Consumer Advocate Legal Update : Class Action Lawyers & Attorneys : Khorrami Pollard & Abir Law Firm : Mass Torts, Products Liability

Last week, Wal-Mart settled a lawsuit with millions of current and former customers of Netflix for illegally colluding with Netflix to stay out of each other’s markets. Wal-Mart agreed to back out of offering DVD rentals by mail, and Netflix agreed to endorse Wal-Mart’s DVD sales. A group of Netflix customers filed suit against Wal-Mart and Netflix over the deal, alleging illegal collusion. Collusion is an agreement to limit competition in a market, which has the effect of guaranteeing larger market shares and keeping prices high in that market. Many, but not all, of these agreements are illegal under U.S. antitrust laws.

Wal-Mart has agreed to settle the lawsuit, but Netflix is continuing to fight. There is a website online for more details of the settlement here: https://onlinedvdclass.com/. Current and former customers of Netflix who paid a subscription between May 19, 2005 and September 2, 2011 can file a claim here: https://onlinedvdclass.com/ClaimForm.aspx.

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Imagine being able to win a new television set for less than 10% of the retail price just by outbidding other people online in one cent increments. If this sounds like there is a catch, there is. A big catch. The winner of the auction pays the final price that he or she bid, but each bid costs between $0.50 and $1.00 per penny bid. Each bid is non-refundable, so a bidder may spend a good deal of money bidding for a product that they never win. Further, new bids increase the time of an auction by 15 to 30 seconds, so a last minute bidding war can extend an auction by several hours past its original deadline.

Although there are a few good deals to be had with less popular auctions, many penny auction sites also have hidden traps. According to the FTC, some penny auction sites use automated computer scripts (bots and shills) to drive up the price of auctions automatically to prevent any good deals. Some sites are phishing sites that steal financial information.  According to the Better Business Bureau, there are also numerous hidden costs. One such scheme involved bonus “free” offers that end up costing money.

Consumer Reports offers useful tips on how to use penny bidding sites without getting ripped off. First, verify that the penny bidding site is legitimate through user reviews and complaints to the Better Business Bureau. Next, make sure that the site allows unlimited refunds of purchased bids and allows placed bids to be used towards a purchase of the item, commonly known as a “buy it now” option. Finally, be prepared to lose the amounts that you have placed in bids. Or better yet, watch for sales online and in stores through deal hunting web sites like FatWallet and Slickdeals!

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OnStar, an in-vehicle security, communications, and navigation system for GM vehicles, altered its terms and conditions this week. Formerly, OnStar only used customer GPS data for recovering stolen vehicles, providing user-requested directions, and contacting emergency services in case of a vehicle collision. The new terms and conditions allow OnStar to sell customer data, including GPS location data, speed, seatbelt use, and other information. OnStar claims that all sold data will be anonymous. Potential interested parties include law enforcement and insurance companies. Worse, this data will be transmitted even if the customer cancels his or her service. The only way to prevent the data from being transferred is to contact OnStar directly to opt out or manually disable the data transmitter.

Potentially, OnStar’s service can be useful even if the vehicle’s owner is not a subscriber. OnStar can remotely disable stolen vehicles. Their recent press release, discouraging the manual disconnection of OnStar hardware, claims that they will provide alerts to severe weather conditions and recall or warranty issues.

Some people are suspicious of the limits of OnStar’s data collection powers, claiming that OnStar could use the two-way communications in GM vehicles for nefarious purposes. Also, “anonymous” data is rarely totally anonymous, as many people use their vehicles primarily to drive between work and home. Thus, law enforcement and insurance companies could keep closer eyes on GM customers than most people would be comfortable with.

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Scammers are targeting those purchasing green technology. Recently, there have been hundreds of complaints about contractors ripping off customers with solar panel sales. Many people are not as familiar with solar panels as more traditional home improvement projects, so scammers take advantage of consumers’ lack of information. Charles Bohmfalk paid over $7,000 for wind and solar panels that never generated any power, despite being promised $1,000 of power savings annually. The installing contractors ignored his complaints. Another man paid $12,000 for solar panels and was promised $2,000 in rebates, which was never paid, despite a year of constant complaints.

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Today, the United States Supreme Court issued its much-anticipated ruling in AT&T Mobility LLC v Conception. The holding is not favorable to consumers as it finds that the California Supreme Court ruling in Discovery Bank, which outlawed class action bans in many consumer contracts, is preempted by the Federal Arbitration Act (“FAA”) because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The 5-4 decision, authored by Justice Scalia, is split along predictable lines, with Justices Roberts, Kennedy, Thomas and Alito joining the majority opinion.

