation became apparent ....").

4. DEE PRIDGEN, CONSUMER PROTECTION LAW 5-6 (2004); TANG THANH TRAI LE, PROTECTINGCONSUMER RIGHTS § 1.06 (1987).

5. An indication of the presence of consumer law courses is the publication of casebooks for use in

those courses. Among the earliest the author has identified are HOMER KRIPKE, CONSUMER CREDIT:TEXT-CASES-MATERIALS (1970) and DAVID A. RICE, CONSUMER TRANSACTIONS (1975).

6. In 1982 NCLC began producing what has grown to a seventeen-volume series that is continuallyupdated. See, e.g., JONATHAN SHELDON & CONSTANCE G. BRIGHAM, REPOSSESSIONS (1982)(exemplifying one of the first volumes in the series); see HOBBS & GARDNER, supra note 1, at 20.

7. The Consumer Federation of America was established in 1967 for the purpose of representingconsumer interests before Congress and federal agencies. See HOBBS & GARDNER, supra note 1, at 10-11.

8. EDWARD F. Cox, ROBERT C. FELLMETH & JOHN E. SCHULZ, THE "NADER REPORT" ON THE

FEDERAL TRADE COMMISSION (1969); Report of the ABA Commission to Study the Federal Trade

Commission [July-Sept.], ANTITRUST & TRADE REG. REP. (BNA SPEC. SUPP.) No. 427 (1969).9. The facts in Fuentes v. Shevin, 407 U.S. 67 (1972) (prejudgment seizure of property) and

Sniadach v. Family Fin. Corp., 395 U.S. 337 (1969) (prejudgment wage garnishment), illustrate how

these creditor remedies subjected consumers to deprivation of property absent an opportunity for ahearing at a meaningful time.

1149


2010) THE DEVELOPMENT OF CONSUMER PROTECTION LAW 1149

I. THE WAY WE WERE: LIFE BEFORE CONSUMER PROTECTION LAW

Before passage of the Truth in Lending Act in 1968, there were no federal laws regulating the consumer financial services industry that provided consumers with a private right of action.2 State laws were inadequate.3 There were few, if any, lawyers whose practice was primarily protecting consumers.4 Law schools offered few, if any, courses devoted to consumer law.5 No consumer organization produced continually updated manuals for lawyers taking consumer cases or regularly scheduled conferences at which those lawyers could learn from experienced consumer attorneys and network with others.6 No organization regularly represented consumers in Congress or before administrative agencies.7 The Federal Trade Commission (FTC) was ineffectual. 8

This lack of activity was not the result of consumers living in an environment devoid of major consumer problems. Major issues included the following: state-assisted seizure of consumer property through pre-judgment repossession and garnishment;9 assignees of

2. Adam Goldstein, Why "It Pays" to "Leave Home Without It": Examining the Legal Culpability of Credit Card Issuers Under Tort Principles of Products Liability, 2006 U. ILL. L. REv. 827, 834-35 (2006) (noting TILA's inclusion of a private right of action).

3. BARBARA A. CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION 3 (1965) ("Enactment of legislation relating to credit arrangements has not followed the pattern of expansion of the market. Regulation has been devised on an ad hoc basis to take care of problems and abuses or to clarify relationships as the need for such regulation became apparent .... ").

4. DEE PRIDGEN, CONSUMER PROTECTION LAW 5-6 (2004); TANG THANH TRAI LE, PROTECTING CONSUMER RIGHTS § 1.06 (1987).

5. An indication of the presence of consumer law courses is the publication of casebooks for use in those courses. Among the earliest the author has identified are HOMER KRJpKE, CONSUMER CREDIT: TExT-CASES-MATERIALS (1970) and DAVID A. RICE, CONSUMER TRANSACTIONS (1975).

6. In 1982 NCLC began producing what has grown to a seventeen-volume series that is continually updated. See. e.g., JONATHAN SHELDON & CONSTANCE G. BRIGHAM, REpOSSESSIONS (1982) (exemplifying one of the first volumes in the series); see HOBBS & GARDNER, supra note 1, at 20.

7. The Consumer Federation of America was established in 1967 for the purpose of representing consumer interests before Congress and federal agencies. See HOBBS & GARDNER, supra note I, at lOIl.

8. EDWARD F. Cox, ROBERT C. FELLMETH & JOHN E. SCHUlZ, THE "NADER REpORT" ON THE FEDERAL TRADE COMMISSION (1969); Report of the ABA Commission to Study the Federal Trade Commission [July-Sept.], ANTITRUST & TRADE REG. REp. (BNA SPEC. SUPP.) No. 427 (1969).

9. The facts in Fuentes v. Shevin, 407 U.S. 67 (1972) (prejudgment seizure of property) and Sniadach v. Family Fin. Corp., 395 U.S. 337 (1969) (prejudgment wage garnishment), illustrate how these creditor remedies subjected consumers to deprivation of property absent an opportunity for a hearing at a meaningful time.

3




consumer paper immunized from consumer claims and defensesthrough the holder-in-due course doctrine;' 0 abusive debt collectionpractices;" credit discrimination; 12 excessive interest rates;13 lack ofwarranty protection; 14 fraud; 15 breach of the peace when creditorsresorted to self-help repossession; 16 and cross-collateralizationprovisions. 17 Low income consumers were targeted. 18

There were few consumer organizations and they did not devoteresources to protecting consumers using financial services. TheNational Consumers League was established in 1898.19 Itinvestigated working conditions. 20 Consumers Union was formed in1936.21 For many years its efforts were primarily devoted toconsumer testing.22 Probably the first successful grassroots consumerorganization was the Consumers Education and Protective

10. Kurt Eggert, Held Up in Due Course: Codification and the Victory of Form over Intent inNegotiable Instrument Law, 35 CREIGHTON L. REV. 363, 367 (2002) (describing how assignees workingwith creditors were protected from consumer claims by the holder in due course doctrine).

11. Matthew W. Ludwig, Abuse, Harassment, and Deception: How the FDCPA Is Failing America'sElderly Debtors, 16 ELDER L.J. 135, 140 (2008) (noting congressional finding that third party debtcollector abuse was a widespread and national problem).

12. MICHAEL GREENFIELD, CONSUMER LAW: A GUIDE FOR THOSE WHO REPRESENT SELLERS,

LENDERS, AND CONSUMERS 338 (1995) (noting that by the early 1970s systematic credit discriminationagainst women was well documented); Andrea M. Farley, The Spousal Defense-A Ploy to EscapePayment or Simple Application of the Equal Credit Opportunity Act?, 49 VAND. L. REV. 1287, 1291-92(1996) (describing Congressional inquiries and hearings into discriminatory credit practices).

13. States had usury laws, but they were inadequate. Christopher L. Peterson, Truth, Understanding,and High-Cost Consumer Credit: The Historical Context of the Truth in Lending Act, 55 FLA. L. REV.807, 858-72 (2003).

14. Andrew P. Lamis, The New Age of Artificial Legal Reasoning As Reflected in the JudicialTreatment of the Magnuson-Moss Act and the Federal Arbitration Act, 15 LOY. CONSUMER L. REV.173, 184-88 (2003) (describing merchant practices in the 1960s that shielded them from warrantyclaims).

15. Jones v. West Side Buick Auto Co., 93 S.W.2d 1083 (Mo. Ct. App. 1936) (fraudulent odometerrollback).

16. See, e.g., Kensinger Acceptance Corp. v. Davis, 269 S.W.2d 792 (Ark. 1954) (finding thatperson attempting to repossess consumer's vehicle grabbed his hand and threatened him). See EugeneMikolajczk, Breach of Peace and Section 9-503 of the Uniform Commercial Code-A ModernDefinition for an Ancient Restriction, 82 DICK. L. REV. 351 (1977).

17. GREENFIELD, supra note 12, § 12.2 (describing cross-collateral provisions).18. See, e.g., In re Leon A. Tashof, 74 F.T.C. 1361 (1968), affid, 437 F.2d 707 (D.C. Cir. 1970);

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965).19. HOBBS & GARDNER, supra note 1, at 6.

20. Id.21. ConsumersUnion.org, Nonprofit Publisher of Consumer Reports,

http://www.consumersunion.org (last visited June 20, 2009).22. HOBBS & GARDNER, supra note 1, at 8.

[Vol. 26:41150


1150 GEORGIA STATE UNIVERSITY LAW REVIEW [Vol. 26:4

consumer paper immunized from consumer claims and defenses through the holder-in-due course doctrine; 10 abusive debt collection practices; II credit discrimination; 12 excessive interest rates; 13 lack of warranty protection; 14 fraud; 15 breach of the peace when creditors resorted to self-help repossession; 16 and cross-collateralization provisions. 17 Low income consumers were targeted. 18

There were few consumer organizations and they did not devote resources to protecting consumers using financial services. The National Consumers League was established in 1898.19 It investigated working conditions.z° Consumers Union was formed in 1936.21 For many years its efforts were primarily devoted to consumer testing.22 Probably the first successful grassroots consumer organization was the Consumers Education and Protective

10. Kurt Eggert, Held Up in Due Course: Codification and the Victory of Form over Intent in Negotiable Instrument Law, 35 CREIGHTON L. REv. 363, 367 (2002) (describing how assignees working with creditors were protected from consumer claims by the holder in due course doctrine).

II. Matthew W. Ludwig, Abuse. Harassment. and Deception: How the FDCPA Is Failing America's Elderly Debtors, 16 ELDER L.J. 135, 140 (2008) (noting congressional finding that third party debt collector abuse was a widespread and national problem).

12. MICHAEL GREENFIELD, CONSUMER LAW: A GUIDE FOR THOSE WHO REPRESENT SELLERS, LENDERS, AND CONSUMERS 338 (1995) (noting that by the early 1970s systematic credit discrimination against women was well documented); Andrea M. Farley, The Spousal Defense-A Ploy to Escape Payment or Simple Application of the Equal Credit Opportunity Act?, 49 V AND. L. REv. 1287, 1291-92 ( 1996) (describing Congressional inquiries and hearings into discriminatory credit practices).

13. States had usury laws, but they were inadequate. Christopher L. Peterson, Truth, Understanding, and High-Cost Consumer Credit: The Historical Context of the Truth in Lending Act, 55 FLA. L. REv. 807,858-72 (2003).

14. Andrew P. Lamis, The New Age of ArtifiCial Legal Reasoning As Reflected in the Judicial Treatment of the Magnuson-Moss Act and the Federal Arbitration Act, 15 LoY. CONSUMER L. REv. 173, 184-88 (2003) (describing merchant practices in the 1960s that shielded them from warranty claims).

15. Jones v. West Side Buick Auto Co., 93 S.W.2d 1083 (Mo. Ct. App. 1936) (fraudulent odometer rollback).

16. See, e.g., Kensinger Acceptance Corp. v. Davis, 269 S.W.2d 792 (Ark. 1954) (finding that person attempting to repossess consumer's vehicle grabbed his hand and threatened him). See Eugene Mikolajczk, Breach of Peace and Section 9-503 of the Uniform Commercial Code-A Modem Definitionforan Ancient Restriction, 82 DICK. L. REv. 351 (1977).

17. GREENFIELD, supra note 12, § 12.2 (describing cross-collateral provisions). 18. See, e.g., In re Leon A. Tashof, 74 F.T.C. 1361 (1968), affd, 437 F.2d 707 (D.C. Cir. 1970);

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). 19. HOBBS & GARDNER, supra note I, at 6. 20. Id. 21. ConsumersUnion.org, Nonprofit Publisher

http://www.consumersunion.org (last visited June 20, 2009). 22. HOBBS & GARDNER, supra note I, at 8.

of Consumer Reports,

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20101 THE DEVELOPMENT OF CONSUMER PROTECTION LAW 1151

Association.23 It established a grievance process for handlingindividual consumer complaints, engaged in direct action such aspicketing car dealers who sold lemons, conducted petition drives, andvoiced consumers' concerns in public hearings. 24 It had a significantinfluence on the consumer movement throughout the country.25

II. THE BIRTH AND INFANCY OF CONSUMER PROTECTION LAW

A. The First Consumer Lawyers

In order to understand the beginnings of consumer protection lawregulating financial services, it is necessary to appreciate the socialand political context in which it took place and the type of lawpractice in which many of the first consumer lawyers representedtheir clients. In brief summary, the battle for civil rights developedinto a widespread movement in the 1960s. A single Supreme Courtcase, Brown v. Board of Education,26 was a major catalyst. The civilrights movement broadened into a more general endeavor to alleviatepoverty among people of all races. That effort received the support ofthe federal government when, as part of President Johnson's War onPoverty, Congress enacted legislation establishing the Office ofEconomic Opportunity (OEO).27

OEO realized one of the best ways to cure some of the poor'sproblems was to provide them with lawyers. Consequently, on itsown initiative, it created the Legal Services Program.28 Law reformwas an explicit goal of that program. 29 The Legal Services Program

23. Besse S. Weiner & Judy Canahuati Weiner, Consumers Education and Protective Association, inENCYCLOPEDIA OF THE CONSUMER MOVEMENT 173-75 (Stephen Brobeck ed. 1997). "When MaxWeiner and fifteen other people founded the Consumers Education and Protective Association ... in1966, consumer protection was almost nonexistent." Id. at 173-74.

24. Id. at 174.25. Id.26. Brown v. Bd. of Educ., 347 U.S. 483 (1954).27. EARL JOHNSON, JR., JUSTICE AND REFORM: THE FORMATIVE YEARS OF THE OEO LEGAL

SERVICES PROGRAM 41 (1974); MARTHA F. DAVIS, BRUTAL NEED: LAWYERS AND THE WELFARE

RIGHTS MOVEMENT, 1960-1973, at 142 (1993) (stating that poverty lawyers were informed by the civilrights movement); see Economic Opportunity Act of 1964, Pub. L. No. 88-452, 78 Stat. 508, repealedby Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, tit. VI, § 683(a), 95 Stat. 519.

28. JOHNSON, supra note 27, at 127.29. Id. at 130-33.



Association?3 It established a grievance process for handling individual consumer complaints, engaged in direct action such as picketing car dealers who sold lemons, conducted petition drives, and voiced consumers' concerns in public hearings.24 It had a significant influence on the consumer movement throughout the country?5

II. THE BIRTH AND INFANCY OF CONSUMER PROTECTION LAW

A. The First Consumer Lawyers

In order to understand the beginnings of consumer protection law regulating financial services, it is necessary to appreciate the social and political context in which it took place and the type of law practice in which many of the first consumer lawyers represented their clients. In brief summary, the battle for civil rights developed into a widespread movement in the 1960s. A single Supreme Court case, Brown v. Board of Education,26 was a major catalyst. The civil rights movement broadened into a more general endeavor to alleviate poverty among people of all races. That effort received the support of the federal government when, as part of President Johnson's War on Poverty, Congress enacted legislation establishing the Office of Economic Opportunity (OEO)?7

OEO realized one of the best ways to cure some of the poor's problems was to provide them with lawyers. Consequently, on its own initiative, it created the Legal Services Program?8 Law reform was an explicit goal of that program.29 The Legal Services Program

23. Besse S. Weiner & Judy Canahuati Weiner, Consumers Education and Protective Association, in ENCYCLOPEDIA OF THE CONSUMER MOVEMENT 173-75 (Stephen Brobeck ed. 1997). "When Max Weiner and fifteen other people founded the Consumers Education and Protective Association ... in 1966, consumer protection was almost nonexistent." Id. at 173-74.

24. Id. at 174. 25. [d. 26. Brown v. Bd. ofEduc., 347 U.S. 483 (1954). 27. EARL JOHNSON, JR., JUSTICE AND REFORM: THE FORMATIVE YEARS OF THE OEO LEGAL

SERVICES PROGRAM 41 (1974); MARTHA F. DAVIS, BRUTAL NEED: LAWYERS AND THE WELFARE RIGHTS MOVEMENT, 1960-1973, at 142 (1993) (stating that poverty lawyers were informed by the civil rights movement); see Economic Opportunity Act of 1964, Pub. L. No. 88-452,78 Stat. 508, repealed by Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, tit. VI, § 683(a), 95 Stat. 519.

28. JOHNSON, supra note 27, at 127. 29. Id. at 130-33.

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was a significant departure from the approach of most of thetraditional legal aid offices that represented the poor in the past. Thegoal of legal aid was to provide the poor with access to legalrepresentation.30 The substantive law was regarded as fair to all.3'Objectives that might have secured a more lasting benefit such asusing the law to improve the social and economic status of the poorwere not a priority. 32 Few cases were appealed, 33 and no case wasever brought before the Supreme Court.3 4

The Legal Services Program was based on a different model. TheLegal Services Program began disbursing funds to local offices in1965. 35 They did so without first deciding whether the program's toppriority should be access to the legal system for low income personsor reform of that system.36 By 1967, however, faced with aburgeoning caseload and inadequate resources to provide access tomore than a small number of the poor, the Legal Services Programproclaimed law reform to be its national priority. 37

Consistent with the approach of the Legal Services Program,lawyers representing clients with consumer problems in local legalservices offices receiving funding from the Legal Services Programbegan bringing cases that sought, not only to gain redress for theirclients' immediate problems, but also to change laws that worked totheir clients' detriment. Although lawyers undoubtedly broughtconsumer cases and advocated for consumer laws before the adventof the Legal Services Program, that program created the opportunityfor substantial numbers of lawyers across the country to launch alarge number of consumer law reform efforts. This article describesthe important role these lawyers played in the development of thiscountry's consumer law.

30. Id at 11-12.31. Id. at 13.32. Id.; see also DAVIS, supra note 27, at 10.33. JOHNSON, supra note 27, at 14.34. Id. at 13.35. Id. at 127.36. Id. at 70.37. Id at 130-33.

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was a significant departure from the approach of most of the traditional legal aid offices that represented the poor in the past. The goal of legal aid was to provide the poor with access to legal representation.3o The substantive law was regarded as fair to all. 31

Objectives that might have secured a more lasting benefit such as using the law to improve the social and economic status of the poor were not a priority.32 Few cases were appealed,33 and no case was ever brought before the Supreme Court. 34

The Legal Services Program was based on a different model. The Legal Services Program began disbursing funds to local offices in 1965.35 They did so without first deciding whether the program's top priority should be access to the legal system for low income persons or reform of that system.36 By 1967, however, faced with a burgeoning caseload and inadequate resources to provide access to more than a small number of the poor, the Legal Services Program proclaimed law reform to be its national priority. 37

Consistent with the approach of the Legal Services Program, lawyers representing clients with consumer problems in local legal services offices receiving funding from the Legal Services Program began bringing cases that sought, not only to gain redress for their clients' immediate problems, but also to change laws that worked to their clients' detriment. Although lawyers undoubtedly brought consumer cases and advocated for consumer laws before the advent of the Legal Services Program, that program created the opportunity for substantial numbers of lawyers across the country to launch a large number of consumer law reform efforts. This article describes the important role these lawyers played in the development of this country's consumer law.

30. [d. at 11-12. 31. [d. at 13. 32. !d.; see a/so DAVIS, supra note 27, at 10. 33. JOHNSON, supra note 27, at 14. 34. [d. at 13. 35. [d. at 127. 36. [d. at 70. 37. [d. at 130-33.

6




Also significant to the development of consumer law was the Legal

Services Program's decision to fund national backup centers toparticipate in law reform. The Legal Services Program believed thatnational support centers would be better equipped to bring law reformcases than local offices because they would specialize in narrowfields of law, something most local offices would not have the abilityto do.38 In addition, the backup centers were expected to engage intraining and produce research materials that would assist local officesin their cases. 39 Boston College Law School submitted a grantproposal to OEO to establish a consumer backup center, OEOapproved, and the National Consumer Law Center (NCLC) beganoperating in 1969, the same year the Truth in Lending Act went intoeffect. 4° In 1995, however, OEO's successor, the Legal ServicesCorporation (LSC), bowing to political pressure and the certainty of asubstantial funding cutback, terminated funding of all backup centers,including NCLC's. As discussed in Part VI.A.2, even after losingLSC funding,41 NCLC has played a significant role in thedevelopment of consumer law in the United States.42 After losingLSC funding, NCLC was instrumental in organizing privateconsumer attorneys into a national association, and also continuedtheir consumer law activities.

38. JOHNSON, supra note 27, at 182.39. Id.40. William F. Willier, National Consumer Law Center: Current and Projected Activities, 3

CLEARINGHOUSE REv. 64 (1969). Professor William F. Willier was NCLC's first Executive Director. Id

NCLC's connection to the federal Truth in Lending Act was more than the coincidence of sharing thesame commencement date. Senator William Proxmire credited Willier with playing a direct role in the

enactment of the federal law. John H. Fenton, Boston College to Aid Consumer, N.Y. TIMES, July 31,

1969. TILA's effective date was 1969. Pub. L. No. 90-321, § 504, 82 Stat. 146, 167 (1968). For adescription of the welfare rights movement and its relationship to OEO, see Jack Greenberg, Litigation

for Social Change: Method, Limits and Role in Democracy, 29 REC. ASS'N B. CITY OF N.Y. 320 (1974),reprinted in JACK GREENBERG, JUDICIAL PROCESS AND SOCIAL CHANGE: CONSTITUTIONAL LITIGATION

581, 590, 592-93 (1977).41. See infra text accompanying notes 218-23.42. The author was Executive Director of NCLC from 1975-1979. He is currently on NCLC's Board

of Directors.



Also significant to the development of consumer law was the Legal Services Program's decision to fund national backup centers to participate in law reform. The Legal Services Program believed that national support centers would be better equipped to bring law reform cases than local offices because they would specialize in narrow fields of law, something most local offices would not have the ability to do.38 In addition, the backup centers were expected to engage in training and produce research materials that would assist local offices in their cases.39 Boston College Law School submitted a grant proposal to OEO to establish a consumer backup center, OEO approved, and the National Consumer Law Center (NCLC) began operating in 1969, the same year the Truth in Lending Act went into effect.4o In 1995, however, OEO's successor, the Legal Services Corporation (LSC), bowing to political pressure and the certainty of a substantial funding cutback, terminated funding of all backup centers, including NCLC's. As discussed in Part VI.A.2, even after losing LSC funding,41 NCLC has played a significant role in the development of consumer law in the United States.42 After losing LSC funding, NCLC was instrumental in organizing private consumer attorneys into a national association, and also continued their consumer law activities.

38. JOHNSON, supra note 27, at 182. 39. Id 40. William F. Willier, National Consumer Law Center: Current and Projected Activities, 3

CLEARINGHOUSE REv. 64 (1969). Professor William F. Willier was NCLC's first Executive Director. Id NCLC's connection to the federal Truth in Lending Act was more than the coincidence of sharing the same commencement date. Senator William Proxmire credited Willier with playing a direct role in the enactment of the federal law. John H. Fenton, Boston College to Aid Consumer, N.Y. TiMES, July 31, 1969. TILA's effective date was 1969. Pub. L. No. 90-321, § 504, 82 Stat. 146, 167 (1968). For a description of the welfare rights movement and its relationship to OEO, see Jack Greenberg, Litigation for Social Change: Method, Limits and Role in Democracy, 29 REc. AsS'N B. CITY OF N.Y. 320 (1974), reprinted in JACK GREENBERG, JUDICIAL PROCESS AND SOCIAL CHANGE: CONSTITUTIONAL LITIGATION 581,590,592-93 (1977).

41. See infra text accompanying notes 218-23. 42. The author was Executive Director ofNCLC from 1975-1979. He is currently on NCLC's Board

of Directors.

7




B. The Truth in Lending Act

The Truth in Lending Act (TILA) was the first federal lawdesigned to protect consumers shopping for credit. 43 TILA's mainproponent was Senator Paul H. Douglas of Illinois.44 He has beencalled the "father" of TILA.45 TILA was intended to ameliorate the

46inadequacies of state law. Although consumer advocates are amongits chief critics today,47 in the years following its enactment, it hasprovided consumer lawyers with a litigation handle for ameliorating

48the problems of their clients.For example, a consumer might come to her lawyer's office

complaining that she cannot afford to pay a loan because of the highinterest rate. She claims the lender lied to her about the true cost ofthe loan, and never disclosed many of the terms. State usury law,however, may permit the high interest rate the lender charged.Moreover, the lender's oral fraud in regard to the true cost would bedifficult to prove. The law generally does not require lenders to orallydisclose important information as long as it is clearly disclosed inwritten documents and the consumer has the opportunity to read thedocuments.49 However, if the consumer's attorney can find a TILAviolation on the face of the loan documents, the consumer has a causeof action with which to counter the lender's conduct.

Indeed, consumer lawyers found rampant violations of TILA andbrought thousands of lawsuits as well as using those violations ascounterclaims in what had heretofore been "slam dunk" debt

43. Enactment of TILA "marked the birth of modem consumer legislative activism." ELIZABETH

RENUART & KATHLEEN KEEST, TRuTH IN LENDING 4 (6th ed. 2007) [hereinafter RENUART & KEEST-TILA]. TILA is one part of umbrella legislation called the Consumer Credit Protection Act (CCPA).Peterson, supra note 13, at 880. In addition to TILA, which is Subchapter I, CCPA includes SubchapterII, restrictions on garnishment, Subchapter IIA, Credit Repair Organizations, Subchapter III, CreditReporting Agencies, Subchapter IV, Equal Credit Opportunity, Subchapter V, debt collection practices,and Subchapter VI, electronic fund transfers.

44. Peterson, supra note 13, at 877.45. RENUART & KEEST-TILA, supra note 43, at 1.46. Id47. Peterson, supra note 13, at 880-81.48. RENUART & KEEST-TILA, supra note 43, at 3-4 (explaining that TILA disclosures may provide

information that can be used to bring actions for violation of laws besides TILA).49. See, e.g., 15 U.S.C. § 1638 (1969) (TILA disclosures for transactions other than under an open

end credit plan); id. § 1638(b) (requiring TILA disclosures be made before credit is extended).

[Vol. 26:41154



B. The Truth in Lending Act

The Truth in Lending Act (TILA) was the first federal law designed to protect consumers shopping for credit.43 TILA's main proponent was Senator Paul H. Douglas of Illinois.44 He has been called the "father" of TILA. 45 TILA was intended to ameliorate the inadequacies of state law. 46 Although consumer advocates are among its chief critics today,47 in the years following its enactment, it has provided consumer lawyers with a litigation handle for ameliorating the problems of their clients.48

For example, a consumer might come to her lawyer's office complaining that she cannot afford to pay a loan because of the high interest rate. She claims the lender lied to her about the true cost of the loan, and never disclosed many of the terms. State usury law, however, may permit the high interest rate the lender charged. Moreover, the lender's oral fraud in regard to the true cost would be difficult to prove. The law generally does not require lenders to orally disclose important information as long as it is clearly disclosed in written documents and the consumer has the opportunity to read the documents.49 However, if the consumer's attorney can find a TILA violation on the face of the loan documents, the consumer has a cause of action with which to counter the lender's conduct.

Indeed, consumer lawyers found rampant violations of TILA and brought thousands of lawsuits as well as using those violations as counterclaims in what had heretofore been "slam dunk" debt

43. Enactment of TILA "marked the birth of modern consumer legislative activism." ELIZABETH RENuART & KATHLEEN KEEST, TRUTH IN LENDING 4 (6th ed. 2007) [hereinafter RENuART & KEESTTILA]. TILA is one part of umbrella legislation called the Consumer Credit Protection Act (CCPA). Peterson, supra note 13, at 880. In addition to TILA, which is Subchapter I, CCPA includes Subchapter II, restrictions on garnishment, Subchapter IIA, Credit Repair Organizations, Subchapter III, Credit Reporting Agencies, Subchapter IV, Equal Credit Opportunity, Subchapter V, debt collection practices, and Subchapter VI, electronic fund transfers.

44. Peterson, supra note 13, at 877. 45. RENuART & KEEST-TILA, supra note 43, at I. 46. Id 47. Peterson, supra note 13, at 880-81. 48. RENuART & KEEST-TILA, supra note 43, at 3-4 (explaining that TILA disclosures may provide

information that can be used to bring actions for violation of laws besides TILA). 49. See. e.g., IS U.S.C. § 1638 (l969) (TJLA disclosures for transactions other than under an open

end credit plan); id § 1638(b) (requiring TILA disclosures be made before credit is extended).

8



2010] THE DEVELOPMENT OF CONSUMER PROTECTION LAW

collection claims, 50 winning most of these cases. 51 The credit industrycomplained to Congress, resulting in the 1980 enactment of the Truthin Lending "Simplification" Act that greatly reduced the ability ofconsumer lawyers to sue for TILA violations. 52 Nevertheless,consumer lawyers who had brought cases under the original versionof TILA gained valuable experience they could use in bringing casesunder other statutes. Moreover, even after "simplification" TILA isstill an important resource for consumer lawyers. It continues toimpose many requirements upon creditors and provides consumerswith meaningful remedies such as actual damages, statutory damages,costs, attorney fees, and in certain situations three years to canceltransactions where the creditor takes a security interest in theconsumer's home. 53 In addition, by examining the TILA disclosuresand the amounts disclosed, the consumer's lawyer may discoverviolations of state usury laws or the common law. 54

C. State Legislation

In 1968, the same year TILA was enacted, the National Conferenceof Commissioners on Uniform State Laws published the UniformConsumer Credit Code (UCCC). 55 The drafters were guided byseveral basic assumptions which included: usury laws are "historicalvestiges of the erroneous supposition that emperors, kings andgovernments could effectively fix all prices;" 56 competition should beallowed to determine the pricing of money and credit; and credit

50. Peterson, supra note 13, at 886 (citing KATHLEEN E. KEEST & GARY KLEIN, NATIONAL

CONSUMER LAW CENTER, TRUTH IN LENDING 34 (3d ed. 1995)).51. Id. at 889.52. Pub. L. No. 96-221, 94 Stat. 168 (1980); Peterson, supra note 13, at 888-89. See generally

Elizabeth Renuart & Diane E. Thompson, The Truth, the Whole Truth, and Nothing but the Truth:

Fulfilling the Promise of Truth in Lending, 25 YALE J. ON REG. 181, 201-02 (2008).53. RENUART & KEEST-TILA, supra note 43, at 3.54. Id. at 4.55. UNIF. CONSUMER CREDIT CODE (1968) (approved by the National Conference of Commissioners

on Uniform State Laws at its Annual Conference, July 22-August 1, 1968; approved by the AmericanBar Association at Its Meeting, August 7, 1968; reprinted from COMMERCE CLEARINGHOUSE, NEWRULES ON CONSUMER CREDIT PROTECTION 263 (1969) [hereinafter UCCC 1968]). See generally RobertL. Jordan & William D. Warren, The Uniform Consumer Credit Code, 68 COLUM. L. REV. 387 (1968).

56. UCCC 1968, supra note 55, at 267.

1155



collection claims, 50 winning most of these cases.51 The credit industry complained to Congress, resulting in the 1980 enactment of the Truth in Lending "Simplification" Act that greatly reduced the ability of consumer lawyers to sue for TILA violations. 52 Nevertheless, consumer lawyers who had brought cases under the original version of TILA gained valuable experience they could use in bringing cases under other statutes. Moreover, even after "simplification" TILA is still an important resource for consumer lawyers. It continues to impose many requirements upon creditors and provides consumers with meaningful remedies such as actual damages, statutory damages, costs, attorney fees, and in certain situations three years to cancel transactions where the creditor takes a security interest in the consumer's home.53 In addition, by examining the TILA disclosures and the amounts disclosed, the consumer's lawyer may discover violations of state usury laws or the common law.54

C. State Legislation

In 1968, the same year TILA was enacted, the National Conference of Commissioners on Uniform State Laws published the Uniform Consumer Credit Code (UCCC).55 The drafters were guided by several basic assumptions which included: usury laws are "historical vestiges of the erroneous supposition that emperors, kings and governments could effectively fix all prices;,,56 competition should be allowed to determine the pricing of money and credit; and credit

50. Peterson, supra note 13, at 886 (citing KATHLEEN E. KEEST & GARY KLEIN, NATIONAL CONSUMER LAW CENTER, TRUTH IN LENDING 34 (3d ed. 1995».

51. Id. at 889. 52. Pub. L. No. 96-221, 94 Stat. 168 (1980); Peterson, supra note 13, at 88S-89. See generally

Elizabeth Renuart & Diane E. Thompson, The Truth, the Whole Truth, and Nothing but the Truth: Fulfilling the Promise o/Truth in Lending, 25 YALE J. ON REG. 181,201-02 (2008).

53. RENuART & KEEST-TILA, supra note 43, at 3. 54. Id. at 4. 55. UNIF. CONSUMER CREDIT CODE (1968) (approved by the National Conference of Commissioners

on Uniform State Laws at its Annual Conference, July 22-August I, 1968; approved by the American Bar Association at Its Meeting, August 7, 1968; reprinted from COMMERCE CLEARINGHOUSE, NEW RULES ON CONSUMER CREDIT PROTECfION 263 (1969) [hereinafter UCCC 1968]). See generally Robert L. Jordan & William D. Warren, The Uniform Consumer Credit Code, 68 COLUM. L. REv. 387 (1968).

56. UCCC 1968, supra note 55, at 267.

9




grantors should have relatively easy entry into the market. 57 In regardto enforcement, creditor rights and remedies should not be restrictedtoo much, and consumer rights and remedies should not be too great.Otherwise those who were "less creditworthy" would be deprived "oflawful sources of credit" and driven into the arms of loan sharks. 58

Consistent with these assumptions, the UCCC relies primarily oncompetition to protect consumers from unreasonably high creditcosts, although it does contain rate ceilings. 59

Consumer advocates opposed the UCCC because they believed itdid not adequately protect consumers. More significant, however,was the action they took to transform that dissatisfaction into positiveaction. NCLC and the National Legal Aid and Defender Association(NLADA) co-sponsored a conference the first month NCLC beganoperations. The conference was attended by 55 consumer expertsfrom around the country.60 The consensus of those present was thatNCLC should draft a substantial revision of the 1968 version of theUCCC.

6 1

The NCLC's revision was called the National Consumer Act andwas published in 1970.62 Compared to the UCCC, the NCA is farmore protective of consumers and broader in scope. 6 3 No stateadopted the NCA in its totality, but Wisconsin enacted major portionsand other states passed individual provisions.64 More importantly,when confronted with the contrast between the NCA and the UCCC,most states refused to enact the UCCC. Only seven states adopted the

57. Id.58. Id.59. See generally Jordan & Warren, supra note 55.60. NAT'L CONSUMER LAW CENTER, NATIONAL CONSUMER ACT, FIRST FINAL DRAFT, at iii (1969),

available at http://www.consumerlaw.org/issues/credit code-archive/content/National%20Consumer/o2OAct.pdf [hereinafter NCA].

61. Id. at iv.62. ELIZABETH RENUART & KATHLEEN E. KEEST, THE COST OF CREDIT: REGULATION,

PREEMPTION, AND INDUSTRY ABUSES 35 (4th ed. 2009) [hereinafter RENUART & KEEST-CREDIT].

63. ROTHSCHILD & CARROLL, supra note 1, at 817-29. "[The NCA abolished the traditionaldistinction between loans and credit sales, restricted security interests and credit insurance commissions,and addressed credit bureau abuses and deceptive trade practices." RENUART & KEEST-CREDIT, supranote 62, at 35.