This case was brought in federal court by the Concepcions, who entered into a cell phone agreement with AT&T, and who claimed that AT&T had engaged in false advertising and fraud by charging sales tax on “free” phones. The contract provided for arbitration of all disputes between the parties, but required that claims be brought in the parties’ individual capacity, and not as a plaintiff or class member in any purported class or representative capacity, in other words, a class action ban. AT&T moved to compel the case to arbitration, but the federal trial court and Ninth Circuit Court of Appeals refused, finding the class action ban unconscionable, citing the California Supreme Court decision in Discovery Bank v Superior Court, 36 Cal 4^th 148 (2005).  The Ninth Circuit also found that Discover Bank was not preempted by the FAA because it was a refinement of the unconscionability analysis to contracts generally in California and section 2 of the FAA permits arbitration agreements to be not enforced “upon such grounds as exist at law or in equity for the revocation of any contract.”

The U.S. Supreme Court disagreed finding that section 2’s saving clause preserves generally contract defenses, but does not preserve state law rules that stand as an obstacle to the accomplishment of the FAA’s objectives to enforce arbitration agreements according to their terms to facilitate an informal streamlined procedure proceeding. However, as Justice Breyer pointed out in dissent, “a single class proceeding is surely more efficient than thousands of separate proceedings for identical claims. Thus, if speedy resolution of disputes were all that mattered, then the Discover Bank rule would reinforce, not obstruct, that objective of the Act.”

The opinion is an example of the conservative majority of the court siding with big business against the rights of consumers. The decision’s impact on class action litigation could be far reaching because it is hard to envision any company not wanting to capitalize on the decision by inserting class action bans in the fine print of their boilerplate arbitration contracts. Class actions are one of the few swords that consumers hold against big business and are often the only tool to meaningful recovery and a change to an unlawful corporate practice.

For more information about the underlying case see this previous blog post, this blog post and this article in the firm's Newsletter.

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 This infographic is an excellent summary of the major problems of the for-profit education sector: high student fees, low graduation rates, high pressure sales tactics, and big profits. Many of these high pressure sales tactics have been found to be violations of California’s unfair competition law in Business and Professions Code §17200 and similar provisions in other states.

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Everyone has heard about the lawsuit filed McDonald's by a consumer who complained that her coffee was too hot.  It's referred to by legislators, lawyers and the public as the prime example of frivolous litigation.  The truth about the lawsuit, however, is surprising.  In fact, the Plaintiff was a passenger in the vehicle (not the driver as has been widely reported) and suffered third-degree burns) over 6 percent of her body, including her inner thighs, perineum, buttocks, and genital and groin areas. She was hospitalized for eight days after the incident.  This was no minor injury.  Especially when McDonald's had already received more than 700 reports of people being burned by the coffee, knew that they required their coffee to be served at 40-50 degrees higher than what would cause burns to the mouth and throat, and still refused to lower the temperature of their coffee.  For a full description of the facts of the case, go here.

The documentary "Hot Coffee", introduced at the Sundance Film Festival this year, exposes the true facts of the case, and tries to provide better insight into the tort reform attempts sweeping our nation.   One can only hope that it gets wider distribution so that the public understands what really happened in this action.

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If you use a credit card, you’ve almost certainly been asked to provide your ZIP code when processing the transaction. Yesterday, the California Supreme Court ruled in Pineda v Williams Sonoma Stores, Inc. 2011 LEXIS 1355 (Feb. 10, 2011) that the collection of a ZIP code violates California Civil Code §1747.08, (Credit Card Act), thereby subjecting the retailer to maximum penalties of $250 for the first violation and $1000 for subsequent violations. The Supreme Court reversed a Court of Appeal finding otherwise.

Justice Moreno, writing for the Court, found that in light of the statute's plain language, protective purpose, and legislative history, a ZIP code constitutes "personal identification information" as that phrase is used in section 1747.08. Thus, requesting and recording a cardholder's ZIP code, without more, violates the Credit Card Act.

Justice Moreno sought to quell concerns of possible financial ruin expressed by the business community by noting that the Supreme Court had already held that section 1747.08, subdivision (e), "does not mandate fixed penalties; rather, it sets maximum penalties and that the amount of such penalties. Linder v. Thrifty Oil Co. 23 Cal.4th 429, 448. (2000). Moreover, many consumer class action settlements do not provide the payment of monetary penalties but rather provide for the award of a gift card to the consumer as compensation.

The Court also noted that Section 1747.08 contains some exceptions permitting the collection of ZIP code information, including when a credit card is being used as a deposit or for cash advances, when the entity accepting the card is contractually required to provide the information to complete the transaction or is obligated to record the information under federal law or regulation, or when the information is required for a purpose incidental to but related to the transaction, such as for shipping, delivery, servicing, or installation.

Finally, and very significantly, the Supreme Court rejected Williams-Sonoma’s request that its decision not be applied retroactively because Williams-Sonoma claimed it was operating under the assumption that its conduct was legal. The Supreme Court held that a single Court of Appeal decision could not provide a basis to depart from rule that opinions apply retrospectively.

Accordingly, this important decision protecting the privacy of California consumers brings life to more than a dozen class actions filed several years ago against various retailers who collected and recorded ZIP codes. It will likely spur more given the prevalence of the practice and the significant penalties for violating the statute.

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   Clad in Cheeseheads and Steel Curtain t-shirts, the football faithful flocked to Arlington, Texas this past Sunday for the forty-fifth annual competition between the two top teams in the NFL. Despite many nearly being unable to attend due to snowstorms across the nation cancelling 300 flights into Dallas-Fort Worth Airport, many airlines gave priority to those travelling to the Super Bowl. Tickets with face values of $800 were being resold by scalpers at triple that value initially and rising to $4,000 for non-premium seats shortly before game time. Some even paid $200 just to watch the game on the jumbo screen outside of the stadium in the cold. Despite an estimated $170 million being generated just by the sale of all seats and luxury suites, somehow 1,250 seats were never set up, leaving 850 people in alternate seats and 400 without any seats at all.

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Recently, a class action lawsuit was filed against Quibids, LLC in the United States District Court for the Western District of Oklahoma. The penny auction website Quibids.com allows consumers to purchase ‘bids’ that can be used in online auctions. The catch is that the company alleges that consumers purchasing items through the bidding process obtain those items at steep discount prices. The lawsuit alleges that in reality, the website is nothing more than a gambling scheme. The claim is that the majority of customers using the site lose money because the total amount they spend between purchasing bids, paying for items in auctions that they win and paying for items using the website’s “Buy It Now” feature exceeds the retail value of the items as stated on the site. In many cases consumers don’t win and don't receive any items, and in turn lose money for each bid purchased.  Consumers should beware of this site and realize that although it purports to be an auction site similar to Ebay, its tactics may be deceptive.

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                 When I was young, I remember watching ads for G.I. Joe action figures. Their plastic guns shot oversized bullets and RPGs, their jeeps rolled over immaculately constructed “battlefields,” and their futuristic technology looked shiny and appealing to my five-year-old eyes. I begged my parents for the action figures, but they refused since the toys were violent. Advertisements for toys on television have changed little over the past few decades, featuring kids having tons of fun with all of their friends while playing with the featured toy. McDonald’s has had great success in enticing children to eat their food by including a toy with Happy Meals, the majority of which feature unhealthy food. Now, a mother of two in Sacramento is suing McDonald’s, claiming that their advertisements for Happy Meals manipulated her children into begging to eat at McDonald’s. So why should we care that McDonald’s incentivizes kids to eat their unhealthy food with the promise of receiving a cheap toy included in a Happy Meal? Shouldn’t parents regulate what their children eat?

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Sometimes food tastes too good to be true.  After all, that has always been the marketing gimmick of vegetable spread makers "I can't Believe it's Not Butter".  However,  a new lawsuit filed on November 29, 2010, claims there is a food product on the market that actually is too good to be true.  

The complaint alleges that Galeos, LLC, the makers of Galeos 'low fat' Miso Dressings, falsely advertised and marketed its salad dressing as being lower in fat than it actually is. The salad dressing, apparently heavily marketed to viewers of the 'Biggest Loser', a television show where contestants compete to lose weight, allegedly is much higher in fat, calories, and sodium than advertised.  This isn't some rounding gimmick either.  In fact, the complaint alleges that independent testing shows that the salad dressing has nearly 10 times the amount of fat, calories, and sodium as advertised.  Yikes.  If the facts of this lawsuit are proven to be true, the next time I opt for a healthier, less hearty, eating decision, the makers of Galeos Miso Dressings might make me think twice.  