64. ROTHSCHILD & CARROLL, supra note 1, at 816; RENUART & KEEST--CREDIT, supra note 62, at35 n.182.

[Vol. 26:41156



grantors should have relatively easy entry into the market. 57 In regard to enforcement, creditor rights and remedies should not be restricted too much, and consumer rights and remedies should not be too great. Otherwise those who were "less creditworthy" would be deprived "of lawful sources of credit" and driven into the arms of loan sharks. 58 Consistent with these assumptions, the UCCC relies primarily on competition to protect consumers from unreasonably high credit costs, although it does contain rate ceilings. 59

Consumer advocates opposed the UCCC because they believed it did not adequately protect consumers. More significant, however, was the action they took to transform that dissatisfaction into positive action. NCLC and the National Legal Aid and Defender Association (NLADA) co-sponsored a conference the first month NCLC began operations. The conference was attended by 55 consumer experts from around the country.60 The consensus of those present was that NCLC should draft a substantial revision of the 1968 version of the UCCC.61

The NCLC's revision was called the National Consumer Act and was published in 1970.62 Compared to the UCCC, the NCA is far more protective of consumers and broader in scope.63 No state adopted the NCA in its totality, but Wisconsin enacted major portions and other states passed individual provisions.64 More importantly, when confronted with the contrast between the NCA and the UCCC, most states refused to enact the UCCC. Only seven states adopted the

57. ld. 58. ld. 59. See generally Jordan & Warren, supra note 55. 60. NAT'L CONSUMER LAW CENTER, NATIONAL CONSUMER ACf, FIRST FINAL DRAFT, at iii (1969),

available at http://www.consumerlaw.orglissueslcredit_code_archivelcontentl National%20Consumer''1020Act.pdf[hereinafter NCA].

61. Id.ativ. 62. ELIZABETH RENuART & KATHLEEN E. KEEST, THE COST OF CREDIT: REGULATION,

PREEMPTION, AND INDUSTRY ABUSES 35 (4th ed. 2009) [hereinafter RENUART & KEEST-CREDIT]. 63. ROTHSCHILD & CARROLL, supra note I, at 817-29. "[T]he NCA abolished the traditional

distinction between loans and credit sales, restricted security interests and credit insurance commissions, and addressed credit bureau abuses and deceptive trade practices." RENUART & KEEST-CREDIT, supra note 62, at 35.

64. ROTHSCHILD & CARROLL, supra note I, at 816; RENUART & KEEST-CREDIT, supra note 62, at 35 n.182.

10




1968 version. 65 The UCCC was revised to include greater protectionin 1974, but only four states adopted portions of it.66 The drafters ofthe 1974 version acknowledged NCLC's two model statutes. 67 Thedrafters also admitted that legal services attorneys had made themaware of low income consumers' needs. 68

Perhaps as important as stopping the UCCC was the processinvolved in this first effort at national consumer legislative advocacy.As described above, in reaction to the UCCC, NCLC and NLADAsponsored a conference of 55 experts who recommended drafting amodel act. In other words, the decision to draft the NCA was notmade by a few isolated individuals determining on their own whatwas best for consumers. In addition, in drafting the NCA, NCLC"relied heavily" on persons from major consumer organizations suchas Consumer Federation of America, Consumers Union, and theNAACP Legal Defense Fund.69

One of the most significant developments on the state level startingin 1965 was the enactment of laws modeled on the FTC Act thatprohibited unfair and deceptive acts and practices.7 ° Unlike the FTC

65. RENuART & KEEST-CREDIT, supra note 62, at 35.66. Id. at 35. In 1973, NCLC published a successor to the NCA, the Model Consumer Credit Act.

ROTHSCHILD & CARROLL, supra note 1, at 816. The 1974 version of the UCCC "included stronger,consumer oriented' provisions to assuage the concerns of consumer groups, such as the NationalConsumer Law Center." Peter V. Letsou, The Political Economy of Consumer Credit Legislation, 44EMORY L.J. 587, 636 n.161 (1995).

67. The Prefatory Note to the 1974 version reflects the drafters' hostility to NCLC's NCA andMCCA, claiming they take "extreme consumer positions." UNIr. CONSUMER CREDIT CODE PrefatoryNote, at XVIII (1974) (Official 1974 Text with Comments) [hereinafter Prefatory Note].

68. "Information gained from legal services attorneys has thrown new light on the needs of poverty-level consumers, but has also revealed that those needs cannot be met solely by consumer creditlegislation of general application." Id. at XVIII. The Prefatory Note to the 1974 version of the UCCCreflects the drafters' hostility to NCLC's NCA and MCCA, claiming they take "extreme consumerpositions." Id. at XVII; see also Letsou, supra note 66, at 636 n.161 (stating that the 1974 revision of theUCCC "included stronger 'consumer oriented' provisions to assuage the concerns of consumer groupssuch as the National Consumer Law Center").

69. NCA, supra note 60, at iv. One of the co-drafters of the Wisconsin Consumer Act subsequentlybecame the Deputy Director of NCLC. Richard A. Elbrecht, The NCCUSL Should Abandon Its Searchfor Consensus and Address More Difficult and Controversial Issues Applying 'Process' Concepts, 28Loy. L.A. L. REv. 147, 174 n.a (1994). See generally Jeffrey Davis, Legislative Restrictions of CreditorPower and Remedies: A Case Study of the Negotiation and Drafting of the Wisconsin Consumer Act, 72MICH. L. REv. 3 (1973) (comparing the Wisconsin Consumer Act with the UCCC and the NCLC's NCAand MCCA); Thomas Crandell, The Wisconsin Consumer Act: Wisconsin Consumer Credit Laws Beforeand Afier, 1973 WiS. L. REv. 334 (1973).

70. GREENFIELD, supra note 12, at 160.

1157



1968 version.65 The UCCC was revised to include greater protection in 1974, but only four states adopted portions of it.66 The drafters of the 1974 version acknowledged NCLC's two model statutes.67 The drafters also admitted that legal services attorneys had made them aware of low income consumers' needs.68

Perhaps as important as stopping the UCCC was the process involved in this first effort at national consumer legislative advocacy. As described above, in reaction to the UCCC, NCLC and NLADA sponsored a conference of 55 experts who recommended drafting a model act. In other words, the decision to draft the NCA was not made by a few isolated individuals determining on their own what was best for consumers. In addition, in drafting the NCA, NCLC "relied heavily" on persons from major consumer organizations such as Consumer Federation of America, Consumers Union, and the NAACP Legal Defense Fund.69

One of the most significant developments on the state level starting in 1965 was the enactment of laws modeled on the FTC Act that prohibited unfair and deceptive acts and practices.70 Unlike the FTC

65. RENuART & KEEST-CREDIT, supra note 62, at 35. 66. Id. at 35. In 1973, NCLC published a successor to the NCA, the Model Consumer Credit Act.

ROTHSCHILD & CARROLL, supra note I, at 816. The 1974 version of the UCCC "included stronger 'consumer oriented' provisions to assuage the concerns of consumer groups, such as the National Consumer Law Center." Peter V. Letsou, The Political Economy of Consumer Credit Legislation, 44 EMORY L.J. 587,636 n.161 (1995).

67. The Prefatory Note to the 1974 version reflects the drafters' hostility to NCLC's NCA and MCCA, claiming they take "extreme consumer positions." UNIF. CONSUMER CREDIT CODE Prefatory Note, at XVIII (1974)(OfficiaI1974 Text with Comments) [hereinafter Prefatory Note].

68. "Information gained from legal services attorneys has thrown new light on the needs of povertylevel consumers, but has also revealed that those needs cannot be met solely by consumer credit legislation of general application." Id. at XVIII. The Prefatory Note to the 1974 version of the UCCC reflects the drafters' hostility to NCLC's NCA and MCCA, claiming they take "extreme consumer positions." Id. at XVII; see also Letsou, supra note 66, at 636 n.161 (stating that the 1974 revision of the UCCC "included stronger 'consumer oriented' provisions to assuage the concerns of consumer groups such as the National Consumer Law Center").

69. NCA, supra note 60, at iv. One of the co-drafters of the Wisconsin Consumer Act subsequently became the Deputy Director of NCLC. Richard A. Elbrecht, The NCCUSL Should Abandon Its Search for Consensus and Address More Difficult and Controversial Issues Applying 'Process' Concepts, 28 loY. L.A. L. REv. 147, 174 n.a (1994). See generally Jeffrey Davis, Legislative Restrictions of Creditor Power and Remedies: A Case Study of the Negotiation and Drafting of the Wisconsin Consumer Act, 72 MICH. L. REv. 3 (1973) (comparing the Wisconsin Consumer Act with the UCCC and the NCLC's NCA and MCCA); Thomas Crandell, The Wisconsin Consumer Act: Wisconsin Consumer Credit Laws Before and After, 1973 WIS. L. REv. 334 (1973).

70. GREENFIELD, supra note 12, at 160.

11




Act, however, they authorized a private right of action, permittedconsumers to obtain injunctive relief, and provided for recovery ofdamages. 7 1 Some of the statutes and some of the case law construingthe statutes, however, have restricted these laws by requiring actualdamages, a showing the consumer's lawsuit is in the "publicinterest," and a notice or demand letter prior to commencing suit.72

D. The Supreme Court Cases

Whereas TILA was the major victory in the federal legislativerealm, several Supreme Court cases established important principlesand stopped creditor practices that had been abusive to consumers.The first major case, Sniadach v. Family Finance Corp., was broughtby the NAACP Legal Defense Fund and decided in 1969, the sameyear TILA became effective and NCLC was established.73 As notedabove, consumer lawyers started to become active in the milieu of thecivil rights movement.74 It is therefore fitting that the NAACP LegalDefense Fund, the main litigation arm of the civil rights movement,was intimately connected to the first major consumer case before theSupreme Court.75 Its involvement indicates that the NAACP believedthere was a close connection between civil rights and consumerrights. An amicus brief was filed by Consumers Union, anotherorganization that has been an important participant in consumer lawreform efforts.76 In Sniadach, the Supreme Court struck down as

71. Id. at 161-62.72. Donna S. Shapiro, The Georgia Fair Business Practices Act: Business As Usual, 9 GA. ST. U. L.

REV. 453, 456 (1993). See generally CAROLYN L. CARTER & JONATHAN SHELDON, UNFAIR AND

DECEPTIVE ACTS AND PRACTICES (7th ed. 2008).

73. Sniadach v. Family Fin. Corp. of Bay View, 395 U.S. 337 (1969). The NAACP Legal DefenseFund also was involved in drafting NCLC's National Consumer Act. See supra text accompanying note69.

74. See supra text accompanying notes 26-28.75. The NAACP Legal Defense Fund brought the landmark case of Brown v. Board of Education.

Calvin William Sharpe, "Judging Good Faith, " Seeing Justice Marshall's Legacy Through a LaborCase, 26 ARiZ. ST. L.J. 479, 479-82 (1994) (noting that Thurgood Marshall represented the NAACPLegal Defense Fund in the Brown case); see JOEL F. HANDLER, SOCIAL MOVEMENTS AND THE LEGAL

SYSTEM, A THEORY OF LAW REFORM AND SOCIAL CHANGE 27 (1978) (stating that the Legal Servicesprogram's law reform effort was modeled on that of the NAACP and the NAACP Legal Defense Fund).

76. Lexis version of the case notes that Consumers Union filed an amicus brief. Consumers Union isthe publisher of CONSUMER REPORTS; see www.consumersunion.org.

[Vol. 26:41158



Act, however, they authorized a private right of action, pennitted consumers to obtain injunctive relief, and provided for recovery of damages.71 Some of the statutes and some of the case law construing the statutes, however, have restricted these laws by requiring actual damages, a showing the consumer's lawsuit is in the "public interest," and a notice or demand letter prior to commencing suit. 72

D. The Supreme Court Cases

Whereas TILA was the major victory in the federal legislative realm, several Supreme Court cases established important principles and stopped creditor practices that had been abusive to consumers. The first major case, Sniadach v. Family Finance Corp., was brought by the NAACP Legal Defense Fund and decided in 1969, the same year TILA became effective and NCLC was established.73 As noted above, consumer lawyers started to become active in the milieu of the civil rights movement.74 It is therefore fitting that the NAACP Legal Defense Fund, the main litigation ann of the civil rights movement, was intimately connected to the first major consumer case before the Supreme COurt.75 Its involvement indicates that the NAACP believed there was a close connection between civil rights and consumer rights. An amicus brief was filed by Consumers Union, another organization that has been an important participant in consumer law reform efforts.76 In Sniadach, the Supreme Court struck down as

71. Id. at 161--62. 72. Donna S. Shapiro, The Georgia Fair Business Practices Act: Business As Usual, 9 GA. ST. U. L.

REv. 453, 456 (1993). See generally CAROLYN L. CARTER & JONATHAN SHELDON, UNFAIR AND DECEPTIVE ACTS AND PRACTICES (7th ed. 2008).

73. Sniadach v. Family Fin. Corp. of Bay View, 395 U.S. 337 (1969). The NAACP Legal Defense Fund also was involved in drafting NCLC's National Consumer Act. See supra text accompanying note 69.

74. See supra text accompanying notes 26-28. 75. The NAACP Legal Defense Fund brought the landmark case of Brown v. Board of Education.

Calvin William Sharpe, "Judging Good Faith, " Seeing Justice Marshall's Legacy Through a Labor Case, 26 ARIZ. ST. L.J. 479, 479-82 (1994) (noting that Thurgood Marshall represented the NAACP Legal Defense Fund in the Brown case); see JOEL F. HANDLER, SOCIAL MOVEMENTS AND THE LEGAL SYSTEM, A THEORY OF LAW REFORM AND SOCIAL CHANGE 27 (1978) (stating that the Legal Services program's law reform effort was modeled on that of the NAACP and the NAACP Legal Defense Fund).

76. Lexis version of the case notes that Consumers Union filed an amicus brief. Consumers Union is the publisher of CONSUMER REpORTS; see www.consumersunion.org.

12




violating due process Wisconsin's prejudgment garnishment law thatpermitted a creditor to obtain a court order freezing a consumer'swages absent prior notice and opportunity for a hearing. Prejudgmentgarnishment deprived the consumer of the chance to assert a defensesuch as the creditor's fraud 77 and could result in "tremendoushardship" for a worker with a family.78

Sniadach was followed by a series of due process cases. Officesfunded by the Legal Services program brought much of this litigationand NCLC filed amicus briefs.79 Although the Supreme Courtinitially used broad language to strike down seizures on due processgrounds, it subsequently narrowed its rulings somewhat.8 0 Moreover,self-help seizures survived due process challenges due to a lack ofstate action. 81 Never again, however, could a creditor obtain a writ ofreplevin to seize a consumer's car or furniture without prior noticeand an opportunity for a hearing at which the creditor must establishthe probable validity of the underlying claim against the consumer.Sniadach and its progeny continued to be followed as comparabletypes of statutes were struck down many years later.82

The Supreme Court also decided cases that upheld the FederalReserve Board's (FRB) authority to issue regulations pursuant toTILA. This has proven to be a two-edged sword for consumers. TILAprovides that creditors have to make various disclosures in

77. Sniadach, 395 U.S. at 339.78. Id. at 340. The Court found support in the evidence and conclusions of congressional hearings on

garnishment. Id. at 340-41.79. See, e.g., Craft v. Memphis Gas, 436 U.S. 1, 19 (1978) (recognizing utility service as a

"necessity of modem life" and requiring hearing prior to termination of service); Mitchell v. W.T. Grant,416 U.S. 600, 630-36 (1974) (Stewart, J., dissenting) (restricting the holding in Fuentes); Jackson v.Metro. Edison, 419 U.S. 345, 363--64 (1974) (holding termination of utility service violates dueprocess); Fuentes v. Shevin, 407 U.S. 67, 97-98 (1972) (holding prejudgment replevin statutes violatedue process); Swarb v. Lennox, 405 U.S. 191, 206 (1972), reh'g denied, 405 U.S. 1049 (1972)(dismissing on procedural grounds a challenge to confession of judgment). "It is because social-reformgroups lack the power to seek their demands through normal political processes or through direct actionthat they turn to [the courts] for help. Courts have always been used by those who find the balance ofpolitical forces against them. The powerless seek to neutralize inequities in bargaining power or at leastto extract some concessions from their opponents." HANDLER, supra note 75, at 22.

80. See Mitchell, 416 U.S. at 617-18.81. Lawrence A. Alexander, Cutting the Gordian Knot: State Action and Self-Help Repossession, 2

HASTINGS CONST. L.Q. 893 (1975).82. See, e.g., Wyatt v. Cole, 710 F. Supp. 180, 182 (S.D. Miss. 1989) (striking down replevin law

and citing Fuentes), rev'd on other grounds, 504 U.S. 158 (1992).

1159


2010] THE DEVELOPMENT OF CONSUMER PROTECTION LAW 1159

violating due process Wisconsin's prejudgment garnishment law that pennitted a creditor to obtain a court order freezing a consumer's wages absent prior notice and opportunity for a hearing. Prejudgment garnishment deprived the consumer of the chance to assert a defense such as the creditor's fraud77 and could result in "tremendous hardship" for a worker with a family. 78

Sniadach was followed by a series of due process cases. Offices funded by the Legal Services program brought much of this litigation and NCLC filed amicus briefs.79 Although the Supreme Court initially used broad language to strike down seizures on due process grounds, it subsequently narrowed its rulings somewhat. 80 Moreover, self-help seizures survived due process challenges due to a lack of state action.81 Never again, however, could a creditor obtain a writ of replevin to seize a consumer's car or furniture without prior notice and an opportunity for a hearing at which the creditor must establish the probable validity of the underlying claim against the consumer. Sniadach and its progeny continued to be followed as comparable types of statutes were struck down many years later. 82

The Supreme Court also decided cases that upheld the Federal Reserve Board's (FRB) authority to issue regulations pursuant to TILA. This has proven to be a two-edged sword for consumers. TILA provides that creditors have to make various disclosures in

77. Sniadach, 395 u.s. at 339. 78. [d. at 340. The Court found support in the evidence and conclusions of congressional hearings on

garnishment. [d. at 340-41. 79. See, e.g., Craft v. Memphis Gas, 436 U.S. 1, 19 (1978) (recognizing utility service as a

''necessity of modem life" and requiring hearing prior to termination of service); Mitchell v. W. T. Grant, 416 U.S. 600, 630-36 (1974) (Stewart, J., dissenting) (restricting the holding in Fuentes); Jackson v. Metro. Edison, 419 U.S. 345, 363--64 (1974) (holding termination of utility service violates due process); Fuentes v. Shevin, 407 U.S. 67, 97-98 (1972) (holding prejudgment replevin statutes violate due process); Swarb v. Lennox, 405 U.S. 191, 206 (1972), reh'g denied, 405 U.S. 1049 (1972) (dismissing on procedural grounds a challenge to confession of judgment). "It is because social-reform groups lack the power to seek their demands through normal political processes or through direct action that they tum to [the courts] for help. Courts have always been used by those who find the balance of political forces against them. The powerless seek to neutralize inequities in bargaining power or at least to extract some concessions from their opponents." HANDLER, supra note 75, at 22.

80. See Mitchell, 416 U.S. at 617-18. 81. Lawrence A. Alexander, Cutting the Gordian Knot: State Action and Self-Help Repossession, 2

HASTINGS CONST. L.Q. 893 (1975). 82. See, e.g., Wyatt v. Cole, 710 F. Supp. 180, 182 (S.D. Miss. 1989) (striking down replevin law

and citing Fuentes), rev 'd on other grounds, 504 U.S. 158 (1992).

13




transactions in which they impose a finance charge.83 Creditors couldeasily avoid these requirements simply by not stating any financecharge in their documents. The FRB, reasoning that any transactionin which the consumer can defer payment for more than a shortperiod of time must contain a hidden finance charge which is buriedin the price of the goods, issued its "four installment rule." Thatregulation triggers the TILA disclosure requirements, not only whenthere is a stated finance charge, but also if the consumer may pay inmore than four installments.84 In Mourning v. Family PublicationsService, Inc.,85 the Supreme Court upheld the FRB's power to issuethe regulation, holding that when Congress grants an administrativeagency general authority to promulgate regulations, as it had inTILA, the regulations should be upheld as long as they are reasonably

86related to the purposes of the statute.The case is important because it reflects the FRB's early

determination to close loopholes that may have been lurking throughCongress's failure to use more precise language in this first-of-its-kind federal legislation. The FRB's aggressive stance is significantbecause when Congress was considering TILA legislation, the FRBwas less than enthusiastic about being the agency delegated theresponsibility for issuing regulations pursuant to TILA.87

83. 15 U.S.C. § 1631 (1969).84. 12 C.F.R. § 226.2(k) (1982). The rationale for the rule is explained in Mourning v. Family

Publ'ns Serv., Inc., 411 U.S. 356, 366 (1973).85. Mourning, 411 U.S. at 356.86. Id. at 369.87. Hearings Before Subcomm. on Financial Institutions, Committee on Banking & Currency, 90th

Cong. 666-67 (1967) (statement of J.L. Robertson, Vice Chairman, Board of Governors of the FederalReserve System) (noting that its familiarity with the trade practices subject to TILA was "very limited,"that considering those practices would leave it with less time to formulate monetary policy, that itsexperience in setting monetary policy had not prepared it to implement TILA with regulations, that ithad no trained staff to determine if there were compliance with its regulations, and that if Congressnevertheless designated the FRB to issue regulations, it hoped that "in time" Congress would reassignthat role "to an agency better suited to perform the function"). Forty years after TILA became effective,President Obama proposed to grant the FRB its wish by establishing a Consumer Financial ProtectionAgency that would have sole rule-making authority under TILA. DEP'T OF THE TREASURY, FINANCIAL

REGULATORY REFORM, A NEW FOUNDATION: REBUILDING FNANCIAL SUPERVISION AND REGULATION

58, available at http://financialstability.gov/docs/regs/FinalReportweb.pdf (last visited Mar. 8, 2010);see infra text accompanying notes 328-350. Two years later, after TILA had already been enacted, theFRB voiced similar reservations when asked whether it would be the appropriate agency to draftregulations if Congress restricted the mailing of unsolicited credit cards in TILA. Hearings Before

[Vol. 26:41160



transactions in which they impose a fmance charge.83 Creditors could easily avoid these requirements simply by not stating any finance charge in their documents. The FRB, reasoning that any transaction in which the consumer can defer payment for more than a short period of time must contain a hidden finance charge which is buried in the price of the goods, issued its "four installment rule." That regulation triggers the TILA disclosure requirements, not only when there is a stated finance charge, but also if the consumer may pay in more than four installments.84 In Mourning v. Family Publications Service, Inc., 85 the Supreme Court upheld the FRB' s power to issue the regulation, holding that when Congress grants an administrative agency general authority to promulgate regulations, as it had in TILA, the regulations should be upheld as long as they are reasonably related to the purposes of the statute. 86

The case is important because it reflects the FRB's early determination to close loopholes that may have been lurking through Congress's failure to use more precise language in this first-of-itskind federal legislation. The FRB's aggressive stance is significant because when Congress was considering TILA legislation, the FRB was less than enthusiastic about being the agency delegated the responsibility for issuing regulations pursuant to TILA. 87

83. IS u.s.c. § 1631 (1969). 84. 12 C.F.R. § 226.2(k) (1982). The rationale for the rule is explained in Mourning v. Family

Pub/'ns Serv .• Inc., 411 U.S. 356, 366 (1973). 85. Mourning, 411 U.S. at 356. 86. !d. at 369. 87. Hearings Before Subcomm. on Financial Institutions. Committee on Banking & Currency, 90th

Congo 666--67 (1967) (statement of J.L. Robertson, Vice Chairman, Board of Governors ofthe Federal Reserve System) (noting that its familiarity with the trade practices subject to TILA was ''very limited," that considering those practices would leave it with less time to formulate monetary policy, that its experience in setting monetary policy had not prepared it to implement TILA with regulations, that it had no trained staff to determine if there were compliance with its regulations, and that if Congress nevertheless designated the FRB to issue regulations, it hoped that "in time" Congress would reassign that role "to an agency better suited to perform the function"). Forty years after TILA became effective, President Obama proposed to grant the FRB its wish by establishing a Consumer Financial Protection Agency that would have sole rule-making authority under TILA. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION: REBUILDING FINANCIAL SUPERVISION AND REGULATION 58, available at http://financialstability.gov/docslregslFinalReport_web.pdf(last visited Mar. 8, 2010); see infra text accompanying notes 328-350. Two years later, after TILA had already been enacted, the FRB voiced similar reservations when asked whether it would be the appropriate agency to draft regulations if Congress restricted the mailing of unsolicited credit cards in TILA. Hearings Before

14




The facts in the Mourning case illustrate one of the typical types oflargely unregulated transactions that had been plaguing consumers.The consumer, Leila Mourning, was 73 years old. 88 A door-to-doorsalesman sold her five year subscriptions to four magazines. The totalcost was $122.44, payable in 30 monthly payments in addition to adown payment. The contract did not state a finance charge andcontained none of the TILA disclosures. It provided that if theconsumer missed any payment, the entire sum became due. Perhapsrealizing she had made a bad bargain, or perhaps because she couldnot afford the payments, Mourning defaulted and the magazineservice sent her dunning letters.

The case was typical in that the consumer was elderly, themarketing was done in the consumer's home where the consumermight well be alone and would feel vulnerable, and the amount of thetransaction was small. 89 Because of the small amount, the transactioncosts of challenging the transaction would be prohibitive in terms oftime and expense. Most lawyers would not even consider taking acase where so little money was involved.90

As a result of the FRB's "four installment rule," magazine servicessuch as the one involved in Mourning are required to make variousdisclosures to consumers. One might question, however, whether

Subcomm. on Financial Institutions, Committee on Banking & Currency, 91st Cong. 28 (1969)(statement of Andrew Brimmer, Board of Governors, Federal Reserve System) (testifying that the FRBshould authorize an agency "that is much closer to the consumer protection problem rather thanassigning it to the Federal Reserve Board"). The FRB, however, refused to recommend the FTC as anappropriate agency. Id. When Congress considered regulating credit bureaus, the Senate bill granted theFRB authority to issue regulations. The FRB's Vice Chairman told the Senate the FRB was "not

prepared to assume" that responsibility. Hearings Before Subcomm. on Financial Institutions,Committee on Banking & Currency, 91st Cong. 26 (1969) (statement of J.L. Robertson, Vice Chairman,Board of Governors of the Federal Reserve System) (testifying that "[t]he functions vested in the Boardby the Truth in Lending Act should not be taken as a precedent for assigning to the Board wide-rangingduties in the general area of consumer protection," and furthermore, such duties are "inconsistent" withits monetary policy responsibilities).

88. Mourning, 411 U.S. at 358.89. See Arizona v. Direct Sellers Ass'n, 494 P.2d 361, 363 (Ariz. 1972) (quoting from a

congressional committee report describing the characteristics of door-to-door selling that make itsusceptible to abusive selling); Phuong Cat Le, Should You Open the Door? Story of Salesman SparksFears, SEATTLE POST INTELLIGENCER, Sept. 15, 2007, at B1, available at 2007 WLNR 18163311(describing aggressive behavior of door-to-door salespeople); Byron D. Sher, The "Cooling-Off" Periodin Door-to-Door Sales, 15 UCLA L. REV. 717 (1968).

90. Muhammad v. County Bank, 912 A.2d 88, 99 (N.J. 2006).



The facts in the Mourning case illustrate one of the typical types of largely unregulated transactions that had been plaguing consumers. The consumer, Leila Mourning, was 73 years 01d.88 A door-to-door salesman sold her five year subscriptions to four magazines. The total cost was $122.44, payable in 30 monthly payments in addition to a down payment. The contract did not state a finance charge and contained none of the TILA disclosures. It provided that if the consumer missed any payment, the entire sum became due. Perhaps realizing she had made a bad bargain, or perhaps because she could not afford the payments, Mourning defaulted and the magazine service sent her dunning letters.

The case was typical in that the consumer was elderly, the marketing was done in the consumer's home where the consumer might well be alone and would feel vulnerable, and the amount of the transaction was small.89 Because of the small amount, the transaction costs of challenging the transaction would be prohibitive in terms of time and expense. Most lawyers would not even consider taking a case where so little money was involved.9o

As a result of the FRB's "four installment rule," magazine services such as the one involved in Mourning are required to make various disclosures to consumers. One might question, however, whether

Subcomm. on Financial Institutions, Committee on Banking & Currency, 91st Congo 28 (1969) (statement of Andrew Brimmer, Board of Governors, Federal Reserve System) (testifying that the FRB should authorize an agency "that is much closer to the consumer protection problem rather than assigning it to the Federal Reserve Board"). The FRB, however, refused to recommend the FTC as an appropriate agency. Id. When Congress considered regulating credit bureaus, the Senate bill granted the FRB authority to issue regulations. The FRB's Vice Chairman told the Senate the FRB was "not prepared to assume" that responsibility. Hearings Before Subcomm. on Financial Institutions, Committee on Banking & Currency, 9lst Congo 26 (1969) (statement of J.L. Robertson, Vice Chainnan, Board of Governors of the Federal Reserve System) (testifying that "[t]he functions vested in the Board by the Truth in Lending Act should not be taken as a precedent for assigning to the Board wide-ranging duties in the general area of consumer protection," and furthermore, such duties are "inconsistent" with its monetary policy responsibilities).

88. Mourning, 411 U.S. at 358. 89. See Arizona v. Direct Sellers Ass'n, 494 P.2d 361, 363 (Ariz. 1972) (quoting from a

congressional committee report describing the characteristics of door-to-door selling that make it susceptible to abusive selling); Phuong Cat Le, Should You Open the Door? Story of Salesman Sparks Fears, SEATILE POST INTELLIGENCER, Sept. 15, 2007, at Bl, available at 2007 WLNR 18163311 (describing aggressive behavior of door-to-door salespeople); Byron D. Sher, The "Cooling-Off' Period in Door-to-DoorSales, 15 UCLA L. REv. 717 (1968).

90. Muhammad v. County Bank, 912 A.2d 88, 99 (N.J. 2006).

15




those disclosures would have made any difference in Mourning'sdecision to purchase the magazines. The Federal Trade Commission(FTC) investigated door-to-door sales and found rampant abuses. 91

The pervasiveness of the unfair practices was crucial to justifying itsregulation of the industry since the amount involved in most caseswas small. The FTC apparently thought more was necessary toprotect consumers than TILA's disclosures. Its door-to-door salesrule requires such sellers to give consumers three days to cancel theirpurchases.92

The consumer's legal representation in the Mourning case also isnoteworthy. One of the law offices representing the consumer wasthe Legal Services Senior Citizen Center, which received fundingfrom the Legal Services program of OEO.93 Before the SupremeCourt, the consumer was represented by lawyers from the NAACPLegal Defense Fund, the same civil rights organization thatrepresented the consumers in Fuentes94 and that brought the Sniadachcase.95 NCLC submitted an amicus brief.96 The magazine service washardly out-gunned, however. Three law firms represented it,including Cravath, Swaine & Moore. 97 This illustrates another aspectof the development of consumer law: creditors have been well-

91. J.R. Franke & D.A. Ballam, New Applications of Consumer Protection Law: Judicial Activism orLegislative Directive?, 32 SANTA CLARA L. REv. 347, 356 (1992).

92. 16 C.F.R. § 429.1 (2009).93. Brief for Petitioner, Mourning v. Family Publ'ns Serv., Inc., No. 71-829 (5th Cir. July 31, 1972),

1972 WL 136302 (listing the Legal Services Senior Citizens Center as representing the petitioner). E-mail from Leonard Helfand, former counsel for the Legal Services Senior Citizens Center, to author(Nov. 4, 2009) (confirming that the Legal Services Senior Citizens Center received funding from theLegal Services program of OEO).

94. The consumer's brief in Fuentes lists Jack Greenberg, James M. Nabrit III, and Eric Schnapper.Brief for Petitioner, supra note 93. At that time, they were on the staff of the NAACP Legal DefenseFund. Legends in the Law, A Conversation with James M Nabritt III,http://www.dcbar.org/for lawyers/resources/legends in the law/nabrit.cfm (last visited Sept. 24, 2009)(appeared in THE WASHINGTON LAWYER, July-Aug. 2001); Jack Greenberg's Biography for ColumbiaLaw School, http://www.law.columbia.edu/fac/JackGreenberg (last visited Sept. 24, 2009); EricSchnapper's Biography for University of Washington School of Law,http://www.law.washington.edu/directory/Profile.aspx?UDl=155 (last visited Sept. 24, 2009).

95. See supra text accompanying note 73.96. Brief for Mourning as Amici Curiae Supporting Petitioner, Mourning v. Family Publ'ns Serv.,

Inc., No. 71-829 (5th Cir. June 16, 1972), 1972 WL 136305. The author was one of NCLC's lawyers onthe brief.

97. Brief for the Respondent, Mourning v. Family Publ'ns Serv., Inc., No. 71-829 (5th Cir. Sept. 2,1972), 1972 WL 136303.

[Vol. 26:41162



those disclosures would have made any difference in Mourning's decision to purchase the magazines. The Federal Trade Commission (FTC) investigated door-to-door sales and found rampant abuses.91

The pervasiveness of the unfair practices was crucial to justifying its regulation of the industry since the amount involved in most cases was small. The FTC apparently thought more was necessary to protect consumers than TILA's disclosures. Its door-to-door sales rule requires such sellers to give consumers three days to cancel their purchases.92

The consumer's legal representation in the Mourning case also is noteworthy. One of the law offices representing the consumer was the Legal Services Senior Citizen Center, which received funding from the Legal Services program of OEO.93 Before the Supreme Court, the consumer was represented by lawyers from the NAACP Legal Defense Fund, the same civil rights organization that represented the consumers in Fuentes94 and that brought the Sniadach case.95 NCLC submitted an amicus brief.96 The magazine service was hardly out-gunned, however. Three law firms represented it, including Cravath, Swaine & Moore.97 This illustrates another aspect of the development of consumer law: creditors have been well-

91. J.R. Franke & D.A. BaHam, New Applications a/Consumer Protection Law: Judicial Activism or Legislative Directive?, 32 SANTA CLARA L. REv. 347,356 (1992).

92. 16 C.F.R. § 429.1 (2009). 93. Brieffor Petitioner, Mouming v. Family Publ'ns Serv., Inc., No. 71-829 (5th Cir. July 31,1972),

1972 WL 136302 (listing the Legal Services Senior Citizens Center as representing the petitioner). Email from Leonard Helfand, former counsel for the Legal Services Senior Citizens Center, to author (Nov. 4, 2009) (confirming that the Legal Services Senior Citizens Center received funding from the Legal Services program ofOEO).

94. The consumer's brief in Fuentes lists Jack Greenberg, James M. Nabrit III, and Eric Schnapper. Brief for Petitioner, supra note 93. At that time, they were on the staff of the NAACP Legal Defense Fund. Legends in the Law, A Conversation with James M Nabrill Ill, http://www.dcbar.org/for_lawyersJresources/legends_in_the_law/nabrit.cfrn (last visited Sept. 24, 2009) (appeared in THE WASHINGTON LAWYER, July-Aug. 2001); Jack Greenberg's Biography for Columbia Law School, http://www.law.columbia.eduJfac/Jack_Greenberg (last visited Sept. 24, 2009); Eric Schnapper's Biography for University of Washington School of Law, http://www.law.washington.eduJdirectorylProfile.aspx?UD=155 (last visited Sept. 24, 2009).

95. See supra text accompanying note 73. 96. Brief for Mourning as Amici Curiae Supporting Petitioner, Mouming v. Family Publ'ns Serv.,

Inc., No. 71-829 (5th Cir. June 16, 1972), 1972 WL 136305. The author was one ofNCLC's lawyers on the brief.

97. Brief for the Respondent, Mouming v. Family Publ'ns Serv., Inc., No. 71-829 (5th Cir. Sept. 2, 1972),1972 WL 136303.

16




represented. Hiring firms such as Cravath illustrates how importantthe industry views these issues.

In the past it was highly unlikely that a consumer in LeilaMourning's situation would be able to obtain legal representation atall, much less legal counsel all the way to the Supreme Court. TILA,however, provides that a successful consumer may recover costs andattorney's fees. 98 The prospect of collecting costs and fees providedan incentive for some lawyers to take cases like Mourning's,especially if they could be brought as class actions. Subsequentdevelopments, however, have substantially reduced the viability ofthis incentive.