What other foods seem too good to be true?  Should we get them tested? 

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                Better Way 2 Move, one of many DBAs (“doing business as,” i.e., a fictitious business name) of CHS Transportation Inc., quoted $252 to Mike Applegate to move him from Folsom to Rancho Cordova, a move just over 10 miles down the US 50. Once the movers had loaded his possessions into their truck, they ratcheted up the price by nearly eight times to $1900. This included $1500 for packing material, even though mostly everything had already been packed. The movers demanded to be paid in full in cash. When Mr. Applegate said that he did not have that much in cash on him, the movers took off with all of his possessions. Only after paying in cash sometime later did he have his possessions delivered.

                Mr. Applegate, like others, had been conned by a disreputable mover. Despite having their license revoked and suffering other administrative actions, including being fined and shutting off their phone line, CHS changed their DBA to Stevens Moving and Storage and continued scamming consumers. Those who have taken CHS to small claims court to recoup their losses have found that collecting on judgments against them is nearly impossible.

How can you avoid moving scams like this? It takes a bit of time to prepare yourself, but it can save thousands of dollars and the theft of your precious belongings. There are four main steps, which are explored in more detail in the below sections. First, do some research on potential moving companies. Second, make sure that the moving company doesn’t try to pull a fast one with its estimates or paperwork. Third, supervise the movers to prevent wasteful use of moving supplies or damage to your valuables. Fourth, if the moving company attempts to scam you, be prepared to fight back against them. 

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On November 17, 2010, the U.S. Food and Drug Administration issued Warning Letters to four makers of caffeinated alcoholic beverages advising them that, following a scientific review by the Agency, the FDA concludes that there is no support for the claim that the addition of caffeine to the identified alcoholic beverages is “generally recognized as safe”. To the contrary, the FDA found that the combination of alcohol and caffeine in these drinks poses a public health concern because the beverages can mask the effects of alcohol leaving the drinker unaware of how intoxicated they are. CNN Reports that critics of the drinks, nicknamed “blackout in a can”, note that the drink producers target young drinkers who may not be aware of the high alcohol volume with a single 23.5 ounce can of Four Loko containing a potent mix of caffeine equal to three cups of coffee and alcohol equal to three cans of beer.  The caffeine makes “wide awake drunks” but wears off quicker than the alcohol leading to blackouts.

According to the FDA’s press release, the drinks affected are: “Four Loko”, “Joose”, “Max” “Core High Gravity HG”, “Core High Gravity HG Orange”, “Lemon Lime Core Spiked”, and “Moonshot”. The FDA views the November 16 announcement of Fusion Projects, LLC, the maker of Four Loko, of its intent to remove caffeine and other stimulants from its drink as a “positive step”. The Warning Letters request that the recipients inform the FDA, in writing, within 15 days of the specific steps that will be taken to remedy the violation and prevent a recurrence. If the FDA is not appeased, it could seize the products or seek an injunction preventing the firms from continuing to produce the products in their current forms. The FDA has also prepared “Questions and Answers” that provides greater information about its findings and actions.

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This answer seems obvious, right?  Well for many, believe it or not, it is not so obvious. Whenever there are people desperate to make an honest buck there are an equivalent ratio of people desperate to make a dishonest buck off the people desperate to make an honest buck. And if you cannot follow that logic, well than follow this.  

Picture yourself unemployed in a downturn economy.  The California unemployment rate is around 12%.  You have applied for numerous jobs and you cannot even seem to get an interview.  By this time you have been unemployed for three months, you're frustrated, and bill collectors are coming after you left and right.  

One day while perusing some on-line help wanted ads you notice a news article with a story about a mom making $6,705/month or even better, $379/day working at home.  Wow, what a dream come true that would be!  Though, since it seems too good to be true, you're skeptical.  Lucky for you, this  "news" source already investigated and says it works!!  

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How far would you go for beauty? Would you inject yourself with a botulism toxin (botox) or how about slathering your head with formaldehyde? On October 29^th the Oregon OSHA confirmed that the formaldehyde levels in the Brazilian Blowout product are below OSHA’s action level, Permissible Exposure Level, and Short Term Exposure Level .  This is despite the company having claimed and still claiming on their website that their product CONTAINS NO FORMALDEHYDE!! .

Personally, I am completely torn. I have actually used the Brazilian Blowout treatment and love it.   What I don’t love is the fact that the company marketed it as safe and formaldehyde free when it is not.  Even as recently as September, the president of the company gave an interview to California Watch where he stated that he provided samples to OSHA and expected that there be no formaldehyde and even suggested that the products sold on EBAY or by others are tampered with.  

Apparently, Attorney General Jerry Brown did not love that either.  His office filed a suit yesterday for the unfair advantage the Brazilian Blowout company received by selling their product on false claims of safety and for violations of Proposition 65.   Claims have also been filed on behalf of consumers and hair stylists who claim they would not have purchased the product had they known it was not as safe as the company claimed and want to be reimbursed. In the meantime, the company is vehemently backing the safety of their product, although I don’t really see how they can continue to claim that it is formaldehyde free.   Putting aside the misleading marketing of the product, is it safe? For my own personal reasons, I really hope so.

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On November 9, 2010, the United States Supreme Court will hear arguments in AT&T Mobility v Conception. The court will decide whether The Federal Arbitration Act preempts state courts from striking down class action bans in arbitration agreements. Large corporations, such as AT&T, frequently insert in their boilerplate customer agreements, often in fine print, provisions requiring that any dispute arising from the agreement be arbitrated and brought on behalf the individual consumer alone and not as a class action on behalf of other similarly impacted consumers. These big companies know that the amount of a single consumer’s dispute is often less than a couple hundred dollars, that consumers have little time and incentive to litigate their single small claim and no attorney would represent them with such a small amount in dispute. For example, the Concepcions sued AT&T claiming that AT&T represented that that their wireless service included free cellphones but the phones actually came with charges.

The only effective way to recoup small amounts of money owed to many consumers by a corporate wrongdoer is by grouping the claims as a class action. Class actions are the only “big stick” consumers have to fight large corporations and the threat of them deters corporate wrongdoing. Not surprisingly, corporations desperately want to halt class actions. California’s Supreme Court has ruled that class action bans in consumer agreements are unconscionable and unenforceable and the trial court and United States Ninth Circuit Court of Appeals in the Conception’s federal court case ruled similarly. Now the issue is before the United States Supreme Court, known to be conservative and pro-business.

An article by David Lazarus in the November 5, 2010 Los Angeles Times summarizes the issues raise by the case in plain English. SCOTUSblog has a link to all of the briefs. Look for future blogs here on this important case affecting consumer rights. 

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We've all seen the advertising - lose weight in a manner of weeks by just taking pills or supplements.  Weight loss pills and supplements are multi-million dollar industries, so many of us have gotten sucked into these campaigns in the hope they may work.  But, as the addage goes, if it's too good to be true, it probably is.  Most over the counter diet pills do not work, and the Federal Trade Commission even launched a campaign to stop these manufacturers from making "bogus claims." 

Leptopril is an example of a diet product that promises weight loss within a manner of weeks. In its advertising, Leptopril claims that it will cause weight loss by keeping excess sugar out of the blood and preventing fat formation.  Many bloggers have denounced these claims.  See here, here, and here.  Khorrami, Pollard & Abir, LLP filed suit against the makers of Leptopril on behalf of a consumer who took the product but did not experience any weight loss. 

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 Earlier this week a class action lawsuit was filed on behalf of Iphone users.  The complaint alleges that Apple purposefully put a firmware upgrade on the market, version iOS4, that was intended to decrease the functionality of the older model Iphones, the 3G and the 3GS.   Further supporting the Iphone owners’ claims is that Apple allegedly refuses to allow users to downgrade back to their old software and reinstall the outdated, but faster running, iOS 3.x firmware.  

 The lawsuit is interesting for the fact that with the new Iphone 4 on the market, owners of the old 3G/3GS models may be being swindled into purchasing a new, faster Iphone that would otherwise not seem worth it.  This notion, when coupled with the new deals being offered on the market providing store credit to purchase new Iphone 4s in exchange for old iphones, seems to present the framework for some sort of Iphone conspiracy. 

As an Iphone 3G owner myself, I have all along just figured that as my Iphone got older, naturally it would run more slowly.  But maybe, as this lawsuit alleges, it should run just like new if it were not for Apple’s firmware “upgrades”.  

What do you think?  Does your Iphone not run like it used to?  Is the latest firmware upgrade to blame?