99

Although the legal rule of deference to administrative agencyregulation preserved the protections of TILA in Mourning, that ruledoes not always work in the consumer's favor. For example, in FordMotor Credit Co. v. Milhollin the Court upheld an FRB regulationover consumer objections that TILA required a stronger rule.' 00 TheCourt ruled that agencies like the FRB possess expertise that courtslack and consequently courts should uphold their regulations unlessthey are "demonstrably irrational."'' In contrast to the "fourinstallment rule," which expanded the scope of the term "financecharge," the FRB subsequently has steadily narrowed the definitionof what is included in that term.' 02

98. 15 U.S.C. 1640 (2006).99. See discussion infra text accompanying notes 158-70. Due to mandatory arbitration, legal

representation in such cases is now far less likely, although recent developments have possibly mademandatory arbitration less pervasive. See discussion infra text accompanying notes 171-75. Moreover,for many years, offices funded by the Legal Services Corporation were not permitted to acceptattorney's fees, even when awarded by the court pursuant to a statute expressly permitting them.Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No. 104-134, §§ 504(a)(7),504(a)(13), 110 Stat. 1321, 1353-54 (1996). See infra note 135.

100. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 570 (1980); see HANDLER, supra note 75, at23 (noting that "[a]gencies are usually hostile to the claims of social-reform groups" and can "thwart thewill of the courts"). Nevertheless, agencies are an essential part of any enforcement effort because"[c]ourts become almost impotent when confronted with supervising difficult problems of enforcement,"but can effectively enforce the law if the court does not need to "defer to agency discretion" and canmerely award damages or issue an injunction. Id. at 24-25.

101. Milhollin, 444 U.S. at 565.102. Renuart & Thompson, supra note 52, at 202-03.

1163



represented. Hiring finns such as Cravath illustrates how important the industry views these issues.

In the past it was highly unlikely that a consumer in Leila Mourning's situation would be able to obtain legal representation at all, much less legal counsel all the way to the Supreme Court. TILA, however, provides that a successful consumer may recover costs and attorney's fees. 98 The prospect of collecting costs and fees provided an incentive for some lawyers to take cases like Mourning's, especially if they could be brought as class actions. Subsequent developments, however, have substantially reduced the viability of this incentive.99

Although the legal rule of deference to administrative agency regulation preserved the protections of TILA in Mourning, that rule does not always work in the consumer's favor. For example, in Ford Motor Credit Co. v. Milhollin the Court upheld an FRB regulation over consumer objections that TILA required a stronger rule. 100 The Court ruled that agencies like the FRB possess expertise that courts lack and consequently courts should uphold their regulations unless they are "demonstrably irrational.,,101 In contrast to the "four installment rule," which expanded the scope of the tenn "finance charge," the FRB subsequently has steadily narrowed the definition of what is included in that term.102

98. 15 U.S.C. 1640 (2006). 99. See discussion infra text accompanying notes 158-70. Due to mandatory arbitration, legal

representation in such cases is now far less likely, although recent developments have possibly made mandatory arbitration less pervasive. See discussion infra text accompanying notes 171-75. Moreover, for many years, offices funded by the Legal Services Corporation were not permitted to accept attorney's fees, even when awarded by the court pursuant to a statute expressly permitting them. Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No. 104-134, §§ 504(a)(7), 504(a)(13), 110 Stat. 1321, 1353-54 (1996). See infra note 135. 100. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 570 (1980); see HANDLER, supra note 75, at

23 (noting that "[a]gencies are usually hostile to the claims of social-reform groups" and can "thwart the will of the courts"). Nevertheless, agencies are an essential part of any enforcement effort because "[ c ]ourts become almost impotent when confronted with supervising difficult problems of enforcement," but can effectively enforce the law if the court does not need to "defer to agency discretion" and can merely award damages or issue an injunction. Id. at 24-25.

101. Milhollin, 444 U.S. at 565. 102. Renuart & Thompson, supra note 52, at 202 ... {)3.

17




E. The Role of Federal Administrative Agencies

During the formative years of consumer protection law, federaladministrative agencies played an important role in many areas inaddition to the FRB's role in TILA. The FRB has issued regulationspursuant to the Electronic Fund Transfers Act,10 3 the Equal CreditOpportunity Act, 104 and the Fair Credit Reporting Act.10 5 From thestandpoint of consumer advocates, the FRB's role has been mixed, asthe Mourning and Milhollin cases illustrate. Sometimes the FRBissues regulations that strengthen consumers' positions, andsometimes its actions do the opposite.

The FTC also has played a crucial role. Long moribund, in 1969,the same year NCLC was established and TILA became effective, theNixon administration reorganized the FTC in order to make it farmore active in combating unfair and deceptive practices. 106 Congresssoon granted the FTC broad rulemaking authority10 7 which the FTCused to issue several wide-ranging regulations. 10 8 It also becamemore aggressive in its efforts to enforce the FTC Act.'0 9

No matter how greatly the FTC might have wished to enforce thelaw, however, its resources were limited to whatever amountsCongress appropriated and had to be shared with the FTC's anti-trustresponsibilities. Furthermore, the scope of its authority is restricted toenforcement actions in the public interest. 110 Consequently, it wascrucial to consumer protection that statutes such as TILA include

103. 12 C.F.R. pt. 205 (2009).104. Id. pt. 202.105. See, e.g., id. pt. 232.106. RICHARD A. HARRIS & SIDNEY M. MILKIS, THE POLITICS OF REGULATORY CHANGE: A TALE OF

Two AGENCIES 166-67 (2d ed. 1996); Mark E. Budnitz, The FTC's Consumer Protection ProgramDuring the Miller Years: Lessons for Administrative Agency Structure and Operation, 46 CATH. U. L.REv. 371, 375-76 (1997).

107. Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, Pub. L. No. 93-637, 88Stat. 2183 (1975) (codified at 15 U.S.C. § 57a(a)(l) (2006)); see HARRIS & MILKIS, supra note 106, at172-73.

108. E.g., Credit Practices Rule, 16 C.F.R. pt. 444 (2009), Funeral Industry Practices Rule, 16 C.F.R.pt. 453.1 (2009); Holder Rule, 16 C.F.R. pt. 433 (2009); Door-to-Door Sales, 16 C.F.R. pt. 429.1 (2009).

109. HARRIS& MILKIS, supra note 106, at 181.110. 15 U.S.C. § 45(b) (2006).

1164 [Vol. 26:4



E. The Role of Federal Administrative Agencies

During the fonnative years of consumer protection law, federal administrative agencies played an important role in many areas in addition to the FRB's role in TILA. The FRB has issued regulations pursuant to the Electronic Fund Transfers Act,103 the Equal Credit Opportunity Act,104 and the Fair Credit Reporting ACt. 105 From the standpoint of consumer advocates, the FRB' s role has been mixed, as the Mourning and Milhollin cases illustrate. Sometimes the FRB issues regulations that strengthen consumers' positions, and sometimes its actions do the opposite.

The FTC also has played a crucial role. Long moribund, in 1969, the same year NCLC was established and TILA became effective, the Nixon administration reorganized the FTC in order to make it far more active in combating unfair and deceptive practices. 106 Congress soon granted the FTC broad rulemaking authorityl07 which the FTC used to issue several wide-ranging regulations. 108 It also became more aggressive in its efforts to enforce the FTC Act. 109

No matter how greatly the FTC might have wished to enforce the law, however, its resources were limited to whatever amounts Congress appropriated and had to be shared with the FTC's anti-trust responsibilities. Furthennore, the scope of its authority is restricted to enforcement actions in the public interest. 110 Consequently, it was crucial to consumer protection that statutes such as TILA include

103. 12 C.F.R. pt. 205 (2009). 104. [d. pt. 202. lOS. See, e.g., id. pt. 232. 106. RICHARD A. HARRIS & SIDNEY M. MILKIS, THE POLITICS OF REGULATORY CHANGE: A TALE OF

TwO AGENCIES 166-67 (2d ed. 1996); Mark E. Bucinitz, The FTC's Consumer Protection Program During the Miller Years: Lessons for Administrative Agency Structure and Operation, 46 CATH. U. L. REv. 371, 375-76 (1997).

107. Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, Pub. L. No. 93-637, 88 Stat. 2183 (1975) (codified at IS U.S.C. § 57a(a)(1) (2006»; see HARRIs &MILKIS, supra note 106, at 172-73. 108. E.g., Credit Practices Rule, 16 C.F.R. pt. 444 (2009), Funeral Industry Practices Rule, 16 C.F.R.

pt. 453.1 (2009); Holder Rule, 16 C.F.R. pt. 433 (2009); Door-to-Door Sales, 16 C.F.R. pt. 429.1 (2009). 109. HARRIs & MILKIS, supra note 106, at 181. 110. IS U.S.C. § 45(b) (2006).

18




provisions to facilitate individual lawsuits such as a private right ofaction, actual and statutory damages, and attorney fees.Il

III. GROWING PAINS: CONSUMER PROTECTION LAW TAKES A HIT

During the Reagan administration and continuing into the Carteradministration, the political climate shifted and there were severaldevelopments that severely obstructed the expansion of consumerprotection law. On the legislative front, the Depository Institutions

Deregulation and Monetary Control Act of 1980 deregulated interestrates for an entire segment of the consumer credit market.' 12 Asecond law, the Alternative Mortgage Transactions Parity Actimposed further deregulation."1 3 A third setback was the extensiverevision of TILA. Legal services lawyers and lawyers from theprivate bar often brought cases under TILA on behalf of their lowincome clients. 114 Although the FRB had found that as a result ofTILA consumers were much more aware of the cost of credit,Congress was concerned that there were too many disclosures and itwas too difficult for creditors to comply with TILA's complexregulatory scheme. 115 Consequently, Congress passed the Truth inLending Simplification and Reform Act in 1980.116 That law reducedthe number of required disclosures and limited the liability ofcreditors who did not comply with the reduced requirements. 117 inorder to make compliance less onerous for creditors, TILA wasamended again in 1995.118

111. 1d.§ 1640.112. Peterson, supra note 13, at 873; Depository Institutions Deregulation and Monetary Control Act

of 1980, Pub. L. No. 96-221, 94 Stat. 132 (codified as amended in scattered sections of 12 U.S.C.). TheDepository Institutions Deregulation and Monetary Control Act of 1980 prohibited the states from

imposing interest rate maximums on home and mobile home first mortgages. Peterson, supra note 13, at

873; see RENUART & KEEST-CREDIT, supra note 62, at 123-25.113. 12 U.S.C. § 3801 (2006); see RENUART & KEEST-TILA, supra note 43, at 37.114. RENUART & KEEST-TILA, supra note 43, at 5.115. Id. at5-6.116. 15 U.S.C. § 1601 (2006); see also sources cited supra note 52.117. RENUART & KEEST-TILA, supra note 43, at 7.118. Id. at 8-9.

1165



provisions to facilitate individual lawsuits such as a private right of action, actual and statutory damages, and attorney fees. III

III. GROWING PAINS: CONSUMER PROTECTION LA W TAKES A HIT

During the Reagan administration and continuing into the Carter administration, the political climate shifted and there were several developments that severely obstructed the expansion of consumer protection law. On the legislative front, the Depository Institutions Deregulation and Monetary Control Act of 1980 deregulated interest rates for an entire segment of the consumer credit market. 112 A second law, the Alternative Mortgage Transactions Parity Act imposed further deregulation. l13 A third setback was the extensive revision of TILA. Legal services lawyers and lawyers from the private bar often brought cases under TILA on behalf of their low income clients. 1I4 Although the FRB had found that as a result of TILA consumers were much more aware of the cost of credit, Congress was concerned that there were too many disclosures and it was too difficult for creditors to comply with TILA's complex regulatory scheme. 1 15 Consequently, Congress passed the Truth in Lending Simplification and Reform Act in 1980.116 That law reduced the number of required disclosures and limited the liability of creditors who did not comply with the reduced requirements. 117 In order to make compliance less onerous for creditors, TILA was amended again in 1995.118

111. Id. § 1640. 112. Peterson, supra note 13, at 873; Depository Institutions Deregulation and Monetary Control Act

of 1980, Pub. L. No. 96-221, 94 Stat. 132 (codified as amended in scattered sections of 12 U.S.C.). The Depository Institutions Deregulation and Monetary Control Act of 1980 prohibited the states from imposing interest rate maximums on home and mobile home first mortgages. Peterson, supra note 13, at 873; see RENuART & KEEST-CREDIT, supra note 62, at 123-25.

113. 12 U.S.C. § 3801 (2006); see RENUART & KEEST-TILA, supra note 43, at 37. 114. RENuART &KEEST-TILA, supra note 43, at 5. 115. Id. at~. 116. 15 U.S.C. § 1601 (2006); see also sources cited supra note 52. 117. RENuART & KEEST-TILA, supra note 43, at 7. 118. Id. at 8-9.

19




In light of the Obama administration proposal to establish aConsumer Financial Protection Agency, 119 it is relevant to noteCongress's defeat in 1978 of a bill to create a consumer advocacyagency to be called the Department of Consumers.' 20 The Departmentwould "monitor the activities of other government agencies andintervene in their regulatory decision-making.' 2 1 It would notregulate specific abuses. The bill was defeated despite "nine years ofeffort by one of the largest and most active consumer coalitions inhistory."' 122 One reason the bill was not passed was that it served as acatalyst for the first coalition of business interests to oppose aconsumer protection bill.123

There also were setbacks in the courts, especially the SupremeCourt's treatment of state interest rate regulation. In Marquette v.First of Omaha Service Corp. the Supreme Court held that theinterest rate cap set by credit card law of a national bank's home statecontrolled, not the cap set by the law of the consumer's state. 124

Consequently, a national bank could "export" the home state's capsto the consumer's state. As a result, national banks moved their creditcard operations to those states with no caps, and some states repealedtheir caps in order to entice issuers to move their operations to theirstates.125 In Smiley v. Citibank, the Supreme Court upheld a ruling bythe Office of the Comptroller of the Currency (OCC) that defined"interest" very broadly. 126

The major federal agency charged with protecting consumers, theFTC, contributed to the era's consumer protection retrenchment. Asnoted above, 127 in the early 1970s the FTC had issued several wide-ranging regulations. Whereas litigation by the FTC targets onecompany at a time, a regulation can have an impact on an entire

119. See infra notes 328-50.120. HOBBS & GARDNER, supra note 1, at 11.121. Id.122. Id.123. Id.124. Marquette v. First of Omaha Serv. Corp., 439 U.S. 299, 301 (1978).125. Peterson, supra note 13, at 873.126. Smiley v. Citibank, 517 U.S. 735, 735-36 (1996).127. See supra text accompanying notes 107-08.

[Vol. 26:41166



In light of the Obama administration proposal to establish a Consumer Financial Protection Agency,II9 it is relevant to note Congress's defeat in 1978 of a bill to create a consumer advocacy agency to be called the Department of Consumers. 120 The Department would "monitor the activities of other government agencies and intervene in their regulatory decision-making.,,121 It would not regulate specific abuses. The bill was defeated despite "nine years of effort by one of the largest and most active consumer coalitions in history.,,122 One reason the bill was not passed was that it served as a catalyst for the first coalition of business interests to oppose a consumer protection bill. 123

There also were setbacks in the courts, especially the Supreme Court's treatment of state interest rate regulation. In Marquette v. First of Omaha Service Corp. the Supreme Court held that the interest rate cap set by credit card law of a national bank's home state controlled, not the cap set by the law of the consumer's state. I24

Consequently, a national bank could "export" the home state's caps to the consumer's state. As a result, national banks moved their credit card operations to those states with no caps, and some states repealed their caps in order to entice issuers to move their operations to their states. I25 In Smiley v. eitibank, the Supreme Court upheld a ruling by the Office of the Comptroller of the Currency (OCC) that defined "interest" very broadly. 126

The major federal agency charged with protecting consumers, the FTC, contributed to the era's consumer protection retrenchment. As noted above,I27 in the early 1970s the FTC had issued several wideranging regulations. Whereas litigation by the FTC targets one company at a time, a regulation can have an impact on an entire

119. See infra notes 328--50. 120. HOBBS & GARDNER, supra note I, at II. 121. /d. 122. [d. 123. [d. 124. Marquette v. First of Omaha Servo Corp., 439 U.S. 299, 301 (\978). 125. Peterson, supra note 13, at 873. 126. Smiley v. Citibank, 517 U.S. 735, 735-36 (\ 996). 127. See supra text accompanying notes I07~8.

20




industry. Therefore, it can be far more efficient and effective. Underthe Reagan administration, however, the FTC's budget was cutdrastically 128 and the FTC stopped proposing new regulations.' 29 Italso brought fewer cases. 130 The FTC Act authorizes the FTC to stop"unfair and deceptive acts and practices."' 13 1 The FTC redefined"deceptive" during the Reagan administration; one dissenting FTCCommissioner complained the new definition would undermineconsumer protection. 132 Congress also amended the FTC Act to bancertain types of FTC investigations and provide more Congressionalcontrol over FTC activities. 133

There also were serious threats to the legal services lawyers whowere handling the problems of low income consumers. Funding forlegal services was cut drastically, forcing those legal services lawyersstill employed to handle only emergency cases, often refusing to takeany consumer matters.' 34 Moreover, most legal services offices

128. HARRIS & MILKIS, supra note 106, at 189-97.129. Budnitz, supra note 106, at 413.130. Id. at 393-95.131. The FTC can issue cease and desist orders, 15 U.S.C. § 45(a)(2), (b) (2006), and can request that

a court issue a temporary restraining order or a preliminary injunction, 15 U.S.C. § 53(b) (2006).132. Budnitz, supra note 106, at 396-99. The new definition was applied in the FTC's cases. E.g., In

re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984).133. Mark V. Nadel, Congress and Consumer Protection, in ENCYCLOPEDIA OF THE CONSUMER

MOVEMENT, supra note 23, at 126, 128.134. See generally ALAN W. HOUSEMAN & LINDA E. PERLE, SECURING EQUAL JUSTICE FOR ALL, A

BRIEF HISTORY OF CIVIL LEGAL ASSISTANCE IN THE UNITED STATES 29-30 (2007),http://www.clasp.org/admin/site/publications/files/0158.pdf (describing how the budget cuts in the early1980s resulted in closed offices, fired staff, and a substantial reduction in the level of services); WilliamP. Quigley, The Demise of Law Reform and the Triumph of Legal Aid: Congress and the Legal ServicesCorporation from the 1960s to the 1990s, 17 ST. LOUIS U. PUB. L. REV. 241,257, 259 (1998) (reportingthat in the 1980s LSC funding was greatly reduced and services were limited); Deborah L. Rhode,Access to Justice, TRIAL, Jan. 2006, at 48, 48 (attributing the ineffectiveness of legal assistance to thepoor to "long-standing ideological and structural constraints"). Legal services offices have continued toface serious challenges. For example, in 2009, 105 members of the U.S. House voted to eliminate theLegal Services Corporation, the primary funding source for legal services offices throughout the country(eleven did not vote). Press Release, Legal Services Corporation, House Approves $440 million for LSC(June 18, 2009), http://www.lsc.gov/press/pressreleasedetail_2009_T248_R15.php. Although the effortfailed when 323 representatives voted against this proposal, it is significant that almost a quarter of theHouse was in favor of this drastic measure at a time when the country was in the midst of its worsteconomic crisis since the Depression. Moreover, the House retained significant restrictions on funding.See infra note 135. The current economic recession has increased the number of persons eligible forassistance by legal aid offices by II million, but the programs will not have adequate funds to handlemore than one-half of those who request assistance. Tony Pugh, Crush of New Clients Swamp Legal

1167



industry. Therefore, it can be far more efficient and effective. Under

the Reagan administration, however, the FTC's budget was cut

drastically 128 and the FTC stopped proposing new regulations.129 It

also brought fewer cases.130 The FTC Act authorizes the FTC to stop

"unfair and deceptive acts and practices.,,131 The FTC redefined

"deceptive" during the Reagan administration; one dissenting FTC

Commissioner complained the new definition would undermine

consumer protection.132

Congress also amended the FTC Act to ban

certain types of FTC investigations and provide more Congressional

control over FTC activities.133

There also were serious threats to the legal services lawyers who

were handling the problems of low income consumers. Funding for

legal services was cut drastically, forcing those legal services lawyers

still employed to handle only emergency cases, often refusing to take

any consumer matters.134

Moreover, most legal services offices

128. HARRIS & MILKIS, supra note 106, at 189-97. 129. Budnitz,supranote 106,at413. 130. !d. at 393-95. 131. The FTC can issue cease and desist orders, 15 U.S.C. § 45(a)(2), (b) (2006), and can request that

a court issue a temporary restraining order or a preliminary injunction, 15 U.S.C. § 53(b) (2006). 132. Budnitz, supra note 106, at 396-99. The new definition was applied in the FTC's cases. E.g., In

re Cliff dale Assocs., Inc., 103 F.T.C. 110 (1984). 133. Mark V. Nadel, Congress and Consumer Protection, in ENCYCLOPEDIA OF THE CONSUMER

MOVEMENT, supra note 23, at 126, 128. 134. See generally ALAN W. HOUSEMAN & LINDA E. PERLE, SECURING EQUAL JUSTICE FOR ALL, A

BRIEF HISTORY OF CIVIL LEGAL AsSISTANCE IN THE UNITED STATES 29-30 (2007), http://www.c1asp.org/adminlsitelpublicationslfileslOI58.pdf(describing how the budget cuts in the early 1980s resulted in closed offices, fired staff, and a substantial reduction in the level of services); William P. Quigley, The Demise of Law Reform and the Triumph of Legal Aid: Congress and the Legal Services Corporationjrom the 1960s to the 1990s, 17 ST. LoUIS U. PuB. L. REv. 241,257,259 (1998) (reporting that in the 1980s LSC funding was greatly reduced and services were limited); Deborah L. Rhode, Access to Justice, TRIAL, Jan. 2006, at 48, 48 (attributing the ineffectiveness of legal assistance to the poor to "long-standing ideological and structural constraints"). Legal services offices have continued to face serious challenges. For example, in 2009, 105 members of the U.S. House voted to eliminate the Legal Services Corporation, the primary funding source for legal services offices throughout the country (eleven did not vote). Press Release, Legal Services Corporation, House Approves $440 million for LSC (June 18, 2009), http://www.lsc.gov/presslpressrelease_detail_2009_T248_RI5.php. Although the effort failed when 323 representatives voted against this proposal, it is significant that almost a quarter of the House was in favor of this drastic measure at a time when the country was in the midst of its worst economic crisis since the Depression. Moreover, the House retained significant restrictions on funding. See infra note 135. The current economic recession has increased the number of persons eligible for assistance by legal aid offices by 11 million, but the programs will not have adequate funds to handle more than one-half of those who request assistance. Tony Pugh, Crush of New Clients Swamp Legal

21




received at least some of their funding from the Legal ServicesCorporation, the successor to OEO, and the statute authorizing thatfunding was amended to prohibit legal services offices from bringingclass actions or accepting an award for attorney fees. The amendmentalso restricted activities LSC offices could engage in even with non-LSC money.' 35 LSC funding for NCLC was terminated in 1995.136

IV. ONE CENTURY ENDS, ANOTHER BEGINS: No DRAMA FROM THE

BUSHES OR CLINTON

There were no dramatic consumer protection developments duringthe administrations of George H.W. Bush and Bill Clinton. 137 DuringGeorge W. Bush's presidency consumers suffered two majorsetbacks. One was passage of the Bankruptcy Abuse Prevention andConsumer Protection Act of 2005.138 That statute had the effect of"radically limiting access to (and increasing the cost of obtaining) abankruptcy discharge."' 139 Second, the Office of Comptroller of theCurrency and the Office of Thrift Supervision aggressively asserted

Aid: Recession Means More Poor, Jobless Are Seeking Help, MODESTO BEE (Cal.), July 12, 2009, atA4, available at 2009 WLNR 13345424.

135. Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No. 104-134,§ 504(a)(7), (13), 110 Stat. 1321, 1353-54 (1996). In 2010, the Consolidated Appropriations Act of2010, Pub. L. No. 1 1-117, 123 Stat. 3034, amended the Legal Services Corporation Act to remove therestrictions on LSC-funded offices receiving attorney's fees. See Legal Services CorporationRegulations, 75 Fed. Reg. 6816, 6816 (Feb. 11, 2010) (to be codified at 45 C.F.R. pts. 1609, 1610, and1642).

136. HOBBS & GARDNER, supra note 1, at 19.137. See id. at 12 (acknowledging, however, that President George H.W. Bush made "several strong

appointments to regulatory agencies" and Clinton lost his Democratic majority in Congress before hedeveloped priorities for consumer protection issues).

138. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119Stat. 23 (codified as amended in scattered sections of 11, 12, 15, 18, and 28 U.S.C.).

139. Susan Block-Lieb & Edward J. Janger, The Myth of the Rational Borrower: Rationality,

Behavioralism, and the Misguided "Reform " of Bankruptcy Law, 84 TEX. L. REv. 1481, 1481 (2006);see Peter Alexander, Another Perspective: The Bankruptcy Code Harms Women and Children, 15WIDENER L.J. 599, 605 (2006) (predicting that fewer attorneys will take cases as a result of thebankruptcy amendments); Henry Sommer, Trying to Make Sense out of Nonsense: RepresentingConsumers Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM.BANKR. L.J. 191, 211 (2005) (predicting general practitioners will stop taking cases as a result of thebankruptcy amendments, posing access difficulties for consumers in small towns and rural areas).

[Vol. 26:41168



received at least some of their funding from the Legal Services Corporation, the successor to OEO, and the statute authorizing that funding was amended to prohibit legal services offices from bringing class actions or accepting an award for attorney fees. The amendment also restricted activities LSC offices could engage in even with nonLSC money. 135 LSC funding for NCLC was terminated in 1995. 136

IV. ONE CENTURY ENDS, ANOTHER BEGINS: No DRAMA FROM THE

BUSHES OR CLINTON

There were no dramatic consumer protection developments during the administrations of George H.W. Bush and Bill Clinton. 137 During George W. Bush's presidency consumers suffered two major setbacks. One was passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. 138 That statute had the effect of "radically limiting access to (and increasing the cost of obtaining) a bankruptcy discharge.,,139 Second, the Office of Comptroller of the Currency and the Office of Thrift Supervision aggressively asserted

Aid: Recession Means More Poor, Jobless Are Seeking Help, MODESTO BEE (Cal.), July 12, 2009, at A4, available at 2009 WLNR 13345424.

135. Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No. 104-134, § 504(a)(7), (13), 110 Stat. 1321, 1353-54 (1996). In 2010, the Consolidated Appropriations Act of 2010, Pub. L. No. 111-117, 123 Stat. 3034, amended the Legal Services Corporation Act to remove the restrictions on LSC-funded offices receiving attorney's fees. See Legal Services Corporation Regulations, 75 Fed. Reg. 6816. 6816 (Feb. 11,2010) (to be codified at 45 C.F.R. pts. 1609, 1610, and 1642). 136. HOBBS & GARDNER, supra note 1, at 19. 137. See id at 12 (acknowledging, however, that President George H.W. Bush made "several strong

appointments to regulatory agencies" and Clinton lost his Democratic majority in Congress before he developed priorities for consumer protection issues).

138. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified as amended in scattered sections of 11,12,15.18, and 28 U.S.C.).

139. Susan Block-Lieb & Edward J. Janger, The Myth of the Rational Bo"ower: Rationality, Behavioralism, and the Misguided "Reform" of Bankruptcy Law, 84 TEx. L. REv. 1481,1481 (2006); see Peter Alexander, Another Perspective: The Bankruptcy Code Harms Women and Children, 15 WIDENER L.J. 599, 605 (2006) (predicting that fewer attorneys will take cases as a result of the bankruptcy amendments); Henry Sommer, Trying to Make Sense out of Nonsense: Representing Consumers Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 191, 211 (2005) (predicting general practitioners will stop taking cases as a result of the bankruptcy amendments, posing access difficulties for consumers in small towns and rural areas).

22




their right to preempt state law intended to protect consumers offinancial services.1 40

V. THE CHALLENGES OF THE 2 1 ST CENTURY: CONTRACTS AND

TECHNOLOGY'S Two EDGED SWORD

The ability of the law to effectively protect consumers is beingseriously tested by current developments, most of which began in thelast century, and several of which were made possible by advances intechnology. 14 1 These include the ways in which contracts are written,the unfair terms they include, and the means by which consumersagree to be bound by them. One of those terms, the mandatory pre-dispute arbitration clause, has been especially significant because itcuts off access to the courts. Once an agreement has been made,thanks to technology, consumers have new types of payment systemsand devices with which to pay. Technology also facilitatedsecuritization of mortgages, contributing to the present economiccrisis. While these new developments pose opportunities for theexploitation of consumers, technology also has given consumersconvenient ways to shop and bank as well as new tools for makingsound purchasing decisions.

Despite the many state and federal statutes that have been enactedin the last forty years to regulate consumer transactions, theunderlying contract between the company and the consumer remainscrucial in determining the rights and liabilities of the parties. One keyelement is the courts' effective elimination of the concept ofagreement. There is no "meeting of the minds"; the consumer never

140. WookBai Kim, Challenging the Roots of the Subprime Mortgage Crisis: The OCC's Operating

Subsidiary Regulations and Watters v. Wachovia Bank, 21 LOY. CONSUMER L. REV. 278, 285-88(2009). Not all of the agencies' actions have been to the detriment of consumers, however. AngelaLittwin, Testing the Substitution Hypothesis: Would Credit Card Regulations Force Low-IncomeBorrowers into Less Desirable Lending Alternatives?, 2009 U. ILL. L. REV. 403, 418 (2009) (reportingthat OCC has issued a directive having the effect of preventing payday lenders from taking advantage offederal preemption to avoid enforcement of state law).

141. See STAFF OF THE FEDERAL TRADE COMMISSION, PROTECTING CONSUMERS IN THE NEXT

TECH-ADE 2 (2008), http://www.ftc.gov/os/2008/03/P064101tech.pdf [hereinafter Tech-ade Report](observing that changes are "taking place at a dizzying pace").

1169



their right to preempt state law intended to protect consumers of financial services. 140

V. THE CHALLENGES OF THE 21 ST CENTURY: CONTRACTS AND

TECHNOLOGY'S Two EDGED SWORD

The ability of the law to effectively protect consumers is being seriously tested by current developments, most of which began in the last century, and several of which were made possible by advances in technology.141 These include the ways in which contracts are written, the unfair terms they include, and the means by which consumers agree to be bound by them. One of those terms, the mandatory predispute arbitration clause, has been especially significant because it cuts off access to the courts. Once an agreement has been made, thanks to technology, consumers have new types of payment systems and devices with which to pay. Technology also facilitated securitization of mortgages, contributing to the present economic crisis. While these new developments pose opportunities for the exploitation of consumers, technology also has given consumers convenient ways to shop and bank as well as new tools for making sound purchasing decisions.

Despite the many state and federal statutes that have been enacted in the last forty years to regulate consumer transactions, the underlying contract between the company and the consumer remains crucial in determining the rights and liabilities of the parties. One key element is the courts' effective elimination of the concept of agreement. There is no "meeting of the minds"; the consumer never

140. WookBai Kim, Challenging the Roots of the Sub prime Mortgage Crisis: The OCC's Operating Subsidiary Regulations and Watters v. Wachovia Bank, 21 LoY. CONSUMER L. REv. 278, 285-88 (2009). Not all of the agencies' actions have been to the detriment of consumers, however. Angela Littwin, Testing the Substitution Hypothesis: Would Credit Card Regulations Force Low-Income Borrowers into Less Desirable Lending Alternatives?, 2009 U. ILL. L. REv. 403, 418 (2009) (reporting that OCC has issued a directive having the effect of preventing payday lenders from taking advantage of federal preemption to avoid enforcement of state law).

141. See STAFF OF THE FEDERAL TRADE COMMISSION, PROTECfING CONSUMERS IN THE NEXT

TECH-ADE 2 (2008), http://www.ftc.gov/osl2008/031P064lOitech.pdf [hereinafter Tech-ade Report] (observing that changes are ''taking place at a dizzying pace").

23




agrees to the contract terms. 142 Rather, contracts are written inlanguage few could ever hope to understand 143 and the contracts arepresented on a take-it-or-leave-it basis. 144 In many situations, courtsenforce contracts and changes in contract terms as long as thecompany notified the consumer and the consumer continued herrelationship with the company, such as continuing to use her creditcard, or continuing to maintain her account with the bank. 145 Noticehas replaced agreement as a crucial element of contract formation.

Developments in technology have been a significant factor inchanging the law of contracts, especially with many consumertransactions taking place on the Internet. Contracting on-line haspresented many issues. A fundamental one is the basic question ofwhether a contract has been formed. When consumers buy goods orservices on-line they are presented with various scenarios for enteringinto contracts. 146 In some of these settings, the contract is displayedon an internal page on the seller's site, but the consumer is notrequired to engage in affirmative conduct to indicate an intention toenter into a contract. 147 The courts have not resolved issuessurrounding the validity of these "browsewrap" or "click free"contracts.148 Other sites use a contracting process called clickwrap inwhich the consumer is required to click on some part of a web page

142. Amelia Rawls, Contract Formation in an Internet Age, 10 COLUM. SC. & TECH. L. REV. 200,217-20 (2009) (contending that new technologies make the "meeting of the minds" doctrine "moot");Jay P. Kason & Rajiv C. Shah, Setting Software Defaults: Perspectives from Law, Computer Scienceand Behavioral Economics, 82 NOTRE DAME L. REV. 583, 607 (2006) (arguing that there is no meetingof the minds in consumer contracts).

143. Alan M. White & Cathy Lesser Mansfield, Literacy and Contract, 13 STAN. L. & POL'Y REV.233, 233 (2002).

144. Jean Braucher, The Failed Promise of the UCITA Mass-Market Concept and Its Lessons forStandard Policing of Standard Form Contracts, 7 J. SMALL & EMERGING BUS. L. 393, 396-97 (2003);Francis J. Mootz I1, After the Battle of the Forms: Commercial Contracting in the Electronic Age, 4 J.L.& POL'Y FOR INFO. Soc'Y 271, 303 n.42 (2008); Edith R. Warkentine, Beyond Unconscionability: TheCase for Using "Knowing Assent'" As the Basis for Analyzing Unbargained-for Terms in Standard FormContracts, 31 SEATTLE U. L. REV. 469,485-86 (2008).

145. Tsadilas v. Provident Nat'l Bank, 786 N.Y.S.2d 478, 480 (N.Y. App. Div. 2004) (holding thatconsumer is bound by contract term where she continued to use credit card).

146. Mark E. Budnitz, Consumers Surfing for Sales in Cyberspace: What Constitutes Acceptance andWhat Legal Terms and Conditions Bind the Consumer?, 16 GA. ST. U. L. REV. 741, 744-51 (2000).

147. Specht v. Netscape Commc'ns Corp., 306 F.3d 17 (2d Cir. 2002).148. Compare ProCd, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), with Step-Saver Data Sys.,

Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991).

[Vol. 26:41170



agrees to the contract terms. 142 Rather, contracts are written in language few could ever hope to understand l43 and the contracts are presented on a take-it-or-Ieave-it basis. l44 In many situations, courts enforce contracts and changes in contract terms as long as the company notified the consumer and the consumer continued her relationship with the company, such as continuing to use her credit card, or continuing to maintain her account with the bank. 145 Notice has replaced agreement as a crucial element of contract formation.

Developments in technology have been a significant factor in changing the law of contracts, especially with many consumer transactions taking place on the Internet. Contracting on-line has presented many issues. A fundamental one is the basic question of whether a contract has been formed. When consumers buy goods or services on-line they are presented with various scenarios for entering into contracts. 146 In some of these settings, the contract is displayed on an internal page on the seller's site, but the consumer is not required to engage in affirmative conduct to indicate an intention to enter into a contract. 147 The courts have not resolved issues surrounding the validity of these "browsewrap" or "click free" contracts. 148 Other sites use a contracting process called clickwrap in which the consumer is required to click on some part of a web page

142. Amelia Rawls, Contract Formation in an Internet Age, 10 COLUM. SCI. & TECH. L. REv. 200, 217-20 (2009) (contending that new technologies make the "meeting of the minds" doctrine "moot"); Jay P. Kason & Rajiv C. Shah, Setting Software Defaults: Perspectives from Law, Computer Science and Behavioral Economics, 82 NOTRE DAME L. REv. 583, 607 (2006) (arguing that there is no meeting of the minds in consumer contracts).

143. Alan M. White & Cathy Lesser Mansfield, Literacy and Contract, I3 STAN. L. & POL'Y REv. 233, 233 (2002).

144. Jean Braucher, The Failed Promise of the UCITA Mass-Market Concept and Its Lessons for Standard Policing of Standard Form Contracts, 7 J. SMALL & EMERGING Bus. L. 393, 396-97 (2003); Francis 1. Mootz III, After the Battle of the Forms: Commercial Contracting in the Electronic Age, 4 J.L. & POL'y FOR INFO. SOC'Y 271, 303 n.42 (2008); Edith R. Warkentine, Beyond Unconscionability: The Case for Using "Knowing Assent" As the Basisfor Analyzing Unbargained-for Terms in Standard Form Contracts, 31 SEATTLE U. L. REv. 469,485--86 (2008).

145. Tsadilas v. Provident Nat'l Bank, 786 N.Y.S.2d 478, 480 (N.Y. App. Div. 2004) (holding that consumer is bound by contract term where she continued to use credit card).

146. Mark E. Budnitz, Consumers Surfingfor Sales in Cyberspace: What Constitutes Acceptance and What Legal Terms and Conditions Bind the Consumer?, 16 GA. ST. U. L. REv. 741, 744-51 (2000).

147. Specht v. Netscape Commc'ns Corp., 306 F.3d 17 (2d Cir. 2002). 148. Compare ProCd, Inc. v. Zeidenberg, 86 F.3d 1447 (7th CiT. 1996), with Step-Saver Data Sys.,

Inc. v. Wyse Tech., 939 F.2d 91 (3d CiT. 1991).

24




indicating assent, but it is not clear consumers understand the clickconstitutes a legally binding assent.

Even if a contract has been formed on-line, many questions persistas to what terms are included in the contract and what terms aremerely proposals offered by the company. Courts enforce "rolling" or"layered" contracts in which consumers are informed of crucial termsonly after they purchase goods or services. 149 Questions arise as tothe proper method of binding consumers to later modifications of theterms.150

Another issue concerns the contents of the terms contained incontracts, whether on-line or off-line. Examples of terms that courtshave struck down include arbitration agreements charging excessivefees, 151 cross-collateral provisions,1 52 and waiver of defenseclauses. 153 While those terms often are clearly disclosed in consumercontracts, others are what Professor Alces calls "guerilla terms"because they are "shrouded."' 54 That is, the seller hides "the true andcomplete cost of a purchase."' 155 Examples include credit cardcompanies concealing terms in the mathematical figures theydisclose, 156 and allocating payments in a manner that the consumerwill not understand. 157 As discussed in Part VH, Congress objected toseveral types of contract terms used by credit card issuers and placedrestrictions on them in the Credit Card Act of 2009.

A contract term that has been very controversial is the mandatorypre-dispute arbitration clause. 158 These clauses have become

149. See generally Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997); ProCd, Inc., 86 F.3d1447; Clayton P. Gillette, Rolling Contracts As an Agency Problem, 2004 Wis. L. REV. 679.150. John J.A. Burke, Contract As Commodity: A Notification Approach, 24 SETON HALL LEGIS. J.

285, 322 (2000).151. Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp. 2d 958 (W.D. Va. 2000).152. Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cit. 1965).153. Unico v. Owen, 232 A.2d 405 (1967).154. Peter A. Alces, Guerilla Terms, 56 EMORY L.J. 1511, 1513 (2007).155. Id.156. Id. at 1552.157. Id. at 1512. Professor Alces gives the example of the allocation of payments when the consumer

does not pay the full amount due and has balances both from a previous balance transfer from anotheraccount and a current balance.

158. Richard M. Alderman, Why We Really Need the Arbitration Fairness Act: It's All AboutSeparation of Powers, 12 J. CONSUMER & COM. L. 151, 151 (2009). Forcing consumers to litigate theircases in arbitration administered by private companies is an example of the privatization of the law.



indicating assent, but it is not clear consumers understand the click constitutes a legally binding assent.

Even if a contract has been formed on-line, many questions persist as to what terms are included in the contract and what terms are merely proposals offered by the company. Courts enforce "rolling" or "layered" contracts in which consumers are informed of crucial terms only after they purchase goods or services. 149 Questions arise as to the proper method of binding consumers to later modifications of the terms. 150

Another issue concerns the contents of the terms contained in contracts, whether on-line or off-line. Examples of terms that courts have struck down include arbitration agreements charging excessive fees,151 cross-collateral provisions,152 and waiver of defense clauses. IS3 While those terms often are clearly disclosed in consumer contracts, others are what Professor Alces calls "guerilla terms" because they are "shrouded.,,154 That is, the seller hides "the true and complete cost of a purchase.,,155 Examples include credit card companies concealing terms in the mathematical figures they disclose,156 and allocating payments in a manner that the consumer will not understand. 157 As discussed in Part VII, Congress objected to several types of contract terms used by credit card issuers and placed restrictions on them in the Credit Card Act of 2009.

A contract term that has been very controversial is the mandatory pre-dispute arbitration clause. 158 These clauses have become

149. See generally Hill v. Gateway 2000, Inc., lOS F.3d 1147 (7th Cir. 1997); ProCd. Inc., 86 F.3d 1447; Clayton P. Gillette, Rolling Contracts As an Agency Problem, 2004 WIS. 1. REv. 679. 150. John J.A. Burke, Contract As Commodity: A Notification Approach, 24 SETON HALL LEGIS. J.

285, 322 (2000). 151. Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp. 2d 958 (W.D. Va. 2000). 152. Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). 153. Unico v. Owen, 232 A.2d 405 (1967). 154. Peter A. Alces, Guerilla Terms, 56 EMORY LJ. 1511, 1513 (2007). 155. Id. 156. Id. at 1552. 157. Id. at 1512. Professor Alces gives the example of the allocation of payments when the consumer

does not pay the full amount due and has balances both from a previous balance transfer from another account and a current balance.

158. Richard M. Alderman, Why We Really Need the Arbitration Fairness Act: It's All About Separation of Powers, 12 J. CONSUMER & COM. 1. 151, lSI (2009). Forcing consumers to litigate their cases in arbitration administered by private companies is an example of the privatization of the law.

25




pervasive in most consumer transactions. 159 The clauses have beenattacked on the bases that: arbitration often is more expensive thanlitigation; 160 typically the clauses ban class actions making itinfeasible for consumers to challenge illegal conduct; 161 arbitrationservices are biased in favor of companies; 162 and arbitration isprivate, shielding companies from public scrutiny.' 63 While manycourts have struck down the clauses or parts of them as beingunconscionable,' 64 many other courts have upheld the clauses.165

Arbitration clauses also can be challenged on two morefundamental grounds. First, arbitrators are not required to follow thelaw.' 66 Therefore, all of the laws that have been enacted in the pastforty years to protect consumers can be completely ignored byarbitrators and there is nothing the consumer can do about it, sincethat is not a basis for challenging an arbitrator's decision. In fact,arbitrators are not required to make any written findings of fact orrulings of law. 167 Second, arbitration is an example of theprivatization of the law. Consumer protection laws to a significantextent took consumer transactions out of the world of private contract

Another example is the rules that govern much of the electronic payment systems, rules issued by theNational Automated Clearinghouse Association. 2009 ACH RULES: A COMPLETE GUIDE TO RULES &REGULATIONS GOVERNING THE ACH NETWORK (2009). See generally Stewart Macaulay, PrivateGovernment, in LAW AND SOCIAL SCIENCES 445 (Leon Lipson & Stanton Wheeler eds., 1986); David J.Kenney, Due Process in a Privatized Welfare System, 64 BROOK. L. REV. 231 (1998); Steven L.Schwarcz, A Funda~mental Inquiry into the Statutory Rulemaking of Private Legislatures, 29 GA. L. REV.909 (1995); David V. Snyder, Private Lawmaking, 64 OHIO ST. L.J. 371 (2003).

159. Alderman, supra note 158.160. Mark E. Budnitz, The High Cost of Mandatory Consumer Arbitration, 67 LAW & CONTEMP.

PROBS. 133, 133 (2004).161. Alderman, supra note 158, at 154.162. Courting Big Business: The Supreme Court's Recent Decisions on Corporate Misconduct and

Laws Regulating Corporations: Hearing Before the S. Comm. on the Judiciary, 110th Cong. (2008); seeinfra text accompanying note 171.

163. Daniel R. Higginbotham, Buyer Beware: Why the Class Arbitration Waiver Clause Presents aGloomy Future for Consumers, 58 DUKE L.J. 103, 112 (2008).

164. E.g., Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 169 (5th Cir. 2004) (holdingarbitration clause unconscionable because of non-mutuality).

165. E.g., Stenzell v. Dell, Inc., 870 A.2d 133 (Me. 2005) (holding non-mutual arbitration contract notunconscionable under Texas law).

166. Timothy J. Heinsz, The Revised Uniform Arbitration Act: Modernizing, Revising, and ClarifyingArbitration Law, 2001 J. DISP. RESOL. 1.

167. David L. Heinemann, Note, Arbitrability of Claims Arising Under the Securities Exchange Act of1934, 1986 DUKE L.J. 548, 553 (1986).

[Vol. 26:4



pervasive in most consumer transactions. 159 The clauses have been attacked on the bases that: arbitration often is more expensive than litigation; 160 typically the clauses ban class actions making it infeasible for consumers to challenge illegal conduct; 161 arbitration services are biased in favor of companies; 162 and arbitration is private, shielding companies from public scrutiny.163 While many courts have struck down the clauses or parts of them as being unconscionable,164 many other courts have upheld the clauses. 165

Arbitration clauses also can be challenged on two more fundamental grounds. First, arbitrators are not required to follow the law. 166 Therefore, all of the laws that have been enacted in the past forty years to protect consumers can be completely ignored by arbitrators and there is nothing the consumer can do about it, since that is not a basis for challenging an arbitrator's decision. In fact, arbitrators are not required to make any written findings of fact or rulings of law. 167 Second, arbitration is an example of the privatization of the law. Consumer protection laws to a significant extent took consumer transactions out of the world of private contract

Another example is the rules that govern much of the electronic payment systems, rules issued by the National Automated Clearinghouse Association. 2009 ACH RULES: A COMPLETE GUIDE TO RULES & REGULATIONS GoVERNING THE ACH NETWORK (2009). See generally Stewart Macaulay, Private Government, in LAw AND SOCIAL SCIENCES 445 (Leon Lipson & Stanton Wheeler eds., 1986); David J. Kenney, Due Propps in a Privatized Welfare System, 64 BROOK. L. REv. 231 (1998); Steven L. Schwarcz, A Fundamental Inquiry into the Statutory Rulemaking of Private Legislatures, 29 GA. L. REv. 909 (1995); David v. Snyder, Private Lawmaking, 64 OHIO ST. LJ. 371 (2003).

159. Alderman, supra note 158. 160. Mark E. Budnitz, The High Cost of Mandatory Consumer Arbitration, 67 LAw & CONTEMP.

PROBS. 133, 133 (2004). 161. Alderman, supra note 158, at 154. 162. Courting Big Business: The Supreme Court's Recent Decisions on Corporate Misconduct and

Laws Regulating Corporations: Hearing Before the S. Comm. on the Judiciary, I 10th Congo (2008); see infra text accompanying note 171.

163. Daniel R. Higginbotham, Buyer Beware: Why the Class Arbitration Waiver Clause Presents a Gloomy Future/or Consumers, 58 DUKE LJ. 103, 112 (2008).

164. E.g., Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 169 (5th Cir. 2004) (holding arbitration clause unconscionable because of non-mutuality).

165. E.g., Stenzell v. Dell, Inc., 870 A.2d 133 (Me. 2005) (holding non-mutual arbitration contract not unconscionable under Texas law).

166. Timothy J. Heinsz, The Revised Uniform Arbitration Act: Modernizing, Revising, and Clarifying Arbitration Law, 2001 1. DISP. REsoL. I.

167. David L. Heinemann, Note, Arbitrability of Claims Arising Under the Securities Exchange Act of J 934, 1986 DUKE L.J. 548, 553 (1986).

26




by requiring disclosures and notices, out of which the parties couldnot contract. These requirements could be enforced by statutes whichencouraged enforcement in the public forum of the courts byproviding for the award of attorney's fees, costs, and class actions.Arbitration pulls consumer transactions into the nether world ofprivate dispute resolution where the only rules are those thecompanies and the arbitration services the companies select adopt attheir pleasure, without consumer involvement or governmentoversight.

Use of arbitration clauses represents a clever strategy bycompanies to gain the upper hand by changing "the rules under whichthe battle is fought."'168 Before their inclusion in consumer contracts,companies faced lawsuits, often class actions, brought by anincreasing number of ever more experienced consumer lawyers. Byforcing consumers into arbitration, companies were able to obtain afar more favorable forum.' 69 They furthered their escape fromsignificant liability by including a ban on class actions in theirarbitration clauses. 170

Dramatic changes occurred in 2009 when the Attorney General ofMinnesota sued the National Arbitration Forum (NAF). The AttorneyGeneral's Complaint alleged that NAF violated state law when it didnot disclose that it had financial ties to law firms that brought debtcollection actions against consumers in NAF administeredarbitrations. 171

NAF promptly reached a settlement with the Attorney General'soffice in which NAF agreed to stop administering all consumer

168. See generally Stephen Meili, Consumer Cause Lawyers in the United States: Lawyers for theMovement or a Movement unto Themselves?, in CAUSE LAWYERS AND SOCIAL MOVEMENTS 120, 128(Austin Sarat & Stuart Scheingold eds., 2006). Meili uses federal preemption as his example ofcompanies changing the rules.

169. See JOHN O'DONNEL, PUBLIC CITIZEN, THE ARBITRATION TRAP: How CREDIT CARD

COMPANIES ENSNARE CONSUMERS (2007), available athttp://www.citizen.org/documents/ArbitrationTrap.pdf.

170. Alderman, supra note 158, at 154.171. Evan Tager, National Arbitration Forum to Cease Administering Consumer Arbitrations: Many

Consumer Arbitration Provisions May Need Revision, MONDAQ, July 31, 2009, available at 2009WLNR 14806599.



by requiring disclosures and notices, out of which the parties could not contract. These requirements could be enforced by statutes which encouraged enforcement in the public forum of the courts by providing for the award of attorney's fees, costs, and class actions. Arbitration pulls consumer transactions into the nether world of private dispute resolution where the only rules are those the companies and the arbitration services the companies select adopt at their pleasure, without consumer involvement or government oversight.

Use of arbitration clauses represents a clever strategy by companies to gain the upper hand by changing "the rules under which the battle is fought.,,168 Before their inclusion in consumer contracts, companies faced lawsuits, often class actions, brought by an increasing number of ever more experienced consumer lawyers. By forcing consumers into arbitration, companies were able to obtain a far more favorable forum. 169 They furthered their escape from significant liability by including a ban on class actions in their arbitration clauses. 170

Dramatic changes occurred in 2009 when the Attorney General of Minnesota sued the National Arbitration Forum (NAF). The Attorney General's Complaint alleged that NAF violated state law when it did not disclose that it had financial ties to law firms that brought debt collection actions against consumers In NAF administered arbitrations. 171

NAF promptly reached a settlement with the Attorney General's office in which NAF agreed to stop administering all consumer

168. See generally Stephen Meili, Consumer Cause Lawyers in the United States: Lawyers for the Movement or a Movement unto Themselves?, in CAUSE LAWYERS AND SOCIAL MOVEMENTS 120, 128 (Austin Sarat & Stuart Scheingold eds., 2006). Meili uses federal preemption as his example of companies changing the rules.

169. See JOHN O'DONNEL, PuBLIC CITIZEN, THE ARBITRATION TRAP: How CREDIT CARD

COMPANIES ENSNARE CONSUMERS (2007), available at http://www.citizen.orgldocumentslArbitrationTrap.pdf.

170. Aldennan, supra note 158, at 154. 171. Evan Tager, National Arbitration Forum to Cease Administering Consumer Arbitrations: Many

Consumer Arbitration Provisions May Need Revision, MONDAQ, July 31, 2009, available at 2009 WLNR 14806599.

27




disputes. 172 Shortly thereafter the American Arbitration Association(AAA) announced it would no long administer consumer debtcollection disputes until it addressed several concerns. 73

NAF's decision to stop handling consumer arbitrations left manyquestions that will have to be resolved in the future. For example,how will disputes be decided if a contract designates only the NAF asthe arbitration service? 174

The larger issue is: what is the future of consumer arbitration? Willthe decisions by NAF and AAA result in companies no longer tryingto enforce arbitration provisions in their contracts? Will a newarbitration service be established that companies substitute for NAFand AAA? If so, will that service insist on handling arbitration only ifthe companies' contracts omit provisions consumer advocates andsome courts have found most objectionable? Is there any need forfederal legislation banning consumer arbitration? 175

The Internet poses many new challenges for consumers. Inaddition to facing fraud and deceptive practices similar to those inoff-line transactions, consumers confront new challenges such asphishing in which consumers unwittingly provide thieves withinformation that can result in identity theft and unauthorized access toconsumer bank accounts. 176 The Internet also enables fraudsters to

172. Lewis Weiner, NAF Announces It Will No Longer Arbitrate Consumer Disputes, and AAAComes TumblingAfter, MONDAQ, Aug. 13, 2009, available at 2009 WLNR 15739960.

173. Id.; Arbitration or Arbitrary: The Misuse of Mandatory Arbitration to Collect Consumer Debts,Hearing Before the H. Subcomm. on Domestic Policy of the H. Comm. on Oversight and GovernmentReform, 1 IIth Cong. (2009) (testimony of Richard W. Naimark on behalf of the American ArbitrationAssociation). The AAA identified the following concerns: consumers do not receive adequate notice ofproceedings; arbitrators may not be neutral, especially if the same arbitrator hears many cases; claimantsoften present no proof of their claims; claimants seek interest charges and attorney fees that exceed theamount of the claimed debt; and arbitrators may not adequately consider consumer defenses andcounterclaims. Id. at 5-7. Shortly thereafter Bank of America stopped requiring consumer arbitration.Samuel Estreicher & Steven C. Bennett, Class Action Procedures in Arbitration, 242 N.Y. L.J. 3 (2009).JPMorgan Chase subsequently announced it would no longer include mandatory arbitration provisionsin its credit card contracts. J.P. Morgan Drops Card-Dispute Arbitration Rule, WALL ST. J., Nov. 21,2009, at B2.

174. Ten Stunning Practice Implications of NAF Withdrawal from All Consumer Arbitrations, NCLCREPORTS (DECEPTIVE PRACTICES & WARRANTIES EDITION), July-Aug. 2009, at 1.

175. See infra text accompanying note 342.176. "Phishing" typically involves consumers receiving an e-mail that appears to be from a legitimate

financial institution. If the consumer responds to instructions in the e-mail, he or she is taken to a website, asked for personal information, and soon becomes a victim to thieves who access bank accounts

1174 [Vol. 26:4



disputes. l72 Shortly thereafter the American Arbitration Association (AAA) announced it would no long administer consumer debt collection disputes until it addressed several concerns. 173

NAF's decision to stop handling consumer arbitrations left many questions that will have to be resolved in the future. For example, how will disputes be decided if a contract designates only the NAF as the arbitration service? 174

The larger issue is: what is the future of consumer arbitration? Will the decisions by NAF and AAA result in companies no longer trying to enforce arbitration provisions in their contracts? Will a new arbitration service be established that companies substitute for NAF and AAA? If so, will that service insist on handling arbitration only if the companies' contracts omit provisions consumer advocates and some courts have found most objectionable? Is there any need for federal legislation banning consumer arbitration?175

The Internet poses many new challenges for consumers. In addition to facing fraud and deceptive practices similar to those in off-line transactions, consumers confront new challenges such as phishing in which consumers unwittingly provide thieves with information that can result in identity theft and unauthorized access to consumer bank accounts. 176 The Internet also enables fraudsters to

172. Lewis Weiner, NAF Announces It Will No Longer Arbitrate Consumer Disputes, and AAA Comes Tumbling After, MONDAQ, Aug. 13,2009, available at 2009 WLNR 15739960.

173. Id.; Arbitration or Arbitrary: The Misuse of Mandatory Arbitration to Collect Consumer Debts, Hearing Before the H. Subcomm. on Domestic Policy of the H. Comm. on Oversight and Government Reform, III th Congo (2009) (testimony of Richard W. Naimark on behalf of the American Arbitration Association). The AAA identified the following concerns: consumers do not receive adequate notice of proceedings; arbitrators may not be neutral, especially if the same arbitrator hears many cases; claimants often present no proof of their claims; claimants seek interest charges and attorney fees that exceed the amount of the claimed debt; and arbitrators may not adequately consider consumer defenses and counterclaims.Id. at 5-7. Shortly thereafter Bank of America stopped requiring consumer arbitration. Samuel Estreicher & Steven C. Bennett, Class Action Procedures in Arbitration, 242 N.V. L.J. 3 (2009). JPMorgan Chase subsequently announced it would no longer include mandatory arbitration provisions in its credit card contracts. J.P. Morgan Drops Card-Dispute Arbitration Rule, WALL Sr. J., Nov. 21, 2009, atB2.

174. Ten Stunning Practice Implications of NAF Withdrawal from All Consumer Arbitrations, NCLC REPORTS (DECEPTIVE PRACTICES & WARRANTIES EDITION), July-Aug. 2009, at I.

175. See infra text accompanying note 342. 176. "Phishing" typically involves consumers receiving an e-mail that appears to be from a legitimate

financial institution. If the consumer responds to instructions in the e-mail, he or she is taken to a web site, asked for personal information, and soon becomes a victim to thieves who access bank accounts

28




gain electronic access to consumers' bank accounts through hacking,resulting in the potential for unauthorized transfers. 7 7 In addition, theInternet enables lenders to structure transactions in a way thatincreases consumer expenses. 17 At the same time, the Internet hasthe potential of enabling consumer organizations to reach consumersin new and effective ways. 179 In addition, consumers can achieve abeneficial level of anonymity by transacting business on the Internet.For example, if the consumer's name is Mary Smith, the Web sellerlikely will not know the consumer's race or ethnicity, makingdiscrimination on those bases impossible. Some types of businesses,however, may be able to use the Internet's capabilities and data aboutthe consumer to practice discrimination.180

New types of payment devices also are being developed. The 21stCentury has witnessed greatly reduced use of checks and a hugeincrease in the use of stored value cards such as gift cards, prepaidspending cards, phone cards, and payroll cards.' 81 These cardsprovide benefits for consumers. For example, consumers who cannotqualify for a credit card or who do not have a bank account can use a

and steal one's identity. Fed. Deposit Insurance Corp., Phishing Scams,http://www.fdic.gov/consumers/consumer/alerts/phishing.htm (last visited Mar. 9, 2010).

177. FED. DEPOSIT INSURANCE CORP., PUTTING AN END TO ACCOUNT-HUACKING IDENTITY THEFT(2004), http://www.fdic.gov/consumers/consumer/idtheflstudy/identity theft.pdf. According to theFDIC report, in a 12-month period, almost two million U.S. Internet users experienced unauthorizedaccess to their checking accounts. Seventy percent of these consumers did their banking or bill-payingonline. In one scheme, the cyber thieves not only made fraudulent transfers from consumer accounts,they also prevented those transfers from appearing on the consumers' bank statements and transferredrandom amounts that escaped detection by banks' fraud detection systems. Daniel Wolfe & Steve Bills,Trickier Trojan, AM. BANKER, Oct. 7, 2009, at 5, available at 2009 WLNR 19703672.

178. E.g., PaycheckToday.com, http-//www.paychecktoday.com, in which the on-line lenderautomatically renews the consumer's loan, debiting only the "finance fee" unless the consumer notifiesthe lender three business days prior to the due date that he/she wants to pay the loan in full or pay downpart of the principal (last visited Sept. 3, 2009).

179. Consumer Movement Faces Challenges, Opportunities, CFA NEWS, Mar.-Apr. 2006, at 2(reporting that the Internet provides opportunities for consumer organizations to connect with consumersand for consumers to connect with each other, and share their experiences).

180. See, e.g., Joyce Cutler, Advocacy Group, Claiming Web Bias, Raises New Claims Against WellsFargo, 74 BNA BANKING REP. 1168 (2000) (reporting that the Association of CommunityOrganizations for Reform Now alleged in a lawsuit that Wells Fargo used a search feature on its Website and information about consumers' current ZIP codes to steer consumers to neighborhoods in adiscriminatory manner).

181. Eniola Akindemowo, Contract, Deposit or E- Value? Reconsidering Stored Value Products for aModernized Payments Framework, 7 DEPAUL Bus. & COM. L.J. 275, 275 (2009).

1175



gain electronic access to consumers' bank accounts through hacking, resulting in the potential for unauthorized transfers. l77 In addition, the Internet enables lenders to structure transactions in a way that increases consumer expenses. 178 At the same time, the Internet has the potential of enabling consumer organizations to reach consumers in new and effective ways.179 In addition, consumers can achieve a beneficial level of anonymity by transacting business on the Internet. For example, if the consumer's name is Mary Smith, the Web seller likely will not know the consumer's race or ethnicity, making discrimination on those bases impossible. Some types of businesses, however, may be able to use the Internet's capabilities and data about the consumer to practice discrimination. 18o

New types of payment devices also are being developed. The 21 st Century has witnessed greatly reduced use of checks and a huge increase in the use of stored value cards such as gift cards, prepaid spending cards, phone cards, and payroll cards. 181 These cards provide benefits for consumers. For example, consumers who cannot qualify for a credit card or who do not have a bank account can use a

and steal one's identity. Fed. Deposit Insurance Corp., Phishing Scams, http://www.fdic.gov/consumerslconsumer/alertslphishing.html(last visited Mar. 9, 2010).

177. FED. DEPOSIT INSURANCE CORP., PUTIING AN END TO ACCOUNT-HUACKING IDENTITY THEFT (2004), http://www.fdic.gov/consumerslconsumer/idtheftstudy/identity_theft.pdf. According to the FDIC report, in a 12-month period, almost two million U.S. Internet users experienced unauthorized access to their checking accounts. Seventy percent of these consumers did their banking or bill-paying online. In one scheme, the cyber thieves not only made fraudulent transfers from consumer accounts, they also prevented those transfers from appearing on the consumers' bank statements and transferred random amounts that escaped detection by banks' fraud detection systems. Daniel Wolfe & Steve Bills, Trickier Trojan, AM. BANKER, Oct. 7, 2009, at 5, available at 2009 WLNR 19703672.

178. E.g., PaycheckToday.com, http://www.paychecktoday.com. in which the on-line lender automatically renews the consumer's loan, debiting only the "fmance fee" unless the consumer notifies the lender three business days prior to the due date that he/she wants to pay the loan in full or pay down part of the principal (last visited Sept. 3, 2009).

179. Consumer Movement Faces Challenges, Opportunities, CFA NEWS, Mar.-Apr. 2006, at 2 (reporting that the Internet provides opportunities for consumer organizations to connect with consumers and for consumers to connect with each other, and share their experiences).

180. See, e.g., Joyce Cutler, Advocacy Group, Claiming Web Bias, Raises New Claims Against Wells Fargo, 74 BNA BANKING REp. 1168 (2000) (reporting that the Association of Community Organizations for Reform Now alleged in a lawsuit that Wells Fargo used a search feature on its Web site and information about consumers' current ZIP codes to steer consumers to neighborhoods in a discriminatory manner).

181. Eniola Akindemowo, Contract, Deposit or E-Value? Reconsidering Stored Value Products for a Modernized Payments Framework, 7 DEPAUL Bus. & COM. L.J. 275,275 (2009).

29




prepaid spending card instead. Stored value cards look like credit anddebit cards and may even bear a Visa or MasterCard logo.Consequently, it is reasonable for consumers to assume the federallaws that protect them, such as laws that place limits on their liabilityfor lost and stolen credit and debit cards, apply to stored valuecards. 8 2 Until 2009, however, only payroll cards were subject tofederal protection; in 2009 gift cards were subject to limited federalregulation for the first time. 183

Technology has made it possible to transfer paymentselectronically. The result is new conveniences such as direct depositof wages and Social Security as well as automatic withdrawals usingpreauthorized electronic transfer plans and on-line bill paying.Consumers also have new payment devices, such as cell phones thatcan be used for bank transactions. These services reduce the need togo to a bank branch which can be a great benefit to the poor,disabled, and consumers who do not have motor vehicles and lackadequate public transportation.

These new services can pose new problems for consumers,however. For example, a consumer taking out an on-line payday loanobtains very fast approval and the loan proceeds are electronicallydeposited into the consumer's account very quickly. The consumer,however, must authorize the lender to withdraw funds from theconsumer's account electronically. Some payday lenders structure thewithdrawals so that unless the consumer affirmatively notifies the

182. Mark E. Budnitz, Consumer Payment Products and Systems: The Need for Uniformity and theRisk of Political Defeat, 24 ANN. REV. BANKING & FIN. L. 247, 268 (2005). It is reasonable to assumeconsumers are confused about the differences between stored value cards and other types of cards sinceconsumers are confused about the differences between credit cards and debit cards. Lloyd Constantine,Gordon Schnell, Reiko Cyr & Michelle A. Peters, Repairing the Failed Debit Card Market: Lessonsfrom an Historically Interventionist Federal Reserve and the Recent Visa Check/MasterMoney AntitrustLitigation, 2 N.Y.U. J.L. & Bus. 147, 164 (2005); David A. Balto, Can the Promise of Debit Cards BeFulfilled?, 53 Bus. LAW. 1093, 1102 (1998). Stored value cards also are susceptible to fraud by cyberthieves. International Effort Defeats Major Hacking Ring, U.S. FED. NEWS, Nov. 14, 2009, available at2009 WLNR 22895900. (reporting that the FBI arrested members of a sophisticated internationalcomputer hacking organization that compromised data encryption used by a major bank to protectpayroll cards, enabling the criminals to raise the amount of the cards and produce counterfeit cards,transferring $9 million to persons in six countries around the world in less than 12 hours).

183. The Credit Card Act of 2009, Pub. L. No. 111-24, § 401(2), 123 Stat. 1734, 1751 (to be codifiedas 15 U.S.C. § 16931-1).

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prepaid spending card instead. Stored value cards look like credit and debit cards and may even bear a Visa or MasterCard logo. Consequently, it is reasonable for consumers to assume the federal laws that protect them, such as laws that place limits on their liability for lost and stolen credit and debit cards, apply to stored value cards. 182 Until 2009, however, only payroll cards were subject to federal protection; in 2009 gift cards were subject to limited federal regulation for the first time. 183

Technology has made it possible to transfer payments electronically. The result is new conveniences such as direct deposit of wages and Social Security as well as automatic withdrawals using preauthorized electronic transfer plans and on-line bill paying. Consumers also have new payment devices, such as cell phones that can be used for bank transactions. These services reduce the need to go to a bank branch which can be a great benefit to the poor, disabled, and consumers who do not have motor vehicles and lack adequate public transportation.

These new services can pose new problems for consumers, however. For example, a consumer taking out an on-line payday loan obtains very fast approval and the loan proceeds are electronically deposited into the consumer's account very quickly. The consumer, however, must authorize the lender to withdraw funds from the consumer's account electronically. Some payday lenders structure the withdrawals so that unless the consumer affirmatively notifies the

182. Mark E. Budnitz, Consumer Payment Products and Systems: The Needfor Uniformity and the Risk of Political Defeat, 24 ANN. REv. BANKING & FIN. L. 247, 268 (2005). It is reasonable to assume consumers are confused about the differences between stored value cards and other types of cards since consumers are confused about the differences between credit cards and debit cards. Lloyd Constantine, Gordon Schnell, Reiko Cyr & Michelle A. Peters, Repairing the Failed Debit Card Market: Lessons from an Historically Interventionist Federal Reserve and the Recent Visa CheckiMasterMoney Antitrust Litigation, 2 N.Y.U. J.L. & Bus. 147, 164 (2005); David A. Balto, Can the Promise of Debit Cards Be Fulfllled?, 53 Bus. LAw. 1093, 1102 (1998). Stored value cards also are susceptible to fraud by cyber thieves. International Effort Defeats Major Hacking Ring, U.S. FED. NEWS, Nov. 14,2009, available at 2009 WLNR 22895900. (reporting that the FBI arrested members of a sophisticated international computer hacking organization that compromised data encryption used by a major bank to protect payroll cards, enabling the criminals to raise the amount of the cards and produce counterfeit cards, transferring $9 million to persons in six countries around the world in less than 12 hours).

183. The Credit Card Act of 2009, Pub. L. No. 111-24, § 401(2),123 Stat. 1734, 1751 (to be codified as IS U.S.C. § 16931-1).

30




lender a specified number of days in advance, the lender willwithdraw only interest and the high-cost loan will automatically rollover to the next payment period, making the loan very expensive.18 4

Payment by cell phone is in its infancy in the United States, butpotential problems can be anticipated. For example, a consumer facesthe risk of severe consequences if an obligation is in default. Theconsumer may have used a cell phone to authorize timely payment tothe creditor, but the payment may have failed to reach the creditor.The consumer can complain to the consumer's financial institutionand under the Electronic Fund Transfers Act (EFTA), the institutionmust investigate and correct the error if it is responsible."' If theinstitution informs the consumer that its investigation concluded thatit was not at fault, however, the EFTA provides no relief. Assumingthe consumer's financial institution is correct in its findings, theconsumer likely will have no way to determine (short of expensivediscovery in a lawsuit) whether the fault lay in the cell phone'shardware, the software in the cell phone, the telecommunicationscompany transmitting the consumer's message, or some othercompany involved in the process.

Electronic payments processed through the automatedclearinghouse system are governed by the rules of a private body, theNational Automated Clearinghouse Association (NACHA). Thoserules do not grant consumers the right to sue financial institutions orbusinesses that violated the rules. 186 The government has resorted to

184. E.g., PaycheckToday.com, supra note 178. In addition to being subject to the questionablepractices of payday lenders, consumers who take out payday loans also have been targeted by persons

posing as debt collectors and demanding payment of non-existent bills. They appear legitimate to theconsumer because they have a great deal of personal information about the consumer, apparently thefruits of a data breach affecting thousands of consumers. Daniel Wolfe, Scam Trends, AM. BANKER,Nov. 9, 2009, at 5, available at 2009 WLNR 17611116.

185. 15 U.S.C. § 1693f(b) (2006). Banking by cell phone also exposes the consumer to cyber fraud.For example, a computer bug targeted consumers using their iPhones to engage in Internet banking.iPhone Hit with Worm, WORLD ENT. NEWS NETWORK, Nov. 24, 2009, available at 2009 WLNR23647995.

186. See supra note 158. The NACHA Rules do not provide a right of action for bank customerswhose funds are removed from deposit accounts via the ACH system. Financial institutions and otherswho are parties to contracts NACHA requires for participation in the ACH system, however, are boundby their contractual obligation to comply with the NACHA rules. MARK BUDN1TZ, LAUREN ICSAUNDERS & MARGOT SAUNDERS, CONSUMER BANKING & PAYMENTS LAW 146-47 (4th ed. 2009).

There is little case law and it is divided. Sec. First Network Bank v. C.A.P.S., Inc., No. 01 C 342, 2002

1177



lender a specified number of days in advance, the lender will withdraw only interest and the high-cost loan will automatically roll over to the next payment period, making the loan very expensive. 184

Payment by cell phone is in its infancy in the United States, but potential problems can be anticipated. For example, a consumer faces the risk of severe consequences if an obligation is in default. The consumer may have used a cell phone to authorize timely payment to the creditor, but the payment may have failed to reach the creditor. The consumer can complain to the consumer's fmancial institution and under the Electronic Fund Transfers Act (EFTA), the institution must investigate and correct the error if it is responsible. 185 If the institution informs the consumer that its investigation concluded that it was not at fault, however, the EFTA provides no relief. Assuming the consumer's financial institution is correct in its findings, the consumer likely will have no way to determine (short of expensive discovery in a lawsuit) whether the fault lay in the cell phone'S hardware, the software in the cell phone, the telecommunications company transmitting the consumer's message, or some other company involved in the process.