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The Today Show recently launched an investigation of the popular product “Your Baby Can Read”, a system of flashcards, DVDs and pop-up books which boasts that it can teach children as young as two or three to read. The product, which retails for $100-$200, is available everywhere from the manufacturer’s own website to retail chains such as Best Buy and Bed, Bath & Beyond.

As part of its investigation, Today Show staff enlisted the help of child development experts from some of the nation’s most prestigious universities to assist in determining whether children who had used the product were actually able to read. The experts unanimously found that the babies or toddlers touted as being able to read had merely memorized the cue cards repetitively presented to them through the “program”. One expert, Dr. Maryanne Wolf, Direction of Neuroscience at Tufts University went so far as to call the product’s marketing “an extraordinary manipulation of facts”. The findings of Dr. Wolf and her fellow child development experts are premised on the scientific truth that while young children can recognize or memorize certain words with repetitive exposure, the brains of infants and toddlers are just not developed enough to “read” at the level that enticing television ads might suggest.

Dr. Robert Titzer, the product’s creator, maintains that the 10 experts enlisted by the Today Show are all simply “wrong” and insists that his product and its claims are backed up by scientific research. However, when asked by Today Show investigators to produce the scientific data, he provided only customer satisfaction surveys and general studies related to child learning.

While Dr. Titzer, whose PhD is in the unrelated field of human performance (motor skills), won't disclose specific details as to how much profit the product has generated, the company claims to have sold more than a million kits. Though the popularity of “Your Baby Can Read” is undisputed, the same cannot be said for its efficacy and we invite you to share with us your personal experiences with the product.
 

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According to an article in the New York Times, a recent study indicates the not only has the rate of click fraud risen dramatically over the last year, it is taking on new forms which make it more difficult to detect.

Click fraud is a type if Internet crime that occurs in pay per click online advertising when a person, automated script or computer program imitates a legitimate user of a web browser clicking on an ad, for the purpose of generating a charge per click without having actual interest in the target of the ad's link.  As a result, advertisers end up paying for fraudulent clicks on their ads.

According to summary findings recently released by on-line ad-tracking firm Click Forensics, over the last year, the level of fraudulent clicks on legitimate advertisements reached the highest rate since 2006.  Additionally, according to the firm's chief executive, the firm is starting to see fraudulent clicks routed through mobile devices, like wireless Internet cards.  Such clicks are harder to detect than those coming from wired computers because the wireless card case effectively disguises the origin, lumping them in with legitimate mobile users under a single originating address.

KPA was previously involved in class actions against Google and Yahoo related to click fraud alleging Google and Yahoo did not do enough to prevent click fraud.  These class actions resulted in settlements benefitting advertisers who paid for fraudulent clicks.

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 In a recent class action suit filed in California, Skechers, a shoe company headquartered in nearby Manhattan Beach, California, is facing allegations of misleading consumers with its Skechers Shape-Ups brand shoe and attached marketing campaign.   Skechers touts clinical trials and testimonials in supporting its claims that wearing Shapes-Ups can improve posture, tone and firm muscles, and burn more calories than normal tennis shoes.  Are these allegations true?  Depends who you ask.  

Naturally, Skechers has adamantly denied the allegations in the complaint, calling the lawsuit inasmuch as frivolous, while pointing to its own studies and numerous customer testimonials. However, recently, the American Council on Exercise (“ACE”) released a study testing the effectiveness of Shape-Ups and similar training shoes on the markets.  The results were unanimous.  The report concludes, “[A]cross the board…  There is simply no evidence to support the claims that these shoes will help wearers exercise more intensely, burn more calories or improve muscle strength and tone.”  However, that doesn’t mean Shape-ups wearers aren’t losing additional weight, as the ACE’s Chief Science Officers points out, “These shoes may be encouraging a fair number of people who probably wouldn’t put on a normal pair of walking shoes and go out for a walk, to do so because they think they’re getting some super toning effect.” 

The opinions (see comments) of Shape-Ups wearers varies.  While some consumers swear the shoes work as advertised, others are claiming sore calves, knees, or hips without the desired results.  Is the former group merely showing the reactions of a placebo effect in reliance on Skechers marketing campaign?  Or perhaps is the latter group simply not using the shoes as advertised?  With Skechers public vigilance thus far in defending the suit it appears eventually we will find out.  Until then, “shape up” at your own risk. 