Electronic payments processed through the automated clearinghouse system are governed by the rules of a private body, the National Automated Clearinghouse Association (NACHA). Those rules do not grant consumers the right to sue financial institutions or businesses that violated the rules. 186 The government has resorted to

184. E.g., PaycheckToday.com, supra note 178. In addition to being subject to the questionable practices of payday lenders, consumers who take out payday loans also have been targeted by persons posing as debt collectors and demanding payment of non-existent bills. They appear legitimate to the consumer because they have a great deal of personal information about the consumer, apparently the fruits of a data breach affecting thousands of consumers. Daniel Wolfe, Scam Trends, AM. BANKER, Nov. 9, 2009, at 5, available at 2009 WLNR 17611116.

185. IS U.S.C. § 1693f(b) (2006). Banking by cell phone also exposes the consumer to cyber fraud. For example, a computer bug targeted consumers using their iPhones to engage in Internet banking. iPhone Hit with Worm, WORLD ENT. NEWS NETWORK., Nov. 24, 2009, available at 2009 WLNR 23647995.

186. See supra note 158. The NACHA Rules do not provide a right of action for bank customers whose funds are removed from deposit accounts via the ACH system. Financial institutions and others who are parties to contracts NACHA requires for participation in the ACH system, however, are bound by their contractual obligation to comply with the NACHA rules. MARK BUDNITZ, LAUREN K. SAUNDERS & MARGOT SAUNDERS, CONSUMER BANKING & PAYMENTS LAW 146-47 (4th ed. 2009). There is little case law and it is divided. Sec. First Network Bank v. C.A.P.S., Inc., No. 01 C 342, 2002

31




electronic payments of food stamp benefits.'8 7 In conjunction withthat, states have contracted with private companies to operate thesystems used to transfer funds to needy recipients. This sounds like asound program--delegate to high-tech companies the task that theyare especially equipped to do and that state governments are not.Some of these companies, however, have failed to properly providethe benefits.'

88

Consumers purchasing mass market digital products such assoftware face formidable challenges. The terms imposed by sellersand licensees "provide no usable remedies for product qualitydefects."' 189 While that also is true when buying other products suchas a used car sold "as is," consumers buying software are trapped byfactors not ordinarily present when buying other types of goods. Ifone company obtains dominance when a new product is introducedinto the marketplace, consumers buying that product may have to buyother products by the same company in order to avoid interoperabilityproblems when communicating with other persons, and to avoid thehigh costs of switching to another system. 190

Technology also was a factor in the current mortgage crisis. Theindustry's frantic pursuit of borrowers was fueled by the ability tosecuritize individual mortgages into vast pools. 191 Technology madesecuritization possible.1 92

WL 485352, at *6 (N.D. Ill. Mar. 29, 2002) (holding a bank customer could sue for breach of theNACHA Rules because its agreement with its bank required it to comply with the NACHA Rules).Contra Sinclair Oil Corp. v. Sylvan State Bank, 894 F. Supp. 1470, 1478 (D. Kan. 1995).

187. BUDNITZ, SAUNDERS & SAUNDERS, supra note 186, at 217-56.188. Will Higgins, SIB Privatization Deal at Risk, INDIANAPOLIS STAR, July 8, 2009, at Al, available

at 2009 WLNR 15648034 (reporting that IBM wrongly denies food stamps to many).189. Jean Braucher, New Basics: Twelve Principles for Fair Commerce in Mass-Market Software and

Other Digital Products, in CONSUMER PROTECTION IN THE AGE OF THE "INFORMATION ECONOMY" 177(Jane K. Winn ed., 2006).

190. Id.191. Kathleen C. Engel & Patricia A. McCoy, Turning a Blind Eye: Wall Street Finance of Predatory

Lending, 75 FORDHAM L. REV. 2039,2039-40 (2007).192. Id. at 2045. Securitization is described as "financial technology." Id. See generally Harry Terris,

Gauging Prospects for Securitization Without Subsidy, AM. BANKER, June 19, 2009, at 1, available at2009 WLNR 11693534 (discussing possible structure of securitization in the future).

[Vol. 26:41178



electronic payments of food stamp benefits. 187 In conjunction with that, states have contracted with private companies to operate the systems used to transfer funds to needy recipients. This sounds like a sound program--delegate to high-tech companies the task that they are especially equipped to do and that state governments are not. Some of these companies, however, have failed to properly provide the benefits. 188

Consumers purchasing mass market digital products such as software face formidable challenges. The terms imposed by sellers and licensees "provide no usable remedies for product quality defects.,,189 While that also is true when buying other products such as a used car sold "as is," consumers buying software are trapped by factors not ordinarily present when buying other types of goods. If one company obtains dominance when a new product is introduced into the marketplace, consumers buying that product may have to buy other products by the same company in order to avoid interoperability problems when communicating with other persons, and to avoid the high costs of switching to another system. 190

Technology also was a factor in the current mortgage crisis. The industry's frantic pursuit of borrowers was fueled by the ability to securitize individual mortgages into vast pOOIS.191 Technology made securitization possible.192

WL 485352, at ·6 (N.D. Ill. Mar. 29, 2002) (holding a bank customer could sue for breach of the NACHA Rules because its agreement with its bank required it to comply with the NACHA Rules). Contra Sinclair Oil Corp. v. Sylvan State Bank, 894 F. Supp. 1470, 1478 (D. Kan. 1995).

187. BUDNITZ, SAUNDERS & SAUNDERS, supra note 186, at 217-56. 188. Will Higgins, $1 B Privatization Deal at Risk, INDIANAPOLIS STAR, July 8, 2009, at AI, available

at 2009 WLNR 15648034 (reporting that IBM wrongly denies food stamps to many). 189. Jean Braucher, New Basics: Twelve Principles for Fair Commerce in Mass-Market Software and

Other Digital Products, in CONSUMER PROTECI"ION IN TIlE AGE OF TIlE "INFORMATION ECONOMY" 177 (Jane K. Winn ed., 2006).

190. [d. 191. Kathleen C. Engel & Patricia A. McCoy, Turning a Blind Eye: Wall Street Finance of Predatory

Lending, 75 FORDHAM L. REv. 2039,2039-40 (2007). 192. [d. at 2045. Securitization is described as "financial technology." [d. See generally Harry Terris,

Gauging Prospects for Securitization Without Subsidy, AM. BANKER, June 19, 2009, at I, available at 2009 WLNR 11693534 (discussing possible structure of securitization in the future).

32




Technology is both good and bad for consumers, depending onhow it is used. 193 Online banking and shopping enable the elderly anddisabled instant access to financial services they might otherwise notbe able to enjoy, especially if they live in rural areas or urbanneighborhoods without adequate public transportation. However, inorder to take advantage of this service, consumers must agree tocontracts containing onerous terms. 194 In addition, conductingconsumer transactions exposes consumers to many threats includinghacking into the consumer's computer to insert viruses, malware, andspyware. 195 The industry is developing new techniques to protectconsumer privacy and the security of the communications lines overwhich personal information flows, but they present their own privacyissues. 196 Comparison shopping is much easier if the consumer cango on-line to compare the goods and prices of one store with

193. Professor Jane Winn has noted that "technological change can be a two-edged sword" bothpromoting and suppressing competition. JANE K. WINN, Is Consumer Protection an Anachronism in theInformation Economy?, in CONSUMER PROTECTION IN THE AGE OF THE "INFORMATION ECONOMY,"

supra note 189, at 1.194. Mark E. Budnitz, Donald F. Clifford, Michael Ferry & Margot Saunders, Home Banking

Services Agreements: Don't Bank on Them, 61 Bus. LAW. 641 (2006).195. Future Wars Will Be Fought in Cyberspace, FIN. EXPRESS, Aug. 24, 2009, available at 2009

WLNR 17647354 (reporting that viruses, spyware, and malware are the major threats to consumersusing computers); Gary Dymsk, Taking Steps Against Hackers, NEWSDAY, Aug. 19, 2009, available at

2009 WLNR 16125063 (reporting that many individuals do not obtain adequate protection to guardagainst computer viruses, spyware, and malware); Court Orders Internet Pagejackers to Return Ill-Gotten Gains, U.S. FED'L NEWS, Aug. 2, 2009 (reporting that a court ordered three persons held incontempt in connection with an FTC case brought against them for illegal spyware installed inconsumers' computers). Some problems consumers confront are due simply to computer glitches, rather

than affirmative action by wrongdoers. Internet Glitch Hits Bank of America, ATLANTA J.-CONST, Dec.2, 2009 (reporting that because of a computer malfunction, consumers were unable to transfer fundsbetween accounts online).

196. Daniel Wolfe, Heartland Completes First Test of Encryption System, AM. BANKER, July 1, 2009,at 13, available at 2009 WLNR 12492218 (reporting that Heartland Payment Systems, whose database

of consumer cardholder information was the victim of a major security breach, had improved its systemto encrypt consumer information); Cardline Global, Voiceprints Used to Authenticate Bill-Pay, AM.

BANKER, June 30, 2009, at 12, available at 2009 WLNR 12419235 (using consumers' voiceprints toauthenticate identity); Sam Woods, Academics to Make Science Fiction Fact, JOURNAL LIVE, May 29,2008, http://www.joumallive.co.uk/north-east-news/todays-news/2008/05/29/academics-to-make-science-fiction-fact-61634-20988761/ (reporting on the ongoing development of cards that contain anindividual's voiceprint and other unique identifiers; the government and other organizations would bebarred from obtaining this data to avoid individuals' privacy concerns); Marianne Menna, FromJamestown to Silicon Valley, Pioneering a Lawless Frontier: The Electronic Signatures in Global and

National Commerce Act, 6 VA. J.L. & TECH. 12, pt. III.D n.l 14 (2001) (stating that voiceprints is atechnology that presents a privacy threat as well as the safeguard of verifying one's identity).

1179



Technology is both good and bad for consumers, depending on how it is used. 193 Online banking and shopping enable the elderly and disabled instant access to financial services they might otherwise not be able to enjoy, especially if they live in rural areas or urban neighborhoods without adequate public transportation. However, in order to take advantage of this service, consumers must agree to contracts containing onerous terms. 194 In addition, conducting consumer transactions exposes consumers to many threats including hacking into the consumer's computer to insert viruses, malware, and spyware. 195 The industry is developing new techniques to protect consumer privacy and the security of the communications lines over which personal information flows, but they present their own privacy issues.196 Comparison shopping is much easier if the consumer can go on-line to compare the goods and prices of one store with

193. Professor Jane Winn has noted that "technological change can be a two-edged sword" both promoting and suppressing competition. JANE K. WINN, Is Consumer Protection an Anachronism in the Information Economy?, in CONSUMER PROTECTION IN THE AGE OF THE "INFORMATION ECONOMY," supra note 189, at 1.

194. Mark E. Budnitz, Donald F. Clifford, Michael Ferry & Margot Saunders, Home Banking Services Agreements: Don't Bank on Them, 61 Bus. LAW. 641 (2006).

195. Future Wars Will Be Fought in Cyberspace, FIN. EXPRESS, Aug. 24, 2009, available at 2009 WLNR 17647354 (reporting that viruses, spyware, and malware are the major threats to consumers using computers); Gary Dymsk, Taking Steps Against Hackers, NEWSDAY, Aug. 19,2009, available at 2009 WLNR 16125063 (reporting that many individuals do not obtain adequate protection to guard against computer viruses, spyware, and malware); Court Orders Internet Pagejackers to Return IIlGotten Gains, U.S. FED'L NEWS, Aug. 2, 2009 (reporting that a court ordered three persons held in contempt in connection with an FIC case brought against them for illegal spyware installed in consumers' computers). Some problems consumers confront are due simply to computer glitches, rather than affirmative action by wrongdoers. Internet Glitch Hits Bank of America, ATLANTA J.-CONST, Dec. 2, 2009 (reporting that because of a computer malfunction, consumers were unable to transfer funds between accounts online).

196. Daniel Wolfe, Heartland Completes First Test of Encryption System, AM. BANKER, July 1, 2009, at 13, available at 2009 WLNR 12492218 (reporting that Heartland Payment Systems, whose database of consumer cardholder information was the victim of a major security breach, had improved its system to encrypt consumer information); Cardline Global, Voiceprints Used to Authenticate Bill-Pay, AM. BANKER, June 30, 2009, at 12, available at 2009 WLNR 12419235 (using consumers' voiceprints to authenticate identity); Sam Woods, Academics to Make Science Fiction Fact, JOURNAL LNE, May 29, 2008, http://www.joumallive.co.ukinorth-east-newsltodays-newsl2008/05/29/academics-to-makescience-fiction-fact-61634-209887611 (reporting on the ongoing development of cards that contain an individual's voiceprint and other unique identifiers; the government and other organizations would be barred from obtaining this data to avoid individuals' privacy concerns); Marianne Menna, From Jamestown to Silicon Valley, Pioneering a Lawless Frontier: The Electronic Signatures in Global and National Commerce Act, 6 VA. J.L. & TECH. 12, pt. I1I.D n.1l4 (2001) (stating that voiceprints is a technology that presents a privacy threat as well as the safeguard of verifying one's identity).

33




another. 197 Those with low incomes, however, may not be able toafford the cost of access to the Intemet.198

Another feature of the Internet is the presence of sites whereconsumers describe their experiences with companies and products.These sites serve two beneficial functions. One, they provideinformation for consumers.1 99 Two, they act as "industry watchdogs"and hopefully motivate companies to improve their goods andservices in order to garner more favorable reviews.20 0 Theinformation provided by the reviewers, however, may not bereliable. 20 1 Racial and other forms of discrimination may be less

197. Sean O'Reilly, Nominative Fair Use and Internet Aggregators: Copyright and TrademarkChallenges Posed by Bots, Web Crawlers and Screen-Scraping Technologies, 19 LOY. CONSUMER L.REv. 273, 276-77 (2007); see Edward Rubin, The Internet, Consumer Protection and PracticalKnowledge, in CONSUMER PROTECTION IN THE AGE OF THE "INFORMATION ECONOMY," supra note 189,at 35, 50 (proposing to take advantage of the Internet's interactivity potential to make TILA disclosuresmore useful).

198. Edward Sholinsky, Note, Blocking Access to the Information Superhighway: Regulating theInternet out of the Reach of Low-Income Americans, 38 RUTGERS L.J. 321 (2006). Studies also suggestthe "digital divide" extends not only to those with low incomes, but also for African Americans andLatinos. Leonard M. Baynes, Race, Media Consolidation, and Online Content: The Lack of SubstitutesAvailable to Media Consumers of Color, 39 U. MICH. J.L. REFORM 199 (2006); Leonard Baynes, "TheMercedes Divide? "American Segregation Shapes the Color of Electronic Commerce, 29 W. NEW ENG.L. REv. 165 (2006).

199. Winn has noted that consumers do not only purchase goods and services on the Internet. Theyalso consume information, and information is fundamentally different from goods and services.Information, unlike goods and services, "can be used by an unlimited number of people, an unlimitednumber of times." Jane K. Winn, Is Consumer Protection an Anachronism in the InformationEconomy?, in CONSUMER PROTECTION IN THE AGE OF THE "INFORMATION ECONOMY," supra note 189,at 1, 3. For a discussion of what type of information consumers need, see Rubin, supra note 197, at 35,46-47.200. Jonathan Schwartz, Making the Consumer Watchdog's Bark As Strong As Its Gripe: Complaint

Sites and the Changing Dynamic of the Fair Use Defense, 16 ALB. L.J. SCI. & TECH. 59 (2006); MarthaKelley, Is Liability Just a Link Away?: Trademark Dilution by Tarnishment Under the FederalTrademark Dilution Act of 1995 and Hyperlinks on the World Wide Web, 9 J. INTELL. PROP. L. 361(2002).

201. The information is usually unverifiable and may not be accurate. Unfavorable postings may havebeen made by competitors. Favorable postings may have been made by persons associated with thebusiness that is the subject of the posting. See Claire Cain Miller, Company Settles Case of Reviews ItFaked, N.Y. TIMES, July 14, 2009, at B5 (describing Lifestyle Lifts's settlement with New YorkAttorney General who accused company of having employees pose as satisfied customers and of effortsto pressure critical consumers and have their posts removed); Brad Reese, Belkin President Apologizesfor Paying Users to Post Positive Reviews of Belkin Products, NETWORK WORLD, Jan. 20, 2009,http://www.networkworld.com/community/node/37495; Belkin Fake Reviews Case Raises BroadQuestions About Peer Ratings, NETWORK WORLD, Jan. 20, 2009, available at 2009 WLNR 1518574(describing company employee who offered to pay people to post favorable reviews of company'sproducts and to rate unfavorable reviews as unhelpful).

1180 [Vol 26:4



another. 197 Those with low incomes, however, may not be able to afford the cost of access to the Internet. 198

Another feature of the Internet is the presence of sites where consumers describe their experiences with companies and products. These sites serve two beneficial functions. One, they provide information for consumers. 199 Two, they act as "industry watchdogs" and hopefully motivate companies to improve their goods and services in order to gamer more favorable reviews.2oo The information provided by the reviewers, however, may not be reliable?OI Racial and other forms of discrimination may be less

197. Sean O'Reilly, Nominative Fair Use and Internet Aggregators: Copyright and Trademark Challenges Posed by Bots, Web Crawlers and Screen-Scraping Technologies, 19 LoY. CONSUMER L. REv. 273, 276-77 (2007); see Edward Rubin, The Internet, Consumer Protection and Practical Knowledge, in CONSUMER PROTECTION IN THE AGE OF THE "iNFORMATION ECONOMY," supra note 189, at 35, 50 (proposing to take advantage of the internet's interactivity potential to make TILA disclosures more useful).

198. Edward Sholinsky, Note, Blocking Access to the Information Superhighway: Regulating the Internet out of the Reach of Low-Income Americans, 38 RUTGERS LJ. 321 (2006). Studies also suggest the "digital divide" extends not only to those with low incomes, but also for African Americans and Latinos. Leonard M. Baynes, Race, Media Consolidation, and Online Content: The Lock of Substitutes Available to Media Consumers of Color, 39 U. MICH. J.L. REFORM 199 (2006); Leonard Baynes, "The Mercedes Divide?" American Segregation Shapes the Color of Electronic Commerce, 29 W. NEW ENG. L. REv. 165 (2006).

199. Wino has noted that consumers do not only purchase goods and services on the internet. They also consume infonnation, and infonnation is fundamentally different from goods and services. information, unlike goods and services, "can be used by an unlimited number of people, an unlimited number of times." Jane K. Winn, Is Consumer Protection an Anachronism in the Information Economy?, in CONSUMER PROTECTION IN THE AGE OF THE "iNFORMATION ECONOMY," supra note 189, at 1, 3. For a discussion of what type of infonnation consumers need, see Rubin, supra note 197, at 35, 46--47. 200. Jonathan Schwartz, Making the Consumer Watchdog's Bark As Strong As Its Gripe: Complaint

Sites and the Changing Dynamic of the Fair Use Defense, 16 ALB. L.J. SCI. & TECH. 59 (2006); Martha Kelley, Is Liability Just a Link Away?: Trademark Dilution by Tarnishment Under the Federal Trademark Dilution Act of 1995 and Hyperlinks on the World Wide Web, 9 J. lNTELL. PROP. L. 361 (2002). 201. The infonnation is usually unverifiable and may not be accurate. Unfavorable postings may have

been made by competitors. Favorable postings may have been made by persons associated with the business that is the subject of the posting. See Claire Cain Miller, Company Settles Case of Reviews It Faked, N.Y. TiMES, July 14, 2009, at B5 (describing Lifestyle Lifts's settlement with New York Attorney General who accused company of having employees pose as satisfied customers and of efforts to pressure critical consumers and have their posts removed); Brad Reese, Belkin President Apologizes for Paying Users to Post Positive Reviews of Belkin Products, NETWORK WORW, Jan. 20, 2009, http://www.networkworld.comlcommunity/nodel37495; Belkin Fake Reviews Case Raises Broad Questions About Peer Ratings, NETWORK WORLD, Jan. 20, 2009, available at 2009 WLNR 1518574 (describing company employee who offered to pay people to post favorable reviews of company's products and to rate unfavorable reviews as unhelpful).

34




prevalent when purchasing on-line because of the relative anonymitywhich is involved, unlike a face-to-face transaction. Shopping on theInternet, however, also enables sellers to collect a vast amount ofinformation about consumers, resulting in a serious loss of privacy.20 2

In addition, the anonymity of the Internet works both ways: theconsumer may have difficulty judging the trustworthiness of acompany which interacts with the consumer only through automaticelectronic responses to the consumer's mouse clicks.203 Whiletechnology has brought consumers many benefits, thieves have usedtechnology to steal vast amounts of personal consumerinformation.

2 04

VI. THE KEYS TO SURVIVAL: LAW REFORM AND

INSTITUTIONALIZATION OF A SOCIAL MOVEMENT

This Part considers whether consumer protection law will surviveagainst the far more powerful industry forces that continue to try toundermine that law. It explores this issue by examining the moregeneral phenomenon of consumerism, of which consumer protectionlaw is one feature. The article considers whether the consumerism ofthe past years can be accurately characterized as a social movement.It concludes that consumerism is a social movement and analyzes the

202. Tal Zarsky, Thinking Outside the Box: Considering Transparency, Anonymity, and PseudonymityAs Overall Solutions to the Problems of Information Privacy in the Internet Society, 58 U. MIAMI L.REV. 991, 1010 (2004) (explaining that sellers collect and analyze personal information about consumerbehavior and can lock them into high prices); Marcy Peek, Passing Beyond Identity on the Internet:Espionage and Counterespionage in the Internet Age, 28 VT. L. REV. 91, 92 (2003) (proposing thatpersons counter discriminatory steering and marketing by adopting false identities); BehavioralAdvertising: Industry Practices and Consumers' Expectations, Testimony Before the H. Comm. onEnergy and Commerce, Subcomm. on Commerce, Trade and Consumer Protection, and the Subcomm.on Communications, Technology, and the Internet, 11 th Cong. (2009) (testimony of Jeff Chester,Executive Director, Center for Digital Democracy).

203. Phishing is an egregious example of the dangers of seller anonymity. See David Koenigsberg,Developments in Banking and Financial Law 2005: Security with Online Banking, 25 ANN. REV.BANKING & FIN. L. 118, 119 (2006); see supra note 176.204. Attorney General Long Announces Multi-State Settlement with TJX Companies, over Massive

Data Breach, U.S. FED'L NEWS, June 26, 2009, available at 2009 WLNR 12222083; Nadia Oehlsen,Extent of Heartland Breach Unknown; Probes Multiply, AM. BANKER, Feb. 25, 2009, at 10, available at2009 WLNR 3592626; Rebecca Sausner, Card Firms Unmoved by Heartland Encryption Push, AM.BANKER, Mar. 3, 2009, at 7, available at 2009 WLNR 4019653.



prevalent when purchasing on-line because of the relative anonymity which is involved, unlike a face-to-face transaction. Shopping on the Internet, however, also enables sellers to collect a vast amount of information about consumers, resulting in a serious loss ofprivacy.202 In addition, the anonymity of the Internet works both ways: the consumer may have difficulty judging the trustworthiness of a company which interacts with the consumer only through automatic electronic responses to the consumer's mouse clicks.203 While technology has brought consumers many benefits, thieves have used technology to steal vast amounts of personal consumer information.204

VI. THE KEyS TO SURVIVAL: LAW REFORM AND

INSTITUTIONALIZATION OF A SOCIAL MOVEMENT

This Part considers whether consumer protection law will survive against the far more powerful industry forces that continue to try to undermine that law. It explores this issue by examining the more general phenomenon of consumerism, of which consumer protection law is one feature. The article considers whether the consumerism of the past years can be accurately characterized as a social movement. It concludes that consumerism is a social movement and analyzes the

202. Tal Zarsky, Thinking Outside the Box: Considering Transparency, Anonymity, and Pseudonymity As Overall Solutions to the Problems of Information Privacy in the Internet Society, 58 U. MIAMI L. REV. 991, 1010 (2004) (explaining that sellers collect and analyze personal information about consumer behavior and can lock them into high prices); Marcy Peek, Passing Beyond Identity on the Internet: Espionage and Counterespionage in the Internet Age, 28 VT. L. REv. 91, 92 (2003) (proposing that persons counter discriminatory steering and marketing by adopting false identities); Behavioral Advertising: Industry Practices and Consumers' Expectations, Testimony Before the H. Comm. on Energy and Commerce, Subcomm. on Commerce, Trade and Consumer Protection, and the Subcomm. on Communications, Technology, and the Internet, 111th Congo (2009) (testimony of Jeff Chester, Executive Director, Center for Digital Democracy). 203. Phishing is an egregious example of the dangers of seller anonymity. See David Koenigsberg,

Developments in Banking and Financial Law 2005: Security with Online Banking, 25 ANN. REv. BANKING & FIN. L. 118, 119 (2006); see supra note 176. 204. Attorney General Long Announces Multi-State Settlement with TJX Companies, over Massive

Data Breach, u.s. FED'L NEWS, June 26, 2009, available at 2009 WLNR 12222083; Nadia Oehlsen, Extent of Heartland Breach Unknown; Probes Multiply, AM. BANKER, Feb. 25, 2009, at 10, available at 2009 WLNR 3592626; Rebecca Sausner, Card Firms Unmoved by Heartland Encryption Push, AM. BANKER, Mar. 3,2009, at 7, available at 2009 WLNR 4019653.

35




interaction of this movement, consumer organizations, and thedevelopment of consumer law. This Part finds the key to survivaldepends on this interaction.

A. Consumerism As a Social Movement

Consumerism has been a phenomenon of American society formany years. 20 5 There are consumer organizations, consumer laws,government agencies dedicated to enforce those laws, and manyAmericans who become involved in consumer protection activities. 206

This Part considers whether consumerism has developed intosomething more substantial. That is, does consumerism containelements that suggest it is a social movement? If it is, consumerismhas a far greater chance at survival and effectiveness.

1. Social Movements and Social Change

Professor Coglianese provides a definition of a social movementand its relationship to law reform.

Social change lies at the heart of the definition of a socialmovement. A social movement is a broad set of sustainedorganizational efforts to change the structure of society or thedistribution of society's resources. Within social movements, lawreformers typically view law as a resource or strategy to achievedesired social change. Since social change is the purpose of a

205. Roger Swagler, Consumerism, Modem, in ENCYCLOPEDIA OF THE CONSUMER MOVEMENT,supra note 23, at 172, 172-73. Swagler explains that "consumerism" has been defined in various waysincluding: a concern for "consumer protection laws, the availability of product and price information,fraudulent and deceptive business practices, and product safety." Id. at 172. Another definition definesthe term simply to mean "organized groups seeking to protect consumers." Id. at 173; see Robert 0.Herrmann, Consumerism: Its Goals, Organization, and Future, in CONSUMERISM: THE ETERNALTRIANGLE 21 (Barbara B. Murray ed., 1973); Richard H. Buskirk & James T. Rothe, Consumerism-AnInterpretation, in CONSUMERISM: THE ETERNAL TRIANGLE, supra, at 31.206. See HOBBS & GARDNER, supra note 1, at 12-14. One indication that consumers become actively

involved in consumer issues occurred when the FRB received over 60,000 comments on its proposedcredit card rules. Amanda Rugged, Latest Obama Target: Credit Card Companies and Their LendingRules, U.S. NEWS & WORLD REP., Apr. 27, 2009, available at 2009 WLNR 8531891.

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interaction of this movement, consumer organizations, and the development of consumer law. This Part finds the key to survival depends on this interaction.

A. Consumerism As a Social Movement

Consumerism has been a phenomenon of American society for many years.205 There are consumer organizations, consumer laws, government agencies dedicated to enforce those laws, and many Americans who become involved in consumer protection activities.206

This Part considers whether consumerism has developed into something more substantial. That is, does consumerism contain elements that suggest it is a social movement? If it is, consumerism has a far greater chance at survival and effectiveness.

1. Social Movements and Social Change

Professor Coglianese provides a definition of a social movement and its relationship to law reform.

Social change lies at the heart of the definition of a social movement. A social movement is a broad set of sustained organizational efforts to change the structure of society or the distribution of society's resources. Within social movements, law reformers typically view law as a resource or strategy to achieve desired social change. Since social change is the purpose of a

205. Roger Swagler, Consumerism. Modern, in ENCYCLOPEDIA OF THE CONSUMER MOVEMENT, supra note 23, at 172, 172-73. Swagler explains that "consumerism" has been defined in various ways including: a concern for "consumer protection laws, the availability of product and price information, fraudulent and deceptive business practices, and product safety." Id. at 172. Another definition defines the term simply to mean "organized groups seeking to protect consumers." Id. at 173; see Robert O. Herrmann, Consumerism: Its Goals. Organization. and Future, in CONSUMERISM: THE ETERNAL TRIANGLE 21 (Barbara B. Murrayed., 1973); Richard H. Buskirk & James T. Rothe, Consumerism-An Interpretation, in CONSUMERISM: THE ETERNAL TRIANGLE, supra, at 31. 206. See HOBBS & GARDNER, supra note I, at 12-14. One indication that consumers become actively

involved in consumer issues occurred when the FRB received over 60,000 comments on its proposed credit card rules. Amanda Ruggeri, Latest Obama Target: Credit Card Companies and Their Lending Rules, U.S. NEWS & WORLD REp., Apr. 27, 2009, available at 2009 WLNR 8531891.

36




social movement, law reform generally is taken to providing ameans of realizing that goal.20 7

As discussed above, the desire to pursue a consumerist agenda wasthe basis of both national and local consumer organizations. 2 0 Theseorganizations sought to change the way companies did business andfought for changes in the law as well. Working to satisfy many of thesame goals have been lawyers representing consumers in individualcases and before legislative and administrative agencies. Theseconsumer lawyers began this effort on a sustained organizationallevel in legal services offices funded by OEO. The legal servicesprogram was part of OEO's Anti-Poverty effort. Social change was afundamental objective of OEO, and law reform was the priority of thelegal services program. 20 9 The government funded the NationalConsumer Law Center in order to assist local legal services programsmeet that priority. Thus, the consumer activities that emerged in the1960s and continue today fit within Professor Coglianese's definitionof a social movement: there was a sustained organizational effort toeffect social change, consumer lawyers were a resource, and lawreform was one of the strategies used.

Perhaps coincidently, at the same time consumer lawyers begantheir efforts, Congress enacted the Truth in Lending Act to make thecredit markets work more efficiently by providing consumers withinformation they could use to comparison shop. As discussed above,Congress continued to play a crucial role in enabling the consumermovement to achieve many of its objectives by enacting many morestatutes, and administrative agencies also promoted consumerism byissuing regulations that were necessary to effectuate the goals of the

207. Cary Coglianese, Social Movements, Law, and Society: The Institutionalization of theEnvironmental Movement, 150 U. PENN. L. REv. 85, 85 (2001). See generally Meili, supra note 168, at121-22 (describing three theories of social movements). "[Olne of the most important lessons of thecivil rights movement: a successful litigation strategy must be linked to a social movement." Davis,supra note 27, at 39.

208. HOBBS & GARDNER, supra note 1; Meili, supra note 168, at 123.209. See supra text accompanying note 29.

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2010) THE DEVELOPMENT OF CONSUMER PROTECTION LAW

social movement, law reform generally is taken to providing a means of realizing that goa1.207

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As discussed above, the desire to pursue a consumerist agenda was the basis of both national and local consumer organizations.208 These organizations sought to change the way companies did business and fought for changes in the law as well. Working to satisfy many of the same goals have been lawyers representing consumers in individual cases and before legislative and administrative agencies. These consumer lawyers began this effort on a sustained organizational level in legal services offices funded by OEO. The legal services program was part of OEO's Anti-Poverty effort. Social change was a fundamental objective ofOEO, and law reform was the priority of the legal services program.209 The government funded the National Consumer Law Center in order to assist local legal services programs meet that priority. Thus, the consumer activities that emerged in the 1960s and continue today fit within Professor Coglianese's definition of a social movement: there was a sustained organizational effort to effect social change, consumer lawyers were a resource, and law reform was one of the strategies used.

Perhaps coincidently, at the same time consumer lawyers began their efforts, Congress enacted the Truth in Lending Act to make the credit markets work more efficiently by providing consumers with information they could use to comparison shop. As discussed above, Congress continued to play a crucial role in enabling the consumer movement to achieve many of its objectives by enacting many more statutes, and administrative agencies also promoted consumerism by issuing regulations that were necessary to effectuate the goals of the

207. Cary Coglianese, Social Movements, Law, and Society: The Institutionalization of the Environmental Movement, 150 U. PENN. L. REv. 85, 85 (2001). See generally Meili, supra note 168, at 121-22 (describing three theories of social movements). "[O]ne of the most important lessons of the civil rights movement: a successful litigation strategy must be linked to a social movement." Davis, supra note 27, at 39. 208. HOBBS & GARDNER, supra note I; Meili, supra note 168, at 123. 209. See supra text accompanying note 29.

37




legislation.210 In that way, the government itself fostered the socialchange objective of consumer organizations and consumer lawyers.

2. Organizational Efforts

According to Professor Coglianese, "[a] social movement is abroad set of sustained organizational efforts."211 The consumermovement has had the good fortune of the long-time work of manyorganizations. Legal organizations such as NCLC and the NationalAssociation of Consumer Advocates (NACA) have played a crucialrole in developing and sustaining the law component of the consumermovement, as have primarily non-legal organizations such as theCenter for Responsible Lending, US PIRG, the National ConsumersLeague, AARP, Consumer Action, Consumers Union, Public Citizen,the Center for Auto Safety, and Consumer Federation of America.

Without the continuing labors of these groups, the movementwould cease. For even after consumer aspirations become law as aresult of a statutory enactment or case law development, as discussedin Part II, consumer protection law reforms are ethereal. Protectionsmay evaporate when political winds shift, resulting in more businessoriented legislators and judges.2 12 But maintaining and ensuring thesurvival of these institutions is problematic. Institutions need stableand adequate funding. Non-profit public interest groups have aprecarious existence. They depend primarily on funding fromfoundations, government grants, and individual donations, none of

210. See supra text accompanying notes 43-54, 103-09. Sometimes administrative agencies haveissued regulations that have been viewed as contrary to consumers' interests. See supra textaccompanying note 132. Rubin notes that often law "is autonomously generated by the politicalsphere-the legislature, the courts, and increasingly, the administrative agencies," rather than by socialmovements. Edward L. Rubin, Passing Through the Door: Social Movement Literature and LegalScholarship, 150 U. PA. L. REv. 1, 11 (2001).

211. Coglianese, supra note 207, at 85. Rubin, however, distinguishes between organizations andsocial movements. "The prevailing view is that organizations ... are not the same as social movements.Rather, social movements are regarded as consisting of more diffuse agglomerations of individualswithin society who are linked together by ideology, beliefs, or collective identities. Organizations maycatalyze the creation of these agglomerations, or may be generated by them .... The movement itselfexists in the social sphere, however, while the organizations that created it or were created by it bridgethe social and political spheres .... Rubin, supra note 210, at 4-5 (emphasis added).

212. See supra text accompanying notes 112-18.

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legislation.2lo In that way, the government itself fostered the social change objective of consumer organizations and consumer lawyers.

2. Organizational Efforts

According to Professor Coglianese, "[ a] social movement is a broad set of sustained organizational efforts.,,211 The consumer movement has had the good fortune of the long-time work of many organizations. Legal organizations such as NCLC and the National Association of Consumer Advocates (NACA) have played a crucial role in developing and sustaining the law component of the consumer movement, as have primarily non-legal organizations such as the Center for Responsible Lending, US PIRG, the National Consumers League, AARP, Consumer Action, Consumers Union, Public Citizen, the Center for Auto Safety, and Consumer Federation of America.

Without the continuing labors of these groups, the movement would cease. For even after consumer aspirations become law as a result of a statutory enactment or case law development, as discussed in Part II, consumer protection law reforms are ethereal. Protections may evaporate when political winds shift, resulting in more business oriented legislators and judges?12 But maintaining and ensuring the survival of these institutions is problematic. Institutions need stable and adequate funding. Non-profit public interest groups have a precarious existence. They depend primarily on funding from foundations, government grants, and individual donations, none of

210. See supra text accompanying notes 43-54, \03-09. Sometimes administrative agencies have issued regulations that have been viewed as contrary to consumers' interests. See supra text accompanying note 132. Rubin notes that often law "is autonomously generated by the political spbere-the legislature, the courts, and increasingly, the administrative agencies," rather than by social movements. Edward L. Rubin, Passing Through the Door: Social Movement Literature and Legal Scholarship, 150 U. PA. L. REv. I, 11 (2001). 211. Coglianese, supra note 207, at 85. Rubin, however, distinguishes between organizations and

social movements. "The prevailing view is that organizations ... are not the same as social movements. Rather, social movements are regarded as consisting of more diffuse agglomerations of individuals within society who are linked together by ideology, beliefs, or collective identities. Organizations may catalyze the creation of these agglomerations, or may be generated by them .... The movement itself exists in the social sphere, however, while the organizations that created it or were created by it bridge the social and political spheres .... " Rubin, supra note 210, at 4-5 (emphasis added). 212. See supra text accompanying notes 112-18.

38




which can be depended upon for permanent support.2 13 Foundationsupport depends on whether the mission of individual foundationsinclude promoting consumer protection. And the extent to whicheven a foundation dedicated to consumer protection can providesupport is dependent on economic conditions.

The reliability of individual contributions will always be uncertain.The Internet, however, has opened up new opportunities, providingconsumer organizations with a powerful and relatively inexpensivetool for raising funds from individuals, while providing value to themin the form of an easy-to-use platform for becoming actively involvedin promoting consumer protection and supplying useful information.For example, the web sites of consumer groups include petitions andsample letters to legislators on specific issues and legislativeproposals. In addition, they provide a great deal of information tokeep consumers informed and educate consumers so they can betterprotect themselves. The availability of such free information on theInternet, however, also presents the opportunity for "free riders." 214

That is, many consumers may decide not to donate to support aconsumer organization because they can obtain what they want fromthe group's website without paying anything.

The precarious existence of consumer organizations is illustratedby events in the late 1970s and 1980s. The major organizationspursuing consumer protection law reform from its earliest years hadbeen offices funded by the Legal Services Program. With the drasticbudget cutbacks in legal services funding during the Reagan years,legal services offices had to limit their representation to those casespresenting the greatest threat to the well-being of their clients. As aresult, the top priorities were cases involving housing, domesticviolence, and essential government benefits.215 Less attention wasgiven to consumer cases. Although these steps were necessary, morelimited involvement in consumer cases was unfortunate because of

213. See generally HOBBS & GARDNER, supra note 1; HANDLER, supra note 75, at 9, 12-13.214. HANDLER, supra note 75, at 5-6.

215. Meiii, supra note 168, at 125.

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which can be depended upon for permanent support.213 Foundation support depends on whether the mission of individual foundations include promoting consumer protection. And the extent to which even a foundation dedicated to consumer protection can provide support is dependent on economic conditions.

The reliability of individual contributions will always be uncertain. The Internet, however, has opened up new opportunities, providing consumer organizations with a powerful and relatively inexpensive . tool for raising funds from individuals, while providing value to them in the form of an easy-to-use platform for becoming actively involved in promoting consumer protection and supplying useful information. For example, the web sites of consumer groups include petitions and sample letters to legislators on specific issues and legislative proposals. In addition, they provide a great deal of information to keep consumers informed and educate consumers so they can better protect themselves. The availability of such free information on the Internet, however, also presents the opportunity for "free riders.,,214 That is, many consumers may decide not to donate to support a consumer organization because they can obtain what they want from the group's website without paying anything.

The precarious existence of consumer organizations is illustrated by events in the late 1970s and 1980s. The major organizations pursuing consumer protection law reform from its earliest years had been offices funded by the Legal Services Program. With the drastic budget cutbacks in legal services funding during the Reagan years, legal services offices had to limit their representation to those cases presenting the greatest threat to the well-being of their clients. As a result, the top priorities were cases involving housing, domestic violence, and essential government benefits?15 Less attention was given to consumer cases. Although these steps were necessary, more limited involvement in consumer cases was unfortunate because of

213. See generally HOBBS & GARDNER, supra note I; HANDLER, supra note 75, at 9, 12-13. 214. HANDLER, supra note 75, at 5--6. 215. Meili, supra note 168, at 125.

39




the direct relationship between consumer problems and the cycle ofpoverty in which many low income persons are caught.2 16

In addition to the cutbacks in legal services, the budgets ofenforcement agencies were reduced and accomplishments werenegated when the federal government deregulated many industries. 2 17

Nevertheless, the legal component of the consumer movementsurvived the period because consumer organizations were able tocontinue their work. One example is NCLC. Despite losing legalservices funding, NCLC played a pivotal role in ensuring both thecontinuation of skilled consumer representation and law reformadvocacy during this period. It continued the lawyer training in whichit had been engaged from its early days. This consisted of organizingtraining conferences 218 and producing manuals. 219 The conferencesprovided basic education to lawyers new to consumer law andadvanced sessions for seasoned veterans. Through these activities,NCLC produced a growing body of lawyers, both in legal servicesoffices and private practice, who had the knowledge needed torepresent consumers in a wide variety of matters where they facedlawyers for industry with far greater resources.220 Another benefit ofthe conferences was the opportunity to network with other lawyershandling similar cases.

NCLC continues this crucial organizational role today. In additionto its manuals and conferences, it has taken advantage of technology,

216. For example, for a consumer living in a place with inadequate or non-existent publictransportation, a motor vehicle is a necessity. Most low income consumers buy used cars on credit. Usedcar dealers are notorious for their unfair and deceptive practices and often sell lemons "as is" for inflatedprices which soon become inoperable without expensive repairs. The consumer now finds herselfwithout a car, making it very difficult or impossible to get to work, get to medical facilities, get herchildren to child care while she works, and do other essential tasks. Meanwhile, the creditor willcontinue to demand car payments even though the car is no longer operable. Even assuming theconsumer can still get to her job, she cannot afford to buy another car since she still owes money on thelemon. If she loses her job because she no longer has reliable transportation, she will likely needgovernment benefits in order to survive. This person's consumer problem consequently is the directcause of her downward spiral into poverty.

217. RENUART & KEEST-CREDIT, supra note 62, at 42-50.218. Willard P. Ogbum, National Consumer Law Center, in ENCYCLOPEDIA OF THE CONSUMER

MOVEMENT, supra note 23, at 391, 394.219. HOBBS & GARDNER, supra note 1, at 20; Ogburn, supra note 218, at 393.220. Meili, supra note 168, at 127 (reporting that the "number of private attorneys practicing

consumer law has increased tenfold in the past decade").

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the direct relationship between consumer problems and the cycle of poverty in which many low income persons are caught.216

In addition to the cutbacks in legal services, the budgets of enforcement agencies were reduced and accomplishments were negated when the federal government deregulated many industries.217

Nevertheless, the legal component of the consumer movement survived the period because consumer organizations were able to continue their work. One example is NCLC. Despite losing legal services funding, NCLC played a pivotal role in ensuring both the continuation of skilled consumer representation and law reform advocacy during this period. It continued the lawyer training in which it had been engaged from its early days. This consisted of organizing training conferences218 and producing manuals.219 The conferences provided basic education to lawyers new to consumer law and advanced sessions for seasoned veterans. Through these activities, NCLC produced a growing body of lawyers, both in legal services offices and private practice, who had the knowledge needed to represent consumers in a wide variety of matters where they faced lawyers for industry with far greater resources.220 Another benefit of the conferences was the opportunity to network with other lawyers handling similar cases.

NCLC continues this crucial organizational role today. In addition to its manuals and conferences, it has taken advantage of technology,

216. For example, for a consumer living in a place with inadequate or non-existent public transportation, a motor vehicle is a necessity. Most low income consumers buy used cars on credit. Used car dealers are notorious for their unfair and deceptive practices and often sell lemons "as is" for inflated prices which soon become inoperable without expensive repairs. The consumer now finds herself without a car, making it very difficult or impossible to get to work, get to medical facilities, get her children to child care while she works, and do other essential tasks. Meanwhile, the creditor will continue to demand car payments even though the car is no longer operable. Even assuming the consumer can still get to her job, she cannot afford to buy another car since she still owes money on the lemon. If she loses her job because she no longer has reliable transportation, she will likely need government benefits in order to survive. This person's consumer problem consequently is the direct cause of her downward spiral into poverty. 217. RENuART & KEEST-CREDIT, supra note 62, at 42-50. 218. Willard P. Ogburn, National Consumer Law Center, in ENCYCLOPEDIA OF THE CONSUMER

MOVEMENT, supra note 23, at 391, 394. 219. HOBBS & GARDNER, supra note I, at 20; Ogburn, supra note 218, at 393. 220. Meili, supra note 168, at 127 (reporting that the "number of private attorneys practicing

consumer law has increased tenfold in the past decade").

40




establishing e-mail listservs that act as a "virtual law firm" in whichconsumer lawyers "share substantive legal expertise, informationabout defendants, and strategy., 221 Its web site provides instantaccess to many resources. 222

NCLC also was instrumental in establishing a new organization,the National Association of Consumer Advocates (NACA).223 NACAhas over 1,500 members including attorneys and consumeradvocates. 224 The attorney membership consists of private lawyers aswell as legal services attorneys, law professors and law students.225

NACA serves as "a forum for communication, networking, andinformation sharing" among its members.226 Consumers can go to itswebsite and locate an attorney who may be willing to take theconsumer's case. NACA has filed numerous amicus briefs andtestified in regard to proposed legislation and regulations.227 NACAconducts training conferences on current issues.228

While NCLC and NACA are primarily legal organizations, theirefforts are supported and augmented by other consumer advocacyorganizations that help ensure the continued vitality of the consumermovement such as Consumers Union,229 Consumer Federation ofAmerica, 230 the National Consumers League, 231 US PIRG,2 32 Public

221. Id.222. See NCLC, http://www.consumerlaw.org (last visited Mar. 9, 2010).223. Meili, supra note 168, at 126.224. NACA, http://www.naca.net (last visited Mar. 9,2010).225. Meili characterizes private attorneys litigating consumer cases as .'free agent litigators' who

are loyal to the consumer movement but have no formal relationship to movement leaders and areaccountable to their clients, not the movement. Meili, supra note 168, at 127.

226. NACA Mission, http://www.naca.net/about-consumer-advocates/ (last visited Mar. 9, 2010).227. E.g., Sival v. Rent-A-Center, Inc., 912 N.E.2d 945 (Mass. 2009). NACA's website,

http://www.naca.net (last visited Mar. 9, 2010), describes NACA's testimony on issues such aspredatory lending, credit reports, and lending abuses targeting the military.

228. E.g., NACA's 2010 Auto Fraud Conference, http://www.naca.net/News-Events/Event.aspx?item=69755 (last visited Mar. 9, 2010).

229. Consumers Union, http://www.consumersunion.org (last visited Mar. 9, 2010). In order to reachyounger consumers by communicating with them through the medium they use, Consumers Unionpurchased the Consumerist blog. Advocates Must Adapt to Media Changes, CFA NEWS, Mar.-May2009, at 2.

230. Consumer Federation of America, http://www.consumerfed.org (last visited Mar. 9,2010).231. Nat'l Consumer League, http://www.nclnet.org (last visited Mar. 9, 2010).232. U.S. PRIG, Standing Up to Powerful Interests, http://www.uspirg.org (last visited Mar. 9, 2010).

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establishing e-mail listservs that act as a "virtual law finn" in which consumer lawyers "share substantive legal expertise, information about defendants, and strategy.,,221 Its web site provides instant access to many resources.z22

NCLC also was instrumental in establishing a new organization, the National Association of Consumer Advocates (NACA).223 NACA has over 1,500 members including attorneys and consumer advocates.224 The attorney membership consists of private lawyers as well as legal services attorneys, law professors and law students.225

NACA serves as "a forum for communication, networking, and information sharing" among its members.z26 Consumers can go to its website and locate an attorney who may be willing to take the consumer's case. NACA has filed numerous amicus briefs and testified in regard to proposed legislation and regulations.227 NACA conducts training conferences on current issues.228

While NCLC and NACA are primarily legal organizations, their efforts are supported and augmented by other consumer advocacy organizations that help ensure the continued vitality of the consumer movement such as Consumers Union,229 Consumer Federation of America,230 the National Consumers League,231 US PIRG,232 Public

221. /d. 222. See NCLC, http://www.consumerlaw.org (last visited Mar. 9, 2010). 223. Meili, supra note 168, at 126. 224. NACA, http://www.naca.net(lastvisitedMar. 9, 2010). 225. Meili characterizes private attorneys litigating consumer cases as '''free agent litigators'" who

are loyal to the consumer movement but have no formal relationship to movement leaders and are accountable to their clients, not the movement. Meili, supra note 168, at 127. 226. NACA Mission, http://www.naca.netlabout-consumer-advocatesl(lastvisited Mar. 9, 2010). 227. E.g., Sival v. Rent-A-Center, Inc., 912 N.E.2d 945 (Mass. 2009). NACA's website,

http://www.naca.net (last visited Mar. 9, 2010), describes NACA's testimony on issues such as predatory lending, credit reports, and lending abuses targeting the military. 228. E.g., NACA's 2010 Auto Fraud Conference, http://www.naca.netlNews-

EventslEvent.aspx?item=69755 (last visited Mar. 9,2010). 229. Consumers Union, http://www.consumersunion.org (last visited Mar. 9, 2010). In order to reach

younger consumers by communicating with them through the medium they use, Consumers Union purchased the Consumerist blog. Advocates Must Adapt to Media Changes, CFA NEWS, Mar.-May 2009, at 2. 230. Consumer Federation of America, http://www.consumerfed.org (last visited Mar. 9, 2010). 231. Nat'l Consumer League, http://www.nclnet.org (last visited Mar. 9, 2010). 232. U.S. PRIG, Standing Up to Powerfullnterests, http://www.uspirg.org(lastvisitedMar. 9, 2010).

41




Justice, the Center for Responsible Lending,234 and AARP. 2 35

These organizations often file joint amicus briefs and testimony. Eachorganization arguably increases its individual credibility and is ableto participate in more law reform efforts by cooperating with andworking in conjunction with other organizations.

Lawyers have been crucial players in the consumer movement. Inorder for this to continue, however, there must be an organizationalstructure for ensuring an adequate supply of new lawyers to replacethose who retire or for other reasons drop out. In the infancy ofconsumer law, the legal services program was that organization.Consumer lawyers came overwhelmingly from legal servicesoffices.236 Law schools did not play a significant role; most offeredno courses in consumer protection. The picture today is verydifferent. Many law schools offer traditional as well as clinicalcourses in consumer law. 237 Many professors have taught consumerlaw for a considerable length of time.238 Law professors also haveproduced a substantial body of consumer law scholarship. In thisway, legal education provides another organizational support for thedevelopment of future consumer lawyers and consumer law.

The movement needs the active presence of consumerorganizations and cannot depend on government agencies. Therobustness of enforcement efforts by government agencies such as

233. Public Justice, America's Public Interest Law Firm, http://www.publicjustice.net/ (last visitedMar. 9,2010).234. Center for Responsible Lending, www.responsiblelending.org (last visited Mar. 9, 2010).235. Ass'n for the Advancement of Retired Persons, http://www.aarp.org (last visited Mar. 9, 2010).236. See supra text accompanying notes 38-40, 79.237. Professors who teach consumer law courses include: Stephen Calkins,

http://www.law.wayne.edu (last visited Mar. 9, 2010); Alvin Harrell, http://www.okcu.edu (last visitedMar. 9, 2010); Michael Greenfield, http://www.wustl.edu (last visited Mar. 9, 2010); ChristopherPeterson, http://www.law.utah.edu (last visited Mar. 9, 2010); Jeff Sovem, http://www.stjohns.edu (lastvisited Mar. 9, 2010); Cathy Lesser Mansfield, http://www.law.drake.edu (last visited Mar. 9, 2010);and Patricia McCoy, http://www.law.uconn.edu (last visited Mar. 9, 2010). Professors teaching clinicalconsumer courses include: Stephen Meili, http://www.law.umn.edu (last visited Mar. 9, 2010); KurtEggert, http://www.chapman.edulaw/ (last visited Mar. 9, 2010); and Richard McElvaney,http://www.law.uh.edu (last visited Mar. 9, 2010). Rubin notes that social movements result inlegislation and that leads new courses in law schools. Rubin, supra note 210, at 11.238. According to the 2007-2008 AALS Directory of Law Teachers, 50 full-time law professors have

been teaching a consumer law course for over ten years. THE AALS DIRECTORY OF LAW TEACHERS2007-2008, at 1255-56 (2007-2008).

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Justice,233 the Center for Responsible Lending,234 and AARP?35 These organizations often file joint amicus briefs and testimony. Each organization arguably increases its individual credibility and is able to participate in more law reform efforts by cooperating with and working in conjunction with other organizations.

Lawyers have been crucial players in the consumer movement. In order for this to continue, however, there must be an organizational structure for ensuring an adequate supply of new lawyers to replace those who retire or for other reasons drop out. In the infancy of consumer law, the legal services program was that organization. Consumer lawyers came overwhelmingly from legal services offices?36 Law schools did not play a significant role; most offered no courses in consumer protection. The picture today is very different. Many law schools offer traditional as well as clinical courses in consumer law?37 Many professors have taught consumer law for a considerable length of time.238 Law professors also have produced a substantial body of consumer law scholarship. In -this way, legal education provides another organizational support for the development of future consumer lawyers and consumer law.

The movement needs the active presence of consumer organizations and cannot depend on government agencies. The robustness of enforcement efforts by government agencies such as

233. Public Justice, America's Public Interest Law Firm, http://www.publicjustice.neti(last visited Mar. 9,2010). 234. Center for Responsible Lending, www.responsiblelending.org(lastvisitedMar. 9, 2010). 235. Ass'n for the Advancement of Retired Persons, http://www.aarp.org (last visited Mar. 9, 2010). 236. See supra text accompanying notes 38-40, 79. 237. Professors who teach consumer law courses include: Stephen Calkins,

http://www.law.wayne.edu (last visited Mar. 9, 2010); Alvin Harrell, http://www.okcu.edu (last visited Mar. 9, 2010); Michael Greenfield, http://www.wustl.edu (last visited Mar. 9, 2010); Christopher Peterson, http://www.law.utah.edu (last visited Mar. 9, 2010); JeffSovem, http://www.stjohns.edu (last visited Mar. 9, 2010); Cathy Lesser Mansfield, http://www.law.drake.edu (last visited Mar. 9, 2010); and Patricia McCoy, http://www.law.uconn.edu (last visited Mar. 9,2010). Professors teaching clinical consumer courses include: Stephen Meili, http://www.law.urnn.edu (last visited Mar. 9, 2010); Kurt Eggert, http://www.chapman.edullaw/ (last visited Mar. 9, 2010); and Richard McElvaney, http://www.law.uh.edu (last visited Mar. 9, 2010). Rubin notes that social movements result in legislation and that leads new courses in law schools. Rubin, supra note 210, at 11. 238. According to the 2007-2008 AALS Directory of Law Teachers, 50 full-time law professors have

been teaching a consumer law course for over ten years. THE AALS DIRECfORY OF LAW TEACHERS

2007-2008, at 1255-56 (2007-2008).

42




the FTC, bank agencies and state attorneys general depends upon thepolitical climate in which those agencies operate, the resources theyreceive, and other priorities needing a share of those resources. Inaddition, there is always the risk an agency will become the captiveof the industry it is established to regulate.239 Moreover, companiesbase their conduct largely on what business practices will make themost profit. They "are difficult to regulate in part because they lackthe moral sentiments that promote individual-level obedience to law,"and "[l]egal sanctions. . . are usually too small and too slow to affectrational organizational planning." 240 Even if an agency issues strongregulations, they may be difficult to enforce if they are technicallycomplex and require the agency to monitor compliance over longperiod of time.241

As described in Part V, the credit industry will continually developnew products and marketing practices that are detrimental toconsumers. 242 Well-financed industry trade groups will try to ensurethat regulation is kept to a minimum. This is a significant threat tostrong consumer protection because statutes generally provideagencies with abundant discretion in drafting regulations. 243 Inaddition, a company's response to regulation of its current practicesmay not be compliance, but rather evasion, such as inserting intocontracts consumer waivers, seller disclaimers of liability, andlimitations on consumer remedies.2 44 To ensure that regulatoryagencies draft and enforce effective regulations, consumerorganizations need to do what industry representatives likely do: gainthe support of persons in the agencies, including field level staff.245

239. Lauren B. Edelman & Mark C. Suchman, The Legal Environments of Organizations, 23 ANN.REV. Soc. 479,487 (1997); HANDLER, supra note 75, at 16.240. Edelman & Suchman, supra note 239, at 487.241. HANDLER, supra note 75, at 19.242. See supra text accompanying notes 156-157, 184, 194.243. See supra text accompanying notes 156-157, 184, 194.244. Edelman & Suchman, supra note 239, at 488.245. HANDLER, supra note 75, at 20-21.

1189



the FTC, bank: agencies and state attorneys general depends upon the political climate in which those agencies operate, the resources they receive, and other priorities needing a share of those resources. In addition, there is always the risk an agency will become the captive of the industry it is established to regulate.239 Moreover, companies base their conduct largely on what business practices will make the most profit. They "are difficult to regulate in part because they lack the moral sentiments that promote individual-level obedience to law," and "[l]egal sanctions ... are usually too small and too slow to affect rational organizational planning. ,,240 Even if an agency issues strong regulations, they may be difficult to enforce if they are technically complex and require the agency to monitor compliance over long period oftime.241

As described in Part V, the credit industry will continually develop new products and marketing practices that are detrimental to consumers.242 Well-financed industry trade groups will try to ensure that regulation is kept to a minimum. This is a significant threat to strong consumer protection because statutes generally provide agencies with abundant discretion in drafting regulations. 243 In addition, a company's response to regulation of its current practices may not be compliance, but rather evasion, such as inserting into contracts consumer waivers, seller disclaimers of liability, and limitations on consumer remedies.244 To ensure that regulatory agencies draft and enforce effective regulations, consumer organizations need to do what industry representatives likely do: gain the support of persons in the agencies, including field level staff. 245

239. Lauren B. Edelman & Mark C. Suchman, The Legal Environments of Organizations, 23 ANN. REv. Soc. 479, 487 (1997); HANDLER, supra note 75, at 16. 240. Edelman & Suchman, supra note 239, at 487. 241. HANDLER, supra note 75, at 19. 242. See supra text accompanying notes 156-157, 184, 194. 243. See supra text accompanying notes 156-157, 184, 194. 244. Edelman & Suchman, supra note 239, at 488. 245. HANDLER, supra note 75, at 20--21.

43




3. Law Reform Provides Means to Realize Social Change

In describing social movements, Professor Coglianese states that"[s]ocial change lies at the heart of the definition of a socialmovement" and a social movement is "a broad set of sustainedorganizational efforts to change the structure of society or thedistribution of society's resources. 246 Moreover, law reform is ameans of achieving social change. 24 7 Beginning in the 1960s, severallegal organizations including the National Consumer Law Center, theNAACP Legal Defense Fund, legal services programs, and later onlawyers on the staffs of Consumers Union, NACA, US PIRG, andAARP have engaged in law reform in order to improve consumers'position in the marketplace. Contrary to Professor Coglianese's firstformulation, however, they have not sought to do this by changingthe structure of society. Instead, they have worked within thatstructure to improve the legal rights of consumers. Furthermore, theyhave not tried to change the fundamental structure of the legalsystem, but rather have sought far more limited goals.248

Consequently, the role played by consumer law organizations doesnot fit neatly within this component of Professor Coglianese's modelof what constitutes a social movement, for the law reform componenthas not sought to change the structure of society.

Although consumer law organizations have not tried to change thestructure of society or even of the legal system, they have made asignificant impact on society that arguably qualifies as social changebecause they have changed some basic features of the law governingthe marketplace. While they worked within the legal system andoften with government agencies, 249 the legislation they supportedresulted in statutes that embody significant national public policy thatnever existed before. Examples include a consumer's legal right notto be subjected to discrimination in the extension of credit, insurance,

246. Coglianese, supra note 207, at 85 (emphasis added).247. Id.248. An early example is litigation such as Sniadach, which curbed the creditor's ability to use the

state's powers against consumers without restraint. See supra text accompanying notes 73-78.249. Consumers Union was the consumer representative in FTC Rulemaking proceedings under that

agency's intervenor funding program. HARRIS & MILKIS, supra note 106, at 174.

[Vol. 26:41190



3. Law Reform Provides Means to Realize Social Change

In describing social movements, Professor Coglianese states that "[ s ]ocial change lies at the heart of the definition of a social movement" and a social movement is "a broad set of sustained organizational efforts to change the structure of society or the distribution of society's resources.,,246 Moreover, law reform is a means of achieving social change.247 Beginning in the 1960s, several legal organizations including the National Consumer Law Center, the NAACP Legal Defense Fund, legal services programs, and later on lawyers on the staffs of Consumers Union, NACA, US PIRG, and AARP have engaged in law reform in order to improve consumers' position in the marketplace. Contrary to Professor Coglianese's first formulation, however, they have not sought to do this by changing the structure of society. Instead, they have worked within that structure to improve the legal rights of consumers. Furthermore, they have not tried to change the fundamental structure of the legal system, but rather have sought far more limited goals.248

Consequently, the role played by consumer law organizations does not fit neatly within this component of Professor Coglianese's model of what constitutes a social movement, for the law reform component has not sought to change the structure of society.

Although consumer law organizations have not tried to change the structure of society or even of the legal system, they have made a significant impact on society that arguably qualifies as social change because they have changed some basic features of the law governing the marketplace. While they worked within the legal system and often with government agencies,249 the legislation they supported resulted in statutes that embody significant national public policy that never existed before. Examples include a consumer's legal right not to be subjected to discrimination in the extension of credit, insurance,

246. Coglianese, supra note 207, at 85 (emphasis added). 247. Id. 248. An early example is litigation such as Sniadach, which curbed the creditor's ability to use the

state's powers against consumers without restraint. See supra text accompanying notes 73-78. 249. Consumers Union was the consumer representative in FTC Rulemaking proceedings under that

agency's intervenor funding program. HARRIS & MILKIS, supra note 106, at 174.

44




or employment based on the consumer's gender, race, national origin,or religion;250 and a limited right to privacy in regards to creditreports251 and information sharing by financial institutions. 252 Majorrequirements have been placed on financial institutions such as therequirement to investigate consumers' credit card billing disputes253

and disputes over the electronic transfer of funds.254 In these andother ways, companies can no longer conduct business the way theyused to.

4. Effort to Change Society's Distribution of Resources

Even if one assumes consumer law organizations do not comewithin Professor Coglianese's first formulation of a social movementbecause their law reform efforts, however substantial, are not anattempt change the structure of society, their efforts do satisfyProfessor Coglianese's alternative formulation because theirobjective is to change the distribution of society's resources. Forexample, many of the cases they have brought and bills they havesupported in Congress and state legislatures have as their objective achange in legal rules that would result in less money going tobusinesses and more staying in consumers' pockets. An example isthe effort to control interest rates and other credit charges imposed bycreditors.255

5. From Social Movement to Institutionalization

As described above, "consumerism" has developed into a socialmovement. Its chances of survival, however, were greatly enhanced

250. 15 U.S.C. §§ 1691 elseq. (2006).251. Id. §§ 1681 etseq.252. Gramm-Leach-Bliley Fin. Servs. Modernization Act of 1999, Pub. L. No. 106-102, 113 Stat.

1338.253. 12 C.F.R. § 226.13(0 (2009).254. 15 U.S.C. §§ 1693 et seq. (2006).255. For example, the National Consumer Law Center's National Consumer Act (undated) and its

Model Consumer Credit Act 1973. See supra text accompanying notes 62-66. "[L]arge forwardmovements are possible only as the expectations of people increase as a result of numerous smallstruggles, reforms, and increased understanding." DAVIS, supra note 27, at 142 (quoting Edward V.Sparer).

1191



or employment based on the consumer's gender, race, national origin, or religion;250 and a limited right to privacy in regards to credit reports251 and info~ation sharing by financial institutions.252 Major requirements have been placed on fmancial institutions such as the requirement to investigate consumers' credit card billing disputes253

and disputes over the electronic transfer of funds?54 In these and other ways, companies can no longer conduct business the way they used to.

4. Effort to Change Society's Distribution of Resources

Even if one assumes consumer law organizations do not come within Professor Coglianese's first formulation of a social movement because their law reform efforts, however substantial, are not an attempt change the structure of society, their efforts do satisfy Professor Coglianese's alternative formulation because their objective is to change the distribution of society's resources. For example, many of the cases they have brought and bills they have supported in Congress and state legislatures have as their objective a change in legal rules that would result in less money going to businesses and more staying in consumers' pockets. An example is the effort to control interest rates and other credit charges imposed by creditors.255

5. From Social Movement to Institutionalization

As described above, "consumerism" has developed into a social movement. Its chances of survival, however, were greatly enhanced

250. 15 U.S.C. §§ 1691 et seq. (2006). 251. Id. §§ 1681 et seq. 252. Gramrn-Leach-Bliley Fin. Servs. Modernization Act of 1999, Pub. L. No. 106-102, I I3 Stat

1338. 253. 12 C.F.R. § 226.13(t) (2009). 254. 15 U.S.C. §§ 1693 et seq. (2006). 255. For example, the National Consumer Law Center's National Consumer Act (undated) and its

Model Consumer Credit Act 1973. See supra text accompanying notes 62-66. "[Ljarge forward movements are possible only as the expectations of people increase as a result of numerous small struggles, reforms, and increased understanding." DAVIS, supra note 27, at 142 (quoting Edward V. Sparer).

45




by the movement's institutionalization. Professor Coglianese hasexamined one social movement in particular: the environmentalmovement. He has identified several developments that demonstratethe environmental movement has become institutionalized. Onedevelopment was the passage of several major statutes.256 Enactmentof those laws was accompanied by government agencies issuingregulations and enforcing the law.257 Private organizations grew"more professional, increasing both the size and specialization oftheir staffs., 258 They published extensively.259 "Environmentalismhad matured from a social movement to an extensive network ofinterest group organizations with a presence in Washington, D.C likethat of any other political lobby." 260

The consumer movement has experienced comparabledevelopments, indicating that it too has been institutionalized.Congress has passed several major statutes261 that governmentagencies have enforced and pursuant to which they have issued

262regulations. Movement objectives typically are carried out inWashington by national organizations rather than by local grass rootscommunity groups such as CEPA.263 The organizations' activityoften consists of formal testimony presented by professionals such as

256. Coglianese, supra note 207, at 117.257. Id. at 115.258. Id. at 101.259. Id.260. Id. at 102.261. See supra text accompanying notes 43, 250-54.262. E.g., 12 C.F.R. § 226 (2009) (Reg. Z); 12 C.F.R. § 205 (2009) (Reg. E); 12 C.F.R. § 202 (2009)

(Reg. B).263. See supra text accompanying note 23. Some national organizations focus their activities on the

local level. See, e.g., Neighborhood Assistance Corporation of America (NACA), http://www.naca.com(last visited Mar. 9, 2010). Independent grass roots protests have continued as well. Anti-BankProtestors Picket Goldman, Wells, AM. BANKER, Oct. 27, 2009 (reporting that members of the NationalPeople's Action, a community group, and the Service Employees International Union organized aprotest on Chicago streets to demonstrate their anger at home foreclosures, predatory lending practices,and excessive bonuses paid to bank executives); Mathew Monks, Stunts May Be Silly, But They'reSerious for Banks, AM. BANKER, July 2, 2009, at 1, available at 2009 WLNR 12561425 (describingprotest at local branch bank by Empowering and Strengthening Ohio's People); Emily Udell, HundredsBack Crackdown on Payday Loan Companies, COURIER-J., Mar. 24, 2009, at 3B. Institutionalizationdoes not necessarily mean the end of grassroots activity, but institutionalization can greatly affect it.Grassroots mobilization, when employed, became integrated into the environmentalists' legislativeagenda and was strategically targeted at specific members of Congress. Coglianese, supra note 207, at100.

1192 [Vol. 26:4



by the movement's institutionalization. Professor Coglianese has examined one social movement in particular: the environmental movement. He has identified several developments that demonstrate the environmental movement has become institutionalized. One development was the passage of several major statutes,z56 Enactment of those laws was accompanied by government agencies issuing regulations and enforcing the law,z57 Private organizations grew "more professional, increasing both the size and specialization of their staffS.,,258 They published extensively.259 "Environmentalism had matured from a social movement to an extensive network of interest group organizations with a presence in Washington, D.C like that of any other politicallobby.,,260

The consumer movement has experienced comparable developments, indicating that it too has been institutionalized. Congress has passed several major statutes26I that government agencies have enforced and pursuant to which they have issued regulations.262 Movement objectives typically are carried out in Washington by national organizations rather than by local grass roots community· groups such as CEP A. 263 The organizations' activity often consists of formal testimony presented by professionals such as

256. Coglianese, supra note 207, at 117. 257. /d. at 115. 258. Id. at 101. 259. /d. 260. Id. at 102. 261. See supra text accompanying notes 43, 250--54. 262. E.g., 12 C.F.R. § 226 (2009) (Reg. Z); 12 C.F.R. § 205 (2009) (Reg. E); 12 C.F.R. § 202 (2009)

(Reg. B). 263. See supra text accompanying note 23. Some national organizations focus their activities on the

local level. See, e.g., Neighborhood Assistance Corporation of America (NACA), http://www.naca.com (last visited Mar. 9, 2010). Independent grass roots protests have continued as well. Anti-Bank Protestors Picket Goldman, Wells, AM. BANKER, Oct. 27, 2009 (reporting that members of the National People's Action, a community group, and the Service Employees International Union organized a protest on Chicago streets to demonstrate their anger at home foreclosures, predatory lending practices, and excessive bonuses paid to bank executives); Mathew Monks, Stunts May Be Silly, But They're Serious for Banks, AM. BANKER, July 2, 2009, at I, available at 2009 WLNR 12561425 (describing protest at local branch bank by Empowering and Strengthening Ohio's People); Emily Udell, Hundreds Back Crackdown on Payday Loan Companies, COURIER-J., Mar. 24, 2009, at 38. Institutionalization does not necessarily mean the end of grassroots activity, but institutionalization can greatly affect it. Grassroots mobilization, when employed, became integrated into the environmentalists' legislative agenda and was strategically targeted at specific members of Congress. Coglianese, supra note 207, at 100.

46




lawyers before Congressional committees and administrativeagencies. 264 While some organizations cover a wide variety of

265consumer issues, others are specialized. They publish manuals forlawyers,266 books for consumer advocates, 267 and educational guidesfor the public.268 They also conduct studies.269

It is significant that this institutionalization of the consumermovement affects not only consumer organizations, but alsogovernment entities. For example, the consumer movement had amajor impact on the FTC and FRB, whose original missions did notinclude consumer protection. Indeed, the FRB initially resisted takingon that responsibility.270 Once consumerism had become

264. E.g., Mandatory Binding Arbitration, Testimony of Stuart T Rossman, Director, Nat 7 ConsumerLaw Ctr., Before the Subcomm. on Commercial & Admin. Law of the H. Comm. on the Judiciary, 11 thCong. (2009), available at 2009 WLNR 18244651 [hereinafter Rossman Testimony]; Comments of theNational Consumer Law Center, National Association of Consumer Advocates, Consumer Federation ofAmerica, Consumers Union, and U.S. Public Interest Research Group, In the Matter of TelemarketingRulemaking, FTC File No. R41 1001 (Apr. 10, 2002), submitted by Olivia Wein, Carolyn Carter andMargot Saunders, all identified in the Comment as attorneys at NCLC.

265. Compare the topics the Consumer Federation of America lists on its web site,http://www.consumerfed.org (last visited Mar. 9, 2010) (listing communications, energy, finance, foodand agriculture, health and safety, and housing), and the topics listed on the website of Americans forFinancial Reform, http://www.ourfmancialsecurity.org (last visited Mar. 9, 2010) (listing the consumerfinancial protection agency, hedge funds, credit rating agencies, the financial transaction tax, systemicrisk, and foreclosure prevention), with the Center for Auto Safety, http://www.autosafety.org (lastvisited Mar. 9, 2010) (listing airbags, oil sludge, and vehicle recalls).

266. NCLC has published an eighteen-volume series of manuals for lawyers. NCLC, Publications forLawyers, https://shop.consumerlaw.org/ (last visited Mar. 18, 2010).

267. NCLC's books for advocates include: Surviving Debt, Guide to the Rights of Utility Consumers,Stop Predatory Lending, and Guide to the Rights of Domestic Violence Survivors. Id.268. E.g., National Consumers League, http://www.nclnet.org/personal-finance (last visited Mar. 9,

2010); Consumer Action, http://www.consumer-action.org/publications (last visited Mar. 9, 2010).269. E.g., ELISA ODABASHIAN, CONSUMERS UNION, GETTING MILKED, BAY AREA SUPERMARKETS

CHARGE Too MUCH FOR MILK (2004), http://www.consumersunion.org/pdf/nilkrpt04.pdf; U.S. PIRG,BAILOUT REPORT CARD: WHAT DID OBAMA'S TEAM LEARN? (2009), available athttp://cdn.publicinterestnetwork.orglassets/s9ybLaplPTISBQRaixRqgw/USPIRG-BailoutReportCard6

22_09.pdf; DIANE E. THOMPSON, NAT'L CONSUMER LAW CENTER, WHY SERVICERS FORECLOSE

WHEN THEY SHOULD MODIFY AND OTHER PUZZLES OF SERVICER BEHAVIOR, SERVICERS

COMPENSATION & ITS CONSEQUENCES (2009), available at

http://www.consumerlaw.org/issuesmortgage-servicing/content/Servicer-ReportiO09.pdf; Jean Ann

Fox & Patrick Woodnall, Consumers Pay Steep Premium to 'Bank' at Check Cashing Outlets,CONSUMER FED'N AM., Nov. 2006.

270. Supra note 86. HARRIS & MILKIS, supra note 106, at 147 (stating that those who created the FTCdid not consider consumer protection to be the FTC's responsibility). But as a result of the consumermovement, the FTC became far more aggressive. "The transformation of the FTC was one element ofthe far-reaching institutional development that took place during the late 1960s and 1970s in the area ofconsumer protection." Id. at 179.

1193


2010J mE DEVELOPMENT OF CONSUMER PROTECTION LAW 1193

lawyers before Congressional committees and administrative

agencies.264

While some organizations cover a wide variety of

consumer issues, others are specialized.265

They publish manuals for

lawyers,266 books for consumer advocates,267 and educational guides

for the pUblic.268

They also conduct studies.269

It is significant that this institutionalization of the consumer

movement affects not only consumer organizations, but also

government entities. For example, the consumer movement had a

major impact on the FTC and FRB, whose original missions did not

include consumer protection. Indeed, the FRB initially resisted taking

on that responsibility.270 Once consumerism had become

264. E.g., Mandatory Binding Arbitration, Testimony of Stuart T. Rossman, Director, Nat 'I Consumer Law Ctr., Before the Subcomm. on Commercial & Admin. Law of the H Comm. on the Judiciary, III th Congo (2009), available at 2009 WLNR 18244651 [hereinafter Rossman Testimony]; Comments of the National Consumer Law Center, National Association of Consumer Advocates, Consumer Federation of America, Consumers Union, and U.s. Public Interest Research Group, In the Matter of Telemarketing Rulemaking, FTC File No. R41l001 (Apr. 10, 2002), submitted by Olivia Wein, Carolyn Carter and Margot Saunders, all identified in the Comment as attorneys at NCLC. 265. Compare the topics the Consumer Federation of America lists on its web site,

http://www.consumerfed.org (last visited Mar. 9,2010) (listing communications, energy, finance, food and agriculture, health and safety, and housing), and the topics listed on the website of Americans for Financial Reform, http://www.ourfmancialsecurity.org (last visited Mar. 9, 2010) (listing the consumer financial protection agency, hedge funds, credit rating agencies, the financial transaction tax, systemic risk, and foreclosure prevention), with the Center for Auto Safety, http://www.autosafety.org (last visited Mar. 9, 20 I 0) (listing airbags, oil sludge, and vehicle recalls). 266. NCLC has published an eighteen-volume series of manuals for lawyers. NCLC, Publications for

Lawyers, https://shop.consumerlaw.orgl(lastvisitedMar. 18,2010). 267. NCLC's books for advocates include: Surviving Debt, Guide to the Rights of Utility Consumers,

Stop Predatory Lending, and Guide to the Rights of Domestic Violence Survivors. Id. 268. E.g., National Consumers League, http://www.ncInet.orgipersonal-finance (last visited Mar. 9,

2010); Consumer Action, http://www.consumer-action.orglpublications (last visited Mar. 9,2010). 269. E.g., ELISA ODABASHIAN, CONSUMERS UNION, GETfING MILKED, BAY AREA SUPERMARKETS

CHARGE Too MUCH FOR MILK (2004), http://www.consumersunion.orglpdflrnilkrpt04.pdf; U.S. PlRG, BAILOUT REpORT CARD: WHAT DID OBAMA'S TEAM LEARN? (2009), available at http://cdn.publicinterestnetwork.orgiassetsls9ybLaplPTISBQRaixRqgwIUSPlRG _ BailoutReportCard _ 6 _22_09.pdf; DIANE E. THOMPSON, NAT'L CONSUMER LAW CENTER, WHY SERVICERS FORECLOSE WHEN THEY SHOULD MODIFY AND OTHER PuZZLES OF SERVICER BEHAVIOR, SERVICERS COMPENSATION & ITS CONSEQUENCES (2009), available at http://www.consumerlaw.orglissues/mortgage _ servicingicontentiServicer-Reportl009.pdf; Jean Ann Fox & Patrick Woodnall, Consumers Pay Steep Premium to 'Bank' at Check Cashing Outlets, CONSUMER FED'N AM., Nov. 2006. 270. Supra note 86. HARRIs & MILKIS, supra note 106, at 147 (stating that those who created the FTC

did not consider consumer protection to be the FTC's responsibility). But as a result of the consumer movement, the FTC became far more aggressive. "The transformation of the FTC was one element of the far-reaching institutional development that took place during the late 1960s and 1970s in the area of consumer protection." Id. at 179.

47




institutionalized, government agencies became part of the network oforganizations, some public, others private, with a stake in the successof the movement. 27 1 The connection between the private and publicsectors became most apparent when the FTC introduced a program of"intervenor funding" which was authorized by the Magnuson-MossAct. Under this program, the FTC funded consumer groups such asConsumers Union 273 in order to ensure that the public's views wouldbe represented in agency proceedings. The industry opposed theprogram, "recognizing that imposing such procedural changesrepresented a fundamental, though incipient, challenge to business'influence on rulemaking proceedings. 274

After Reagan became president, the FTC eliminated the intervenorfunding program275 along with a general restriction on its consumerprotection activities.276 This development illustrates that because ofthe industry's greater resources and the recurrent emergence ofpresidents and a Congress hostile to the objectives of the consumermovement, it is not sufficient that a movement becomesinstitutionalized and that institutionalization includes new law thatembodies the movement's goals.277 In addition, its goals must

271. "[C]ause lawyers ... are 'most successful when a confident government is engaged in socialchange .... ' Meili, supra note 168, at 135 (citing Richard Abel, Speaking Law to Power, in CAUSELAWYERING: POLmCAL COMMITMENTS AND SOCIAL RESPONSIBILITIES 69 (Austin Sarat & StuartScheingold eds., 1998)). According to one theorist, "social movements succeed when the governmentprovides tangible benefits to their members that meet the movement's demands, or when it formallyaccepts the movement as a valid representative of its members' interests." Rubin, supra note 197, at 82.Consumer advocates also have been appointed to major roles in government. For example, during theCarter administration, Ralph Nader's chief lobbyist, Joan Claybrook was the head of the NationalHighway Traffic Safety Administration and Carol Tucker Forman, who had been Executive Director ofthe CFA, was an assistant secretary of agriculture for consumer services. HANDLER, supra note 75, at76-77. Rahm Emanuel, President Obama's Chief of Staff, was a spokesman for Illinois Public ActionCouncil, a "Naderite group." Ryan Lizza, The Gatekeeper, Rahm Emanuel on the Job, NEW YORKER,Mar. 2,2009, at 24, 27.

272. HARRIS & MILKIS, supra note 106, at 173; Magnuson-Moss Warranty-Federal TradeCommission Improvement Act, Pub. L. No. 93-637, 88 Stat. 2183 (1975) (codified at 15 U.S.C.§§ 2301-12).273. HARRIS & MILKIS, supra note 106, at 174.274. Id. at 176.275. Id. at 192.276. Id. at 186-90.277. See generally Rubin, supra note 197, at 83 (stating that recognition of rights "may be won by the

activism of social movements, but this victory must be secured by the development of legal concepts... )

[Vol. 26:41194



institutionalized, government agencies became part of the network of organizations, some public, others private, with a stake in the success of the movement.271 The connection between the private and public sectors became most apparent when the FTC introduced a program of "intervenor funding" which was authorized by the Magnuson-Moss Act.272 Under this program, the FTC funded consumer groups such as Consumers Union273 in order to ensure that the public's views would be represented in agency proceedings. The industry opposed the program, "recognizing that imposing such procedural changes represented a fundamental, though incipient, challenge to business' influence on rulemaking proceedings.,,274

After Reagan became president, the FTC eliminated the intervenor funding program275 along with a general restriction on its consumer protection activities.276 This development illustrates that because of the industry'S greater resources and the recurrent emergence of presidents and a Congress hostile to the objectives of the consumer movement, it is not sufficient that a movement becomes institutionalized and that institutionalization includes new law that embodies the movement's goals.277 In addition, its goals must

271. "[Clause lawyers ... are 'most successful when a confident government is engaged in social change .... '" Meili, supra note 168, at 135 (citing Richard Abel, Speaking Law to Power, in CAUSE LAWYERING: POLmCAL COMMITMENTS AND SOCIAL RESPONSIBILITIES 69 (Austin Sarat & Stuart Scheingold eds., 1998». According to one theorist, "social movements succeed when the government provides tangible benefits to their members that meet the movement's demands, or when it formally accepts the movement as a valid representative of its members' interests." Rubin, supra note 197, at 82. Consumer advocates also have been appointed to major roles in government. For example, during the Carter administration, Ralph Nader's chief lobbyist, Joan Claybrook was the head of the National Highway Traffic Safety Administration and Carol Tucker Forman, who had been Executive Director of the CFA, was an assistant secretary of agriCUlture for consumer services. HANDLER, supra note 75, at 76-77. Rahm Emanuel, President Obarna's Chief of Staff', was a spokesman for Illinois Public Action Council, a ''Naderite group." Ryan Lizza, The Gatekeeper, Rahm Emanuel on the Job, NEW YORKER, Mar. 2,2009, at 24,27. 272. HARRIs & MILKIS, supra note 106, at 173; Magnuson-Moss Warranty-Federal Trade

Commission Improvement Act, Pub. L. No. 93-637, 88 Stat. 2183 (1975) (codified at 15 U.S.C. §§ 2301-12). 273. HARRIs & MILKIS, supra note 106, at 174. 274. Id. at 176. 275. Id. at 192. 276. Id. at 186-90. 277. See generally Rubin, supra note 197, at 83 (stating that recognition of rights "may be won by the

activism of social movements, but this victory must be secured by the development of legal concepts .... ").

48




become embedded in society's values.278 Otherwise, the movementcould be killed or severely debilitated.

There are indications that the consumer movement's goals havebeen embedded in society's values. Davis and Trebilock note thatmany scholars are skeptical about "whether legal institutions play anindependent role in promoting social change." 279 They acknowledge:"It may be the case that legal systems change only in response tofundamental historical, economic, cultural or political factors and arelargely immune to top-down attempts at reform." 280 If that is true,then TILA and accompanying federal law was not a top-down effortby Congress to change the legal environment for consumers, but aresponse to fundamental changes in society's values. Even if aparticular Congress tried to impose its will by enacting statutes suchas TILA, if those laws were contrary to society's values, givenindustry's opposition, those laws would not have endured. It issignificant that pressure from the credit industry resulted inCongress's cutting back on TILA, but not coming even close torepealing it or any of the other statutes. 28 1 To the contrary, Congresshas continued to enact more laws and strengthen ones already ineffect. 282 That development indicates the movement's goals reflectsociety's values. And those consumer protection laws "incorporatenew norms into the ongoing structure of the legal system. 283

The consumer movement has significantly matured. For example,industry representatives frequently claim the abuses alleged byconsumer advocates are merely anecdotal and do not reflect market

278. Coglianese, supra note 207, at 109, opines: "Legal reform, if it is to have an enduring impact,needs to be accompanied by a genuine change in public values."279. Kevin E. Davis & Michael J. Trebilcock, The Relationship Between Law and Development:

Optimists Versus Skeptics, 56 AM J. COMP. L. 895, 920 (2008).280. Id.281. See RENUART & KEEST-TILA, supra note 43, at 5-7 (discussing the Truth in Lending

Simplification Act).282. E.g., Home Ownership and Equity Protection Act of 1994, Pub. L. No. 103-325, 108 Stat. 2160.

NCLC supported passage of this law. Daniel lImmergluck, Private Risk, Public Risk: Public Policy,Market Development, and the Mortgage Crisis, 36 FORDHAM URB. L.J. 447, 470 (2009); see Fair andAccurate Credit Transaction Act of 2003, Pub. L. No. 108-159, 117 Stat. 1952; Credit RepairOrganizations Act, 18 U.S.C. § 1679 (1996).283. Rubin, supra note 197, at 83 (commenting on public officials' formal acceptance of the legal

concept of human rights).

1195



become embedded in society's values.278 Otherwise, the movement could be killed or severely debilitated.

There are indications that the consumer movement's goals have been embedded in society's values. Davis and Trebilock note that many scholars are skeptical about "whether legal institutions play an independent role in promoting social change.,,279 They acknowledge: "It may be the case that legal systems change only in response to fundamental historical, economic, cultural or political factors and are largely immune to top-down attempts at reform.,,280 If that is true, then TILA and accompanying federal law was not a top-down effort by Congress to change the legal environment for consumers, but a response to fundamental changes in society's values. Even if a particular Congress tried to impose its will by enacting statutes such as TILA, if those laws were contrary to society's values, given industry's opposition, those laws would not have endured. It is significant that pressure from the credit industry resulted in Congress's cutting back on TILA, but not coming even close to repealing it or any of the other statutes.281 To the contrary, Congress has continued to enact more laws and strengthen ones already in effect. 282 That development indicates the movement's goals reflect society's values. And those consumer protection laws "incorporate new norms into the ongoing structure of the legal system.,,283

The consumer movement has significantly matured. For example, industry representatives frequently claim the abuses alleged by consumer advocates are merely anecdotal and do not reflect market

278. Coglianese, supra note 207, at 109, opines: "Legal refonn, if it is to have an enduring impact, needs to be accompanied by a genuine change in public values." 279. Kevin E. Davis & Michael J. Trebilcock, The Relationship Between Law and Development:

Optimists Versus Skeptics, 56 AM 1. COMPo L. 895,920 (2008). 280. Id. 281. See RENUART & KEEST-TILA, supra note 43, at 5-7 (discussing the Truth in Lending

Simplification Act). 282. E.g., Home Ownership and Equity Protection Act of 1994, Pub. L. No. 103-325, 108 Stat. 2160.

NCLC supported passage of this law. Daniel lmmergluck, Private Risk, Public Risk: Public Policy, Market Development, and the Mortgage Crisis, 36 FORDHAM URB. LJ. 447,470 (2009); see Fair and Accurate Credit Transaction Act of 2003, Pub. L. No. 108-159, 117 Stat. 1952; Credit Repair Organizations Act, 18 U.S.C. § 1679 (1996). 283. Rubin, supra note 197, at 83 (commenting on public officials' fonnal acceptance of the legal

concept of human rights).

49




failure requiring regulation.2 84 To counter these assertions, consumerorganizations have conducted many sophisticated and comprehensivestudies documenting widespread abuses. 285 Consumer organizationshave the technical expertise needed by agencies considering new orrevised regulations.

286

Government agencies formerly listened to the views of all sidesand used their best judgment when issuing regulations. Agencies nowsupplement this approach with more sophisticated techniques. Forexample, to gauge the effectiveness of current and proposeddisclosures, the FRB hired a research and consulting firm that testedconsumers using focus groups to determine what disclosuresconsumers would pay attention to, understand, and use. 287

A proposed FTC study also illustrates a more sophisticatedorientation. The FTC intends to conduct studies on consumersusceptibility to fraudulent and deceptive marketing. 288 The FTCadmits that "surprisingly little is known about what determinesconsumers' susceptibility to fraud., 289 The FTC acknowledges thecontributions of social science experiments that have identified

284. Testimony of Richard Hunt on Behalf of Consumer Bankers Ass 'n: Hearing on H.R. 3904, theOverdraft Protection Act, Before the H. Fin. Services Comm., 111 th Cong. (2009) (urging Congress notto regulate overdraft fees based on anecdotes of consumers who had to pay a $35 overdraft fee for a $4cup of coffee). See generally Paul Krugman, How Did Old Economists Get It So Wrong?, N.Y. TIMES,Sept. 2, 2009 (Magazine) (describing traditional economists' view that markets operate efficiently anddo not need to be regulated).

285. E.g., RICH JURGENS & CHI CHI Wu, NAT'L CONSUMER LAW CENTER, FEE-HARVESTERS: Low-CREDIT, HIGH-COST CARDS BLEED CONSUMERS (2007); JEAN ANN Fox & ANNA PETRINI, CONSUMERFEDERATION OF AMERICA, INTERNET PAYDAY LENDING: How HIGH-PRICES LENDERS USE THEINTERNET TO MIRE BORROWERS IN DEBT AND EVADE STATE CONSUMER PROTECTIONS (2004). Fortheir part, the industry commissions its own studies, e.g., JONATHAN M. ORSZAG & SUSAN H.MANNING, AN ECONOMIC ASSESSMENT OF REGULATING CREDIT CARD FEES AND INTEREST RATES(2007) (commissioned by the American Bankers Association; see Adam J. Levitin, A Critique of theAmerican Bankers Association's Study of Credit Card Regulation, GEO. U.L. CENTER, Mar. 9, 2008,http://works.bepress.com/cgi/viewcontent.cgi?article=l 003&context=-adam-levitin).286. A Note from the Executive Director, OUTLOOK, NAT'L CONSUMER L. CENTER, Fall 2008/Winter

2009, at 2 (stating that NCLC and other consumer groups analyze for agencies the "fine points" thatseem insignificant but can have "an unintended or harmful effect"); Tell It to the Fed! OUTLOOK, NAT'LCONSUMER L. CENTER, Fall 2008/Winter 2009, at 3 (describing NCLC's "detailed legal analyses"submitted to agencies).

287. Truth in Lending, Final Rule, 74 Fed. Reg. 5244, 5245-46 (Jan. 29, 2009). The results of thetests were made available on the FRB's Web site. Id. at 5247.

288. Agency Information Collection Activities; Proposed Collection; Comment Request, 74 Fed. Reg.27,794, 27,796 (June 11, 2009).289. 74 Fed. Reg. 27,794, 27,795 (June 11,2009).

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failure requiring regulation.284 To counter these assertions, consumer organizations have conducted many sophisticated and comprehensive studies documenting widespread abuses.285 Consumer organizations have the technical expertise needed by agencies considering new or revised regulations.286

Government agencies formerly listened to the views of all sides and used their best judgment when issuing regulations. Agencies now supplement this approach with more sophisticated techniques. For example, to gauge the effectiveness of current and proposed disclosures, the FRB hired a research and consulting firm that tested consumers using focus groups to determine what disclosures consumers would pay attention to, understand, and use?87

A proposed FTC study also illustrates a more sophisticated orientation. The FTC intends to conduct studies on consumer susceptibility to fraudulent and deceptive marketing.288 The FTC admits that "surprisingly little is known about what determines consumers' susceptibility to fraud.,,289 The FTC acknowledges the contributions of social science experiments that have identified

284. Testimony of Richard Hunt on Behalf of Consumer Bankers Ass 'n: Hearing on H.R. 3904, the Overdraft Protection Act, Before the H. Fin. Services Comm., Illth Congo (2009) (urging Congress not to regulate overdraft fees based on anecdotes of consumers who had to pay a $35 overdraft fee for a $4 cup of coffee). See generally Paul Krugman, How Did Old Economists Get It So Wrong?, N.Y. TIMES, Sept. 2,2009 (Magazine) (describing traditional economists' view that markets operate efficiently and do not need to be regulated). 285. E.g., RICH JURGENS & CHI CHI Wu, NAT'L CONSUMER LAW CENTER, FEE-HARVESTERS: Low

CREDIT, HIGH-COST CARDS BLEED CONSUMERS (2007); JEAN ANN Fox & ANNA PETRINI, CONSUMER FEDERATION OF AMERlCA, INTERNET PAYDAY LENDING: How HIGH-PRlCES LENDERS USE THE INTERNET TO MIRE BORROWERS IN DEBT AND EVADE STATE CONSUMER PROTECTIONS (2004). For their part, the industry commissions its own studies, e.g., JONATHAN M. ORSZAG & SUSAN H. MANNING, AN ECONOMIC ASSESSMENT OF REGULATING CREDIT CARD FEES AND iNTEREST RATES (2007) (commissioned by the American Bankers Association; see Adam J. Levitin, A Critique of the American Bankers Association's Study of Credit Card Regulation, GEO. U.L. CENTER, Mar. 9, 2008, http://works.bepress.comlcgilviewcontent.cgi?article=1003&context=adam_Ievitin). 286. A Notefrom the Executive Director, OUTLOOK, NAT'L CONSUMER L. CENTER, Fall2008IWinter

2009, at 2 (stating that NCLC and other consumer groups analyze for agencies the "fine points" that seem insignificant but can have "an unintended or harmful effect"); Tell It to the Fed! OUTLOOK, NAT'L CONSUMER L. CENTER, Fall 2008IWinter 2009, at 3 (describing NCLC's "detailed legal analyses" submitted to agencies). 287. Tl1lth in Lending, Final Rule, 74 Fed. Reg. 5244, 5245-46 (Jan. 29, 2009). The results of the

tests were made available on the FRB's Web site. !d. at 5247. 288. Agency Information Collection Activities; Proposed Collection; Comment Request, 74 Fed. Reg.

27,794,27,796 (June 11,2009). 289. 74 Fed. Reg. 27,794, 27,795 (June 11,2009).

50




"several decision-making biases, such as impulsivity, over-confidence, over-optimism, and loss aversion, that can causeinaccurate assessments of the risks, costs and benefits of variouschoices. ' ' 290 One of the FTC's studies will consist of a laboratoryexperiment to examine whether these biases are related tosusceptibility to deceptive ads.291 The FTC hopes the study will helpit target enforcement actions, design future surveys, and developconsumer education programs. The second study will consist of asurvey of 5,000 consumers conducted on the Internet, seekinginformation on susceptibility to fraud.292

The FTC's planned study illustrates the influence of newdevelopments in economic theory. Classical economic theory hasprovided powerful academic support for industry anti-regulation andderegulation proposals. The theory is based on the assumption thatconsumer behavior is rational and the free market, that is, a marketfree of regulation, is the most efficient and therefore best for bothbusinesses and consumer.293 In the past several years, however, thefield of behavioral economics has gained increasing respectability,supports the need for more regulation, and provides insights fordrafting more effective regulation.294

290. Id291. Id.292. 74 Fed. Reg. 27,796, 27,797 (June 11, 2009).293. Alan M. White, Behavior and Contract, 22 LAW & INEQ. 135, 138 (2009). See generally

Krugman, supra note 284; Martin Crutsinger, Greenspan in "Disbelief," ATLANTA J.-CONST., Oct. 24,2008 (reporting that Alan Greenspan, former Chairman of the Federal Reserve, acknowledged that the

economic crisis made him realize he was wrong in believing banks would protect their shareholders andinstitutions' equity without the need for regulation).294. On Amir & Orly Lobel, Stumble, Predict, Nudge: How Behavioral Economics Informs Law and

Policy, 108 COL. L. REV. 2098 (2008) (reviewing two books that explore consumer irrationality and its

implications for legislators); Oren Bar-Gill, The Behavioral Economics of Consumer Contracts, 92MINN. L. REV. 749, 750 (2008) ("[C]onsumer mistakes and sellers' strategic response to these mistakes

are responsible for a substantial welfare loss. ... ); Oren Bar-Gill, Bundling and ConsumerMisperception, 73 U. CHI. L. REV. 33, 45 (2006) ("Many consumers systematically underestimate the

total price they will end up paying simply because they do not understand how fast interest accrues.");Arnold S. Rosenberg, Better Than Cash? Global Proliferation of Payment Cards and ConsumerProtection Policy, 60 CONSUMER FIN. L.Q. REP. 426, 455-56 (2006) (recommending TILA-type"layered" disclosures for debit cards based on studies of consumer behavior); Jeff Sovern, Toward a

New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 WM. & MARY L.REV. 1635, 1656-57, 1676-79 (2006) (describing how businesses benefit by obscuring contract terms

and taking advantage of behavior that prevents consumers from making rational choices, andrecommends legislative improvements); Lauren E. Willis, Decisionmaking and the Limits of Disclosure:

1197



"several decision-making biases, such as impulsivity, overconfidence, over-optimism, and loss aversion, that can cause inaccurate assessments of the risks, costs and benefits of various choices. ,,290 One of the FTC's studies will consist of a laboratory experiment to examine whether these biases are related to susceptibility to deceptive ads.291 The FTC hopes the study will help it target enforcement actions, design future surveys, and develop consumer education programs. The second study will consist of a survey of 5,000 consumers conducted on the Internet, seeking information on susceptibility to fraud. 292

The FTC's planned study illustrates the influence of new developments in economic theory. Classical economic theory has provided powerful academic support for industry anti-regulation and deregulation proposals. The theory is based on the assumption that consumer behavior is rational and the free market, that is, a market free of regulation, is the most efficient and therefore best for both businesses and consumer.293 In the past several years, however, the field of behavioral economics has gained increasing respectability, supports the need for more regulation, and provides insights for drafting more effective regulation.294

290. Id. 291. Id. 292. 74 Fed. Reg. 27,796, 27,797 (June 11,2009). 293. Alan M. White, Behavior and Contract, 22 LAW & INEQ. 135, 138 (2009). See generally

Krugman, supra note 284; Martin Crutsinger, Greenspan in "Disbelief," ATLANTA J.-CONST., Oct. 24, 2008 (reporting that Alan Greenspan, fonner Chairman of the Federal Reserve, acknowledged that the economic crisis made him realize he was wrong in believing banks would protect their shareholders and institutions' equity without the need for regulation). 294. On Arnir & Orly Lobel, Stumble, Predict, Nudge: How Behavioral Economics Informs Law and

Policy, 108 COL. L. REv. 2098 (2008) (reviewing two books that explore consumer irrationality and its implications for legislators); Oren Bar-Gill, The Behavioral Economics of Consumer Contracts, 92 MINN. L. REv. 749, 750 (2008) ("[C]onsumer mistakes and sellers' strategic response to these mistakes are responsible for a substantial welfare loss . . . ."); Oren Bar-Gill, Bundling and Consumer Misperception, 73 U. CHI. L. REv. 33,45 (2006) ("Many consumers systematically underestimate the total price they will end up paying simply because they do not understand how fast interest accrues."); Arnold S. Rosenberg, Better Than Cash? Global Proliferation of Payment Cards and Consumer Protection Policy, 60 CONSUMER FIN. L.Q. REp. 426, 455-56 (2006) (recommending TILA-type "layered" disclosures for debit cards based on studies of consumer behavior); Jeff Sovern, Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Cosrs, 47 WM. & MARy L. REv. 1635, 1656-57, 1676-79 (2006) (describing how businesses benefit by obscuring contract terms and taking advantage of behavior that prevents consumers from making rational choices, and recommends legislative improvements); Lauren E. Willis, Decisionmaking and the Limits of Disclosure:

51




VII. MISSION ACCOMPLISHED? PROSPECTS AND PERILS

We have seen that consumerism has become an institutionalizedsocial movement and its values are embedded in society.Furthermore, the legal component of the movement has persisted andgrown. But can we proclaim "Mission Accomplished?" Of course,the mission will never be fully accomplished because there willalways be challenges by the business community. Some in thatcommunity will continue to devise new scams, new products, newways to avoid litigation brought by consumers, and new strategies todefeat proposed statutes and regulations. Nevertheless, consumeradvocates can claim "mission accomplished" in the sense thatconsumer protection is an embedded cultural value and consumerprotection law is here to stay.

One lens through which to view where the consumer movementstands today is to examine two significant recent developments: theCredit Card Act of 2009 and the proposed Consumer FinancialProtection Agency. While representing major steps forward, they alsoillustrate the perils that lie ahead.

The Credit Card Act of 2009,295 containing extensive amendmentsto TILA, provides a useful illustration of the status of new consumerlegislation forty years after TILA became effective. The need for theamendments arose because of the industry's skill in developing newways to impose costs upon consumers. 296 It is significant thatCongress was willing to confront the challenges posed by changes inthe industry's practices, especially since the FRB had recently issued

297regulations that covered some of the same ground. But passagecame only with clear Democratic majorities in Congress and a

The Problem of Predatory Lending: Price, 65 MD. L. REV. 707, 754-59 (2006) (describing consumerbehavior and proposing simplified and standardized disclosures for home loans). But see Ronald J.Mann, Unsafe at Any Price? 157 U. PA. L. REv. 167 (2009) (stating that behavioral economics is basedon little empirical research).

295. Credit Card Act, Pub. L. No. 111-24, 123 Stat. 1734 (2009).296. Alces, supra note 154, at 1512.297. TILA, Final Rule, 74 Fed. Reg. 5244 (Jan. 29, 2009); Unfair Deceptive Acts or Practices, Final

Rule, 74 Fed. Reg. 5498 (Jan. 29, 2009); see also Unfair Deceptive Acts or Practices, Clarifications,Proposed Rule, 74 Fed. Reg. 20,804 (May 5, 2009) (clarifying confusion caused by the above rules).

[Vol. 26:41198



VII. MISSION ACCOMPLISHED? PROSPECTS AND PERILS

We have seen that consumerism has become an institutionalized social movement and its values are embedded in society. Furthermore, the legal component of the movement has persisted and grown. But can we proclaim "Mission Accomplished?" Of course, the mission will never be fully accomplished because there will always be challenges by the business community. Some in that community will continue to devise new scams, new products, new ways to avoid litigation brought by consumers, and new strategies to defeat proposed statutes and regulations. Nevertheless, consumer advocates can claim "mission accomplished" in the sense that consumer protection is an embedded cultural value and consumer protection law is here to stay.

One lens through which to view where the consumer movement stands today is to examine two significant recent developments: the Credit Card Act of 2009 and the proposed Consumer Financial Protection Agency. While representing major steps forward, they also illustrate the perils that lie ahead.

The Credit Card Act of 2009,295 containing extensive amendments to TILA, provides a useful illustration of the status of new consumer legislation forty years after TILA became effective. The need for the amendments arose because of the industry's skill in developing new ways to impose costs upon consumers.296 It is significant that Congress was willing to confront the challenges posed by changes in the industry's practices, especially since the FRB had recently issued regulations that covered some of the same ground.297 But passage came only with clear Democratic majorities in Congress and a

The Problem of Predatory Lending: Price, 65 MD. L. REv. 707, 754-59 (2006) (describing consumer behavior and proposing simplified and standardized disclosures for home loans). But see Ronald 1. Mann, Unsafe at Any Price? 157 U. PA. L. REv. 167 (2009) (stating that behavioral economics is based on little empirical research).

295. Credit Card Act, Pub. L. No. 111-24, 123 Stat. 1734 (2009). 296. Alces, supra note 154, at 1512. 297. TILA, Final Rule, 74 Fed. Reg. 5244 (Jan. 29, 2009); Unfair Deceptive Acts or Practices, Final

Rule, 74 Fed. Reg. 5498 (Jan. 29, 2009); see also Unfair Deceptive Acts or Practices, Clarifications, Proposed Rule, 74 Fed. Reg. 20,804 (May 5, 2009) (clarifying confusion caused by the above rules).

52




president who was not hostile to consumer protection. 298 Consumerorganizations had been criticizing these practices for several yearsand had published studies documenting their use and adverseeffects.299 Scholars also became involved, publishing law reviewarticles. 30 0 To some extent, the Act continues the much criticizedapproach of previous versions of TILA,3 ° 1 merely requiringdisclosure. 30 2 But at least some of the disclosures are of a differentnature than those in former versions of TILA because they provideconsumers with information far more useful to consumers than therequired disclosures in previous versions of TILA.3 °3

Moreover, the Act represents a major step forward because it goeswell beyond disclosure by also granting consumers many substantiverights.304 For example, the Act includes prohibitions on increasing thefinance charge on any outstanding balance 305 and double cyclebilling.30 6 There are rules for increasing and reducing the annualpercentage rate, 30 7 subprime fee harvester cards,30 8 marketing cards toconsumers younger than twenty-one,30 9 and how much time

298. See President's initiative to establish a Consumer Financial Protection Agency, infra notes 328-49.

299. JuRGENS & WU, supra note 285.300. See, e.g., Alces, supra note 154.301. Laurie A. Burlingame, Getting to the Truth of the Matter: Revising the TILA Credit Card

Disclosure Scheme to Better Protect Consumers, 61 CONSUMER FIN. L.Q. REP. 308, 326 (2007) (notingthat some consumers find TILA credit card disclosures "confusing and misleading"); Summer Krause,The Truth in Lending Act: A Case For Expanding Assignee Liability, 49 SANTA CLARA L. REv. 1153,1164 (2009) (characterizing TILA prior to the Truth in Lending Simplification Act as complicated anddifficult to understand); Renuart & Thompson, supra note 52, at 210 (describing the difficulty ofdetermining the impact of fees on the annual percentage rate under the TILA disclosure scheme).

302. See, for example, § 101 of the Credit Card Act (advance notice of rate increase), and § 201 (pay-off timing disclosures). Pub. L. No. 111-24, §§ 101,201, 123 Stat. 1734, 1735, 1743 (2009).

303. See, for example, the payoff timing disclosures informing the consumer of how many months itwill take the consumer to pay the entire balance if paying only the required minimum. Credit Card Act§ 201(a). This type of disclosure is an example of those recommended by Rubin. Rubin, supra note 197,at 49-50.

304. Some believe disclosure is preferable to substantive provisions that will allegedly limit theavailability of consumer credit. Jeffrey Taf, Viewpoint: Disclosure Better Than Limiting Credit, Am.BANKER, May 9, 2008, available at 2008 WLNR 8665939.

305. Credit Card Act § 171.306. Id. § 102.307. Id. §§ 148, 172.308. Id. § 105.309. Id. § 301.

1199



president who was not hostile to consumer protection.298 Consumer organizations had been criticizing these practices for several years and had published studies documenting their use and adverse effects?99 Scholars also became involved, publishing law review articles.30o To some extent, the Act continues the much criticized approach of previous versions of TILA,301 merely requiring disclosure.302 But at least some of the disclosures are of a different nature than those in former versions of TILA because they provide consumers with information far more useful to consumers than the required disclosures in previous versions of TILA. 303

Moreover, the Act represents a major step forward because it goes well beyond disclosure by also granting consumers many substantive rightS?04 For example, the Act includes prohibitions on increasing the finance charge on any outstanding baiance305 and double cycle billing.306 There are rules for increasing and reducing the annual percentage rate,307 subprime fee harvester cards,308 marketing cards to consumers younger than twenty_one,309 and how much time

298. See President's initiative to establish a Consumer Financial Protection Agency, infra notes 328-49. 299. JURGENS & Wu, supra note 285. 300. See, e.g., Alces, supra note 154. 30 I. Laurie A. Burlingame, Getting to the Truth of the Matter: Revising the TlLA Credit Card

Disclosure Scheme to Better Protect Consumers, 61 CONSUMER FIN. L.Q. REp. 308, 326 (2007) (noting that some consumers find TILA credit card disclosures "confusing and misleading"); Summer Krause, The Truth in Lending Act: A Case For Expanding Assignee Liability, 49 SANTA CLARA L. REv. 1153, 1164 (2009) (characterizing TILA prior to the Truth in Lending Simplification Act as complicated and difficult to understand); Renuart & Thompson, supra note 52, at 210 (describing the difficulty of determining the impact of fees on the annual percentage rate under the TILA disclosure scheme). 302. See, for example, § 101 of the Credit Card Act (advance notice of rate increase), and § 201 (pay

otftiming disclosures). Pub. L. No. 111-24, §§ 101,201, 123 Stat. 1734, 1735, 1743 (2009). 303. See, for example, the payoff timing disclosures informing the consumer of how many months it

will take the consumer to pay the entire balance if paying only the required minimum. Credit Card Act § 201(a). This type of disclosure is an example of those recommended by Rubin. Rubin, supra note 197, at 49-50. 304. Some believe disclosure is preferable to substantive provisions that will allegedly limit the

availability of consumer credit. Jeffiey Taft, Viewpoint: Disclosure Better Than Limiting Credit, AM. BANKER, May 9, 2008, available at 2008 WLNR 8665939. 305. Credit Card Act § 171. 306. Id. § 102. 307. Id. §§ 148, 172. 308. Id. § 105. 309. Id. § 301.

53




consumers have to make payments. 310 The Act also increasesstatutory damages in open end transactions. 311

In some important areas, the Act delegates to administrativeagencies the task of issuing regulations. For example, the Act doesnot regulate the amount of fees creditors may charge. This is arguablya major deficiency in the Act and in marked contrast to the MilitaryLending Act.3 12 Instead, the Act requires that penalty fees or charges"be reasonable and proportional to [the consumer's] omission orviolation." 313 The FRB is required to issue rules "to establishstandards for assessing" whether a fee or charge is reasonable andproportional.3 14 Those rules are crucial for consumers. Depending onhow the rules are drafted, they could protect consumers just as wellas rate regulation, or they could be so general that they provide nomeaningful protection. Under the Act, the FRB must consult with,inter alia, the OCC when drafting the rules. In the past, the OCC hasissued rules that basically permit national banks to charge whateverfees they want.315 If the OCC maintains this approach and the FRBagrees, this provision will provide no benefit to consumers.

Another example of the Act's delegation of a major area toregulation by the FRB is in regard to gift cards. The Act amends theEFTA by restricting dormancy fees and expiration dates. 316 However,the Act delegates to the FRB the task of issuing rules relating to theamount of dormancy fees and other charges that are permitted.3 17

Consumers' problems with gift cards are not confined to dormancyfees and short expiration dates, however. 318 If the EFTA applied to

310. Id. § 106.311. Credit Card Act § 107.312. 10 U.S.C. § 987 (Supp. 2009).313. Credit Card Act § 102(b) (adding § 149(a) to TILA).314. Credit Card Act § 149(b).315. 12 C.F.R. § 7.4002 (2009); see Best v. U.S. Nat'l Bank, 739 P.2d 554 (Or. 1987); Perdue v.

Crocker Nat'l Bank, 702 P.2d 503 (Cal. 1985).316. Credit Card Act § 401 (adding § 915 to EFTA).317. Id.318. Examples of other types of problems include liability for loss of funds due to defective card

readers, damage to cards, and unauthorized use of cards. In addition, there is the lack of a required errorresolution procedure, privacy protection, supervision of unregulated and uninsured issuers, and privaterights of action. See MODEL STORED VALUE CARD PROTECTION ACT (Nat'l Consumer Law Ctr.) for an

[Vol. 26:41200



consumers have to make payments.310 The Act also increases statutory damages in open end transactions. 3

I I

In some important areas, the Act delegates to administrative agencies the task of issuing regulations. For example, the Act does not regulate the amount of fees creditors may charge. This is arguably a major deficiency in the Act and in marked contrast to the Military Lending ACt.312 Instead, the Act requires that penalty fees or charges "be reasonable and proportional to [the consumer's] omission or violation.,,313 The FRB is required to issue rules "to establish standards for assessing" whether a fee or charge is reasonable and proportiona1.314 Those rules are crucial for consumers. Depending on how the rules are drafted, they could protect consumers just as well as rate regulation, or they could be so general that they provide no meaningful protection. Under the Act, the FRB must consult with, inter alia, the DCC when drafting the rules. In the past, the DCC has issued rules that basically permit national banks to charge whatever fees they want. 315 If the DCC maintains this approach and the FRB agrees, this provision will provide no benefit to consumers.

Another example of the Act's delegation of a major area to regulation by the FRB is in regard to gift cards. The Act amends the EFTA by restricting dormancy fees and expiration dates.316 However, the Act delegates to the FRB the task of issuing rules relating to the amount of dormancy fees and other charges that are permitted.317

Consumers' problems with gift cards are not confined to dormancy fees and short expiration dates, however.318 If the EFTA applied to

310. ld. § 106. 311. Credit Card Act § 107. 312. 10 U.S.C. § 987 (Supp. 2009). 313. Credit Card Act § 102(b)(adding § 149(a) to TILA). 314. Credit Card Act § 149(b). 315. 12 C.F.R. § 7.4002 (2009); see Best v. U.S. Nat'l Bank, 739 P.2d 554 (Or. 1987); Perdue v.

Crocker Nat'l Bank, 702 P.2d 503 (Cal. 1985). 316. Credit Card Act § 401 (adding § 915 to EFTA). 317. ld 318. Examples of other types of problems include liability for loss of funds due to defective card

readers, damage to cards, and unauthorized use of cards. In addition, there is the lack of a required error resolution procedure, privacy protection, supervision of unregulated and uninsured issuers, and private rights of action. See MODEL STORED VALUE CARD PROTECTION ACT (Nat'l Consumer Law Ctr.) for an

54




gift cards, consumers would have the benefit of substantialprotection. Congress gave to the FRB the responsibility to decidewhich, if any, portions of the EFTA will apply to gift cards. 319

Legislators believe some creditor practices are acceptable as longas they are disclosed. Some practices, however, are against publicpolicy and should be prohibited. In between are practices that arequestionable and that consumers should be able to avoid if they wishwithout being required to forego the opportunity to obtain creditaltogether. In regard to these "in between" practices, there has been agreat deal of controversy over whether to require consumers to takeaffirmative steps to opt out of these practices, or to make it far lesslikely consumers will be saddled with them by making theminoperative unless the consumer opts in.320 Significantly, the CreditCard Act provides the consumer-friendly opt-in approach to over-the-limit transactions.

321

As discussed above, technology has both benefited and harmedconsumers. 322 The Act uses the Internet to assist consumers byrequiring creditors to maintain Internet sites on which they must posttheir written agreements. 323

The Credit Card Act may, in retrospect, be viewed as theforerunner of a new stage in consumer protection legislation. The Acthas many positive features that will benefit consumers-meaningfuldisclosures, opt-in, and substantive protections. It is responsive to thecontention of consumer advocates' that more than disclosure isneeded to adequately protect consumers.324 There are certain majordeficiencies, however. For example, almost forty years after the ratecontroversy surrounding the UCCC and almost thirty years after

example of legislation dealing with these issues. BUDNITZ, SAUNDERS & SAUNDERS, supra note 186, at621-28.319. Credit Card Act § 401 (adding § 915 to EFTA).320. Eric Poggemiller, The Consumer Response to Privacy Provisions in Gramm-Leach-Bliley: Much

Ado About Nothing?, 6 N.C. BANKING INST. 617, 627-35 (2002); Jeff Sovem, Opting in, Opting out, orNo Option: The Fight for Control of Personal Information, 74 WASH. L. REv. 1033, 1075 (1999).

321. Credit Card Act § 102(k).322. See supra text accompanying notes 193-98.323. Credit Card Act § 204.324. Barak Y. Orbach, The New Regulatory Era-An Introduction, 51 ARIZ. L. REV. 559, 561 (2009)

(stating that the Credit Card Act bans "many practices that were customary until its enactment").



gift cards, consumers would have the benefit of substantial protection. Congress gave to the FRB the responsibility to decide which, if any, portions ofthe EFTA will apply to gift cards.319

Legislators believe some creditor practices are acceptable as long as they are disclosed. Some practices, however, are against public policy and should be prohibited. In between are practices that are questionable and that consumers should be able to avoid if they wish without being required to forego the opportunity to obtain credit altogether. In regard to these "in between" practices, there has been a great deal of controversy over whether to require consumers to take affirmative steps to opt out of these practices, or to make it far less likely consumers will be saddled with them by making them inoperative unless the consumer opts in.32o Significantly, the Credit Card Act provides the consumer-friendly opt-in approach to over-thelimit transactions.321

As discussed above, technology has both benefited and harmed consumers.322 The Act uses the Internet to assist consumers by requiring creditors to maintain Internet sites on which they must post their written agreements.323

The Credit Card Act may, in retrospect, be viewed as the forerunner of a new stage in consumer protection legislation. The Act has many positive features that will benefit consumers-meaningful disclosures, opt-in, and substantive protections. It is responsive to the contention of consumer advocates' that more than disclosure is needed to adequately protect consumers.324 There are certain major deficiencies, however. For example, almost forty years after the rate controversy surrounding the UCCC and almost thirty years after

example of legislation dealing with these issues. BUONITZ, SAUNDERS & SAUNDERS, supra note 186, at 621-28. 319. Credit Card Act § 401 (adding § 915 to EFTA). 320. Eric Poggemiller, The Consumer Response to Privacy Provisions in Gramm-Leach-Bliley: Much

Ado About Nothing?, 6 N.C. BANKING lNST. 617, 627-35 (2002); JeffSovem, Opting in. Opting out. or No Option: The Fightfor Control of Personal Information, 74 WASH. L. REv. 1033,1075 (1999). 321. Credit Card Act § 102(k). 322. See supra text accompanying notes 193-98. 323. Credit Card Act § 204. 324. Barak Y. Orbach, The New Regulatory Era-An Introduction, 51 ARIZ. L. REv. 559, 561 (2009)

(stating that the Credit Card Act bans "many practices that were customary until its enactment").

55




federal deregulation of interest rates, there is, generally, no federalregulation of the rates, charges and fees that creditors may impose.325

While the Credit Card Act prohibits specific overreaching practicesin which creditors have been engaged, it is likely creditors willdevelop new practices that are not specifically banned in the Act and

326fail to clearly disclose the costs and risks of those new practices.Creditors will implement these new practices because their businessmodel depends on collecting late fees from consumers who pay

327late. Moreover, the Act does nothing to restrict creditors fromforcing consumers into creditor-friendly arbitration in whicharbitrators are not required to follow any law, much less the new Act.Finally, crucial provisions are delegated to administrative agencies.Based on past experience, there is always the possibility they willissue regulations that provide little relief for consumers.

President Obama's proposed Consumer Financial ProtectionAgency Act of 2009 (CFPA) appears to be based, in part, on thebelief that those agencies cannot be trusted to adequately protectconsumers. 328 By transferring all of the consumer financial protectionfunctions of federal agencies to a new agency 329 as well as personnelengaged in consumer protection in those agencies, 330 the CFPA, in

325. RENUART & KEEST-CREDT, supra note 62, at 42-43,46-47.326. See James Surowiecki, Caveat Mortgagor, NEW YORKER, July 6, 2009, available at

http://www.newyorker.com/talk/fmancial/2009/07/06/090706ta-talk-surowiecki ("[Kieeping customersconfused often seems to be a business strategy.").

327. James Surowiecki, House of Cards, NEW YORKER, Mar. 16, 2009, at 45. See generally EricDash, Bank Fees Rise As Lenders Try to Offset Losses, N.Y. TIMES, July 1, 2009.

328. Proposed Consumer Financial Protection Agency Act (CFPA) of 2009,www.financialstability.gov/docs/CFPA-Act.pdf (last visited Mar. 28, 2010) (proposed by PresidentObama). A somewhat modified version was submitted in the House. CFPA, H.R. 3126, 1 ith Cong. (asintroduced by House, July 8, 2009). The text discusses the president's proposal because anaccompanying Treasury Department Report sheds light on the rationale for some of the proposals in thatproposal. Professor Elizabeth Warren provided scholarly support for these proposals before the 2008elections. Elizabeth Warren, Making Credit Safer: The Case for Regulation, HARV. MAG., May-June2008, at 34. Some claim the FRB had adequate notice of the coming mortgage crisis as early as 2002and could have taken steps to ameliorate the problem. Jon C. Gamboa & Robert Gnaizda, Viewpoint:Fed Had Plenty of Warning on Mortgage Issues, AM. BANKER, Sept. 21, 2007, at 1I, available at 2007WLNR 18470317. In 2008, the FRB issued regulations to crack down on abusive credit card practices,but some claimed it did so only as a result of pressure from Congress, the threat of Congressionallegislative action, and the loss of credibility. Steven Sloan, In Focus: In Fed's Regulatory Curriculum, ACourse in Political Calculus, AM. BANKER, May 12, 2008, available at 2008 WLNR 8773817.329. CFPA § 1061.330. Id. at 1064.

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federal deregulation of interest rates, there is, generally, no federal regulation of the rates, charges and fees that creditors may impose.325

While the Credit Card Act prohibits specific overreaching practices in which creditors have been engaged, it is likely creditors will develop new practices that are not specifically banned in the Act and fail to clearly disclose the costs and risks of those new practices.326

Creditors will implement these new practices because their business model depends on collecting late fees from consumers who pay late.327 Moreover, the Act does nothing to restrict creditors from forcing consumers into creditor-friendly arbitration in which arbitrators are not required to follow any law, much less the new Act. Finally, crucial provisions are delegated to administrative agencies. Based on past experience, there is always the possibility they will issue regulations that provide little relief for consumers.

President Obama's proposed Consumer Financial Protection Agency Act of 2009 (CFPA) appears to be based, in part, on the belief that those agencies cannot be trusted to adequately protect consumers.328 By transferring all of the consumer financial protection functions of federal agencies to a new agency29 as well as personnel engaged in consumer protection in those agencies,330 the CFP A, 10

325. RENtiART & KEEST-CREDIT, supra note 62, at 42-43, 46-47. 326. See James Surowiecki, Caveat Mortgagor, NEW YORKER, July 6, 2009, available at

http://www.newyorker.comltalklfmanciaV2009/07/06/090706ta_talk _ surowiecki ("[K]eeping customers confused often seems to be a business strategy."). 327. James Surowiecki, House of Cards, NEW YORKER, Mar. 16, 2009, at 45. See generally Eric

Dash, Bank Fees Rise As Lenders Try to Offset Losses, N.Y. TiMES, July 1,2009. 328. Proposed Consumer Financial Protection Agency Act (CFPA) of 2009,

www.financialstability.gov/docS/CFPA-Act.pdf (last visited Mar. 28, 2010) (proposed by President Obama). A somewhat modified version was submitted in the House. CFPA, H.R. 3126, Illth Congo (as introduced by House, July 8, 2009). The text discusses the president's proposal because an accompanying Treasury Department Report sheds light on the rationale for some of the proposals in that proposal. Professor Elizabeth Warren provided scholarly support for these proposals before the 2008 elections. Elizabeth Warren, Making Credit Safer: The Case for Regulation, HARV. MAG., May-June 2008, at 34. Some claim the FRB had adequate notice of the coming mortgage crisis as early as 2002 and could have taken steps to ameliorate the problem. Jon C. Gamboa & Robert Gnaizda, Viewpoint: Fed Had Plenty of Warning on Mortgage Issues, AM. BANKER, Sept. 21, 2007, at II, available at 2007 WLNR 18470317. In 2008, the FRB issued regulations to crack down on abusive credit card practices, but some claimed it did so only as a result of pressure from Congress, the threat of Congressional legislative action, and the loss of credibility. Steven Sloan, In Focus: In Fed's Regulatory Curriculum, A Course in Political Calculus, AM. BANKER, May 12,2008, available at 2008 WLNR 8773817. 329. CFPA § 1061. 330. Id. at 1064.

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effect, rejects the suitability of the current structure. The TreasuryDepartment's report accompanying the CFPA bill describes thedeficiencies in the current regulatory system.331 The new agencywould overcome these deficiencies, for example, by having widejurisdiction over financial companies, whether or not they are ownedby banks. Its sole mission would be protecting consumers. Incontrast, agencies such as the OCC and Office of Thrift Supervision(OTS) have a potentially conflicting primary mission of ensuring thesafety and soundness of financial institutions. The FRB's primaryresponsibility is to set monetary policy.

One of the major impediments to consumer protection has beenOCC's and OTS's preemption of state law and consequent blockingof state enforcement of that law. 332 A 2009 Supreme Court case is amajor victory for consumer protection because the Court held federalagencies cannot preempt state enforcement of substantive statelaw.333 The decision, however, did not provide any guidance on howto resolve a dispute where a federal agency claims a state lawconflicts with federal banking law. That is an issue for Congress todecide. Moreover, the legislature is better suited than the courts to

331. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 56 (pointing out the FTC'sjurisdictional limits; the banking agencies' proclivity to "see the world through the lenses of institutionsand markets, not consumers"; the opportunities for "regulatory arbitrage" in which firms choose theleast aggressive regulator; and state and federal bank supervisory agencies' mandate to ensure "financialinstitutions act prudently, a mission that . . . often conflicts with their consumer protectionresponsibilities").

332. Keith R. Fisher, Toward a Basal Tenth Amendment: A Riposte to National Bank Preemption of

State Consumer Protection Laws, 29 HARV. J.L. & PUB. POL'Y 981 (2006); Arthur E. Wilmarth, Jr., TheOCC'S Preemption Rules Exceed the Agency's Authority and Present a Serious Threat to the DualBanking System and Consumer Protection, 23 ANN. REV. BANKING & FIN. L. 225 (2004).

333. Cuomo v. Clearing House Ass'n, 129 S. Ct. 2710, 2717 (2009) (holding that the OCC canpreempt state law that relates to its visitorial powers, but not state enforcement of substantive state law).

While a victory for consumer protection by permitting state enforcement, the Court's holding that statescannot usurp agencies' visitorial authority precludes state agency investigations, including subpoenapower, and requires states to go to court and engage in discovery. Absent the power to subpoena orotherwise examine bank records, it may not be possible in many cases for states to gather enoughevidence of violations to justify filing a lawsuit. Cheyenne Hopkins, States Win in Supreme Surprise,AM. BANKER, June 30, 2009, at 1-2, available at 2009 WLNR 12419230 (observing that the Cuomodecision limits the powers of state attorneys general). Furthermore, it is not always clear when the stateis exercising its enforcement authority and not its visitorial powers. Cheyenne Hopkins, A Preemption ofClarity, Court Ruling Raises Enforcement Questions, AM. BANKER, July 14, 2009, at 1, 9, available at2009 WLNR 13329429.



effect, rejects the suitability of the current structure. The Treasury Department's report accompanying the CFPA bill describes the deficiencies in the current regulatory system.331 The new agency would overcome these deficiencies, for example, by having wide jurisdiction over financial companies, whether or not they are owned by banks. Its sole mission would be protecting consumers. In contrast, agencies such as the OCC and Office of Thrift Supervision (OTS) have a potentially conflicting primary mission of ensuring the safety and soundness of financial institutions. The FRB's primary responsibility is to set monetary policy.

One of the major impediments to consumer protection has been OCC's and OTS's preemption of state law and consequent blocking of state enforcement of that law. 332 A 2009 Supreme Court case is a major victory for consumer protection because the Court held federal agencies cannot preempt state enforcement of substantive state law.333 The decision, however, did not provide any guidance on how to resolve a dispute where a federal agency claims a state law conflicts with federal banking law. That is an issue for Congress to decide. Moreover, the legislature is better suited than the courts to

331. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION: REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 56 (pointing out the FTC's jurisdictional limits; the banking agencies' proclivity to "see the world through the lenses of institutions and markets, not consumers"; the opportunities for "regulatory arbitrage" in which fums choose the least aggressive regulator; and state and federal bank supervisory agencies' mandate to ensure "financial institutions act prudently, a mission that . . . often conflicts with their consumer protection responsibilities").

332. Keith R. Fisher, Toward a Basal Tenth Amendment: A Riposte to National Bank Preemption of State Consumer Protection Laws, 29 HARv. J.L. & PuB. POL'y 981 (2006); Arthur E. Wilmarth, Jr., The OCC's Preemption Rules Exceed the Agency's Authority and Present a Serious Threat to the Dual Banking System and Consumer Protection, 23 ANN. REv. BANKING & FIN. L. 225 (2004).

333. Cuomo v. Clearing House Ass'n, 129 s. Ct. 2710, 2717 (2009) (holding that the OCC can preempt state law that relates to its visitorial powers, but not state enforcement of substantive state law). While a victory for consumer protection by permitting state enforcement, the Court's holding that states cannot usurp agencies' visitorial authority precludes state agency investigations, including subpoena power, and requires states to go to court and engage in discovery. Absent the power to subpoena or otherwise examine bank records, it may not be possible in many cases for states to gather enough evidence of violations to justify filing a lawsuit. Cheyenne Hopkins, States Win in Supreme Surprise, AM. BANKER, June 30, 2009, at 1-2, available at 2009 WLNR 12419230 (observing that the Cuomo decision limits the powers of state attorneys general). Furthermore, it is not always clear when the state is exercising its enforcement authority and not its visitorial powers. Cheyenne Hopkins, A Preemption of Clarity, Court Ruling Raises Enforcement Questions, AM. BANKER, July 14,2009, at I, 9, available at 2009 WLNR 13329429.

57




make that determination because legislation can provide standards forwhen preemption is appropriate, and in setting the standardsCongress can take into account the entire regulatory infrastructurewhich is affected by preemption, the proper role of federalism andstates' rights, and the effect on financial markets.

The CFPA seeks to do that.334 The general principle establishedunder the CFPA is that the Act does not alter state law unless it isinconsistent with the CFPA, "and then only to the extent of theinconsistency. '" 335 Furthermore, a state law is not inconsistent if itprovides greater consumer protection than that provided under theCFPA.33 6 The CFPA also clarifies the power of the states to enforcestate consumer laws of general application against institutions subjectto federal financial regulation. For example, state consumer lawsrelating to unfair and deceptive practice, fraud, repossessions,foreclosure, and collection law apply to national banks.337

The CFPA grants the new agency extensive powers to investigateconduct that may violate the CFPA.338 It can conduct hearings andadjudication proceedings.339 The agency can bring civil actions, usingits own attorneys.340 These powers are essential, given the severerestrictions placed on private enforcement, including forcedarbitration.

34 1

The CFPA does not prohibit mandatory pre-dispute arbitration, butgrants the new agency the power to "prohibit or impose conditions orlimitations on the use" of such agreements. 342 The standards fordoing so are quite vague. The agency can take any of the actionsspecified if they "are in the public interest and for the protection of

334. CFPA subtit. D. See Cheyenne Hopkins, Industy Is Underdog in Fight over New Agency, AM.BANKER, July 1, 2009, at 1, 3, available at 2009 WLNR 12492225 (reporting that the banking industrystrongly opposed the preemption provision, but believed the Cuomo case made opposition more difficultbecause the decision upheld states' enforcement actions against banks).

335. CFPA § 1041(a)(1).336. Id. § 1041(a)(2).337. Id. § 1043 (adding 12 U.S.C. § 5136C).338. Id. § 1051.339. Id. § 1053.340. Id. § 1054341. See supra text accompanying notes 158-70. But see notes 171-75 and accompanying text.342. CFPA § 1025.

1204 [Vol. 26:4



make that determination because legislation can provide standards for when preemption is appropriate, and in setting the standards Congress can take into account the entire regulatory infrastructure which is affected by preemption, the proper role of federalism and states' rights, and the effect on financial markets.

The CFP A seeks to do that. 334 The general principle established under the CFP A is that the Act does not alter state law unless it is inconsistent with the CFP A, "and then only to the extent of the inconsistency.,,335 Furthermore, a state law is not inconsistent if it provides greater consumer protection than that provided under the CFP A. 336 The CFP A also clarifies the power of the states to enforce state consumer laws of general application against institutions subject to federal financial regulation. For example, state consumer laws relating to unfair and deceptive practice, fraud, repossessions, foreclosure, and collection law apply to national banks.337

The CFP A grants the new agency extensive powers to investigate conduct that may violate the CFP A. 338 It can conduct hearings and adjudication proceedings.339 The agency can bring civil actions, using its own attorneys.340 These powers are essential, given the severe restrictions placed on private enforcement, including forced arbitration. 34 I

The CFP A does not prohibit mandatory pre-dispute arbitration, but grants the new agency the power to "prohibit or impose conditions or limitations on the use" of such agreements.342 The standards for doing so are quite vague. The agency can take any of the actions specified if they "are in the public interest and for the protection of

334. CFPA subtit D. See Cheyenne Hopkins, Industry Is Underdog in Fight over New Agency, AM. BANKER, July 1,2009, at 1,3, available at 2009 WLNR 12492225 (reporting that the banking industry strongly opposed the preemption provision, but believed the Cuomo case made opposition more difficult because the decision upheld states' enforcement actions against banks). 335. CFPA § 1001(a)(I). 336. /d. § 1041(a)(2). 337. Id. § 1043 (adding 12 U.S.C. § 5136C). 338. Id. § 1051. 339. Id. § 1053. 340. Id § 1054 341. See supra text accompanying notes 158-70. But see notes 171-75 and accompanying text. 342. CFPA § 1025.

58




consumers." 343 The Treasury report provides an explanation for thisprovision. It first notes that consumers do not know that the formcontracts they sign when taking out a loan waives their right to atrial.3 " It may be true that many consumers do not fully realize thesignificance of this waiver, but many lenders disclose the waiverclearly. Far more significant is the fact, not mentioned in the report,that whether or not consumers see or understand the waiver, theyhave no choice since the waivers are practically universal.345 Thereport does point out another important feature, however, stating thatthe dispute is heard by "a private party dependent on large firms[lenders] for their business." 346 The report says the new agencyshould determine if arbitrations "promote fair adjudication andeffective redress" and should ban the clauses if necessary.347 Makingthat determination may prove challenging since the results ofarbitration proceedings are private, except in California where thelaw requires disclosure of limited information. 348 Nevertheless,merely looking at the language of the clauses may provide sufficientinformation to justify agency action. Requiring that the arbitrationtake place only in one location in the United States, regardless ofwhere the consumer lives, and banning class actions are examples ofclauses that may indicate the arbitration will not be fair and theconsumer may not be able to obtain adequate redress.

While this provision should be comforting to critics of consumerarbitration, it does not go nearly as far as current law in regard tomilitary personnel where arbitration is prohibited altogether in regardto pay day loans.349 The CFPA also is not as sweeping as the pending

343. Id.344. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 62.345. Alderman, supra note 158, at 154.346. DEP'T. OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FNANCIAL SUPERVISION AND REGULATION, supra note 87, at 62; see Rossman Testimony,supra note 264 (testifying that arbitration services make money by convincing businesses to select theirservices).

347. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 62.348. CAL. CIV. PROC. CODE § 1281.9 (2003).

349. 10 U.S.C. § 987(e) (Supp. 2009). The Department of Defense issued regulations limiting thestatute to pay day loans, vehicle title loans, and tax refund loans. 32 C.F.R. § 232 (2009).

1205



consumers. ,,343 The Treasury report provides an explanation for this provision. It fIrst notes that consumers do not know that the form contracts they sign when taking out a loan waives their right to a trial.344 It may be true that many consumers do not fully realize the signifIcance of this waiver, but many lenders disclose the waiver clearly. Far more signifIcant is the fact, not mentioned in the report, that whether or not consumers see or understand the waiver, they have no choice since the waivers are practically universal. 345 The report does point out another important feature, however, stating that the dispute is heard by "a private party dependent on large fIrms [lenders] for their business.,,346 The report says the new agency should determine if arbitrations "promote fair adjudication and effective redress" and should ban the clauses if necessary.347 Making that determination may prove challenging since the results of arbitration proceedings are private, except in California where the law requires disclosure of limited information.348 Nevertheless, merely looking at the language of the clauses may provide suffIcient information to justify agency action. Requiring that the arbitration take place only in one location in the United States, regardless of where the consumer lives, and banning class actions are examples of clauses that may indicate the arbitration will not be fair and the consumer may not be able to obtain adequate redress.

While this provision should be comforting to critics of consumer arbitration, it does not go nearly as far as current law in regard to military personnel where arbitration is prohibited altogether in regard to pay day loans.349 The CFP A also is not as sweeping as the pending

343. !d. 344. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 62. 345. Aldennan, supra note 158, at 154. 346. DEP'T. OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 62; see Rossman Testimony, supra note 264 (testifying that arbitration services make money by convincing businesses to select their services). 347. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 62. 348. CAL. CIY. PROC. CODE§ 1281.9 (2003). 349. 10 U.S.C. § 987(e) (Supp. 2009). The Department of Defense issued regulations limiting the

statute to pay day loans, vehicle title loans, and tax refund loans. 32 C.F.R. § 232 (2009).

59




Arbitration Fairness Act of 2009 that bans all predispute arbitrationagreements.

350

On a more abstract level, the Treasury Department's reportsuggests the institutionalization of the consumer movement is farfrom complete and one goal of the CFPA bill is to further thatinstitutionalization. The report proclaims: "Consumer protection is acritical foundation for our financial system." 351 In order to ensure thatconsumer protection is given its due, it must have "an independentseat at the table in our financial regulatory system.', 352 The publicmust have "confidence that consumer protection is important toregulators," 353 and that requires "clear accountability in government"for consumer protection. 354 The report recognizes that it is notsufficient merely to grant regulatory authority to agencies. "[W]eneed first to instill that culture [of consumer protection] in the federalregulatory structure., 355 The ultimate goal is for consumer protectionto be part of the culture of the entire society, so that financialinstitutions not only comply with agency rules, but "the financialsystem develops and sustains a culture that places a high value onhelping responsible consumers thrive and treating all consumersfairly."356 In other words, the institutionalization must occur at alllevels: the public, government agencies, and even financialinstitutions.

CONCLUSION

It is too soon to know if recent progress in extending consumerprotection, such as the Military Lending Law, the Credit Card Act,and the proposed Consumer Financial Protection Agency Act will

350. Arbitration Fairness Act of 2009, H.R. 1020, 11 1th Cong. (2009). The bill also bans predisputearbitration of employment and franchise disputes or disputes arising under statutes to protect civil rights.

351. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:REBUILDING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 7.

352. Id. at 56.353. Id.354. Id.355. Id.356. Id.

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Arbitration Fairness Act of 2009 that bans all predispute arbitration agreements.350

On a more abstract level, the Treasury Department's report suggests the institutionalization of the consumer movement is far from complete and one goal of the CFP A bill is to further that institutionalization. The report proclaims: "Consumer protection is a critical foundation for our financial system.,,351 In order to ensure that consumer protection is given its due, it must have "an independent seat at the table in our financial regulatory system.,,352 The public must have "confidence that consumer protection is important to regulators,,,353 and that requires "clear accountability in government" for consumer protection.354 The report recognizes that it is not sufficient merely to grant regulatory authority to agencies. "[W]e need first to instill that culture [of consumer protection] in the federal regulatory structure. ,,355 The ultimate goal is for consumer protection to be part of the culture of the entire society, so that financial institutions not only comply with agency rules, but "the financial system develops and sustains a culture that places a high value on helping responsible consumers thrive and treating all consumers fairly.,,356 In other words, the institutionalization must occur at all levels: the public, government agencies, and even financial institutions.

CONCLUSION

It is too soon to know if recent progress in extending consumer protection, such as the Military Lending Law, the Credit Card Act, and the proposed Consumer Financial Protection Agency Act will

350. Arbitration Fairness Act of 2009, ".R. 1020, III th Congo (2009). The bill also bans predispute arbitration of employment and franchise disputes or disputes arising under statutes to protect civil rights. 351. DEP'T OF TIlE TREASURY, FINANCIAL REGULATORY REFORM, A NEW FOUNDATION:

REBUIWING FINANCIAL SUPERVISION AND REGULATION, supra note 87, at 7. 352. [d. at 56. 353. [d. 354. [d. 355. [d. 356. [d.

60




result in significant and long-term benefits to consumers. Forexample, Congress may fail to enact the Consumer FinancialProtection Agency Act and once the current financial crisis is over,the federal agencies may return to their lackluster efforts to protectconsumers. Credit card issuers may develop new techniques forunfairly imposing credit costs that consumers cannot understand andcannot avoid if all companies impose them. Technology may alwaysbe well ahead of regulation as the payments industry develops newpayment devices and processing systems. Cyber criminals may posean ever-increasing threat to the entire financial system.357

Despite the inevitable setbacks for consumers, this article contendsthat consumer protection law is institutionalized and is part of asocial movement. Furthermore, the movement's goals have becomeembedded in society's values. If that is correct, there will continue tobe organizations as well as individual lawyers who will use the legalsystem to push back those who try to abuse the marketplace, prodregulators to enforce the law more aggressively, persuade judges andjuries to find predatory businesses liable, and pull legislators towardmore effective consumer protection laws.358

357. E.g., Rhonda Cook, International Hackers Stole $9.4 Million in One Day, ATLANTA J.-CONST.,Nov. 11, 2009, at B1.

358. The journey of the proposed federal consumer agency through Congress illustrates the majorsetbacks that can occur. E.g., Stacy Kaper, House Deal Bolsters Defense of Preemption, AM. BANKER,Dec. 11, 2009, available at 2009 WLNR 24944239 (reporting that the House bill was amended to permitthe OCC to preempt state consumer protection laws from applying to national banks); Legislative

Update, AM. BANKER, Dec. 10, 2009, available at 2009 WLNR 24841590 (reporting that severalindustries had been exempted from coverage under the House bill, including "auto dealers,manufactured home brokers, realty agents, lawyers, accountants, mutual funds, and credit, title andmortgage insurance agents").

1207



result in significant and long-tenn benefits to consumers. For example, Congress may fail to enact the Consumer Financial Protection Agency Act and once the current financial crisis is over, the federal agencies may return to their lackluster efforts to protect consumers. Credit card issuers may develop new techniques for unfairly imposing credit costs that consumers cannot understand and cannot avoid if all companies impose them. Technology may always be well ahead of regulation as the payments industry develops new payment devices and processing systems. Cyber criminals may pose an ever-increasing threat to the entire financial system.357

Despite the inevitable setbacks for consumers, this article contends that consumer protection law is institutionalized and is part of a social movement. Furthermore, the movement's goals have become embedded in society's values. If that is correct, there will continue to be organizations as well as individual lawyers who will use the legal system to push back those who try to abuse the marketplace, prod regulators to enforce the law more aggressively, persuade judges and juries to find predatory businesses liable, and pull legislators toward more effective consumer protection laws.358

357. E.g., Rhonda Cook, International Hackers Stole $9.4 Million in One Day, ATLANTA J.-CONST., Nov. Il, 2009, at BI. 358. The journey of the proposed federal consumer agency through Congress illustrates the major

setbacks that can occur. E.g., Stacy Kaper, House Deal Bolsters Defense of Preemption, AM. BANKER, Dec. 11,2009, available at 2009 WLNR 24944239 (reporting that the House bill was amended to permit the OCC to preempt state consumer protection laws from applying to national banks); Legislative Update, AM. BANKER, Dec. 10, 2009, available at 2009 WLNR 24841590 (reporting that several industries had been exempted from coverage under the House bill, including "auto dealers, manufactured home brokers, realty agents, lawyers, accountants, mutual funds, and credit, title and mortgage insurance agents").

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