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Debt collectors in a bad economy sink to new lows and adopt new strategies to secure payment from cash-strapped debtors.  In a recent lawsuit filed in Erie Pennsylvania, the Attorney General’s Office accused Unicredit America, Inc. (also known as the Unicredit Debt Resolution Center) of using “deceptive tactics to mislead, confuse or coerce consumers,” including holding hearings for debtors in a mock courtroom located at their Erie office. According to the state, the “courtroom” was convincingly realistic, complete with a raised area where a judge would sit, attorneys tables, a simulated witness stand and legal books on bookshelves. A person dressed in all black would sometimes even sit in the position of judge. These pseudo-official proceedings often intimidated unknowing consumers into signing payment agreements, making on the spot payments and in some circumstances surrendering other assets in resolution of their debt.

In a recent statement, Attorney General Tom Corbett said, “This is an unconscionable attempt to use fake court proceedings to deceive, mislead or frighten consumers into making payments or surrendering valuables to Unicredit without following lawful procedures for debt collection.” “Consumers also allegedly received dubious ‘hearing notices’ and letters – often hand delivered by individuals who appear to be Sherriff Deputies – which implied they would be taken into custody by the Sherriff if they failed to appear at the phony court for ‘hearings’ or ‘depositions’.”

Given the unlawful intimidation tactics debt collectors are now resorting to, it is important for consumers to know that there are strict rules in place controlling the parameters of debt collection. The Federal Trade Commission provides a FAQ outlining consumer rights in these circumstances.   

Attorney General Tom Corbett has petitioned Eerie County for a preliminary injunction halting these phony hearings and depositions and seeking to freeze Unicredit’s assets. The Court is expected to hold a hearing related to the preliminary injunction this Tuesday.

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While the CDC is using quantitative data to examine the advantages and disadvantages of "front of package" ("FOP") labeling, the FDA recently put manufacturers on notice of its own plan to launch a more qualitative investigation into certain FOP labels. The FDA's approach involves comparing the nutritional criteria used to support these labels against FDA regulatory requirements, and focuses specifically on foods that make "smart choice" or "heart healthy" type claims. While certain nutritional labeling is mandated, this type of FOP labeling is voluntary, but is nonetheless subject to the requirements of the Food, Drug and Cosmetic Act.

The FDA's investigation comes on the heels of research which reflects that when provided with FOP labeling, consumers are less likely to check the nutritional facts on foods, instead relying on the often bold and readily visible FOP claims. In its notice to manufacturers regarding the investigation it noted that they must take care to ensure that the FOP information presented to consumers is "nutritionally sound and well-designed to help consumers make informed and healthy choices and not be false or misleading." In other words, the labeling must be wholly supported by the nutritional content of the product and be presented in a way that does not distract consumers from analyzing the  product's overall nutritional value, or lack thereof.

The recent CDC studies and the investigation being launched by the FDA make it clear that the federal government has seen a recent need to provide more oversight of FOP claims, ostensibly because it has identified areas of concern. Those manufacturers whose claims are now under the microscope should be prepared for a potential backlash, both in the marketplace and in the courtroom, if their claims are determined to be unsupported and misleading. 

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For years, manufacturers have been required to report nutritional information on packaged food products.  With the dramatic increase in obesity in American throughout the last 20 years, many manufacturers have begun to include additional nutritional messages on the front of their food packages.  These messages are referred to as "front-of-package" ("FOP") labeling, and are generally quick summaries of such nutritional data as number of calories, grams of trans fat, saturated fat, etc. 

Congress directed the Centers for Disease Control and Prevention to undertake a two-phase study on these FOPs.  The CDC issued its report on the first phase of the study concentrated on the advantages and disadvantages of the various FOPs utilized by food manufacturers, which will then allow further investigation into which types of FOPs are most effective with consumers during the second phase. 

The report determined that some information is more useful than others when contained in FOPs.  The information it deemed useful included caloric content, serving size, grams of trans fat, grams of saturated fat, and sodium levels.  It further determined that any other information, such as amount of fiber, vitamins, etc., was not as helpful when included in FOPs.

Now that the first phase of the study has been completed, the focus will now be on which types of FOPs have the most effect on the consuming public.  As a result, we're sure to see an increase of FOPs on food product packaging, hopefully ones that aren't false and misleading according to California law. 

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On October 26, 2010, Reuters reported that Attorneys General in Illinois, Oregon and California agreed to a $3.3 million settlement over misleading claims that Bayer vitamins reduce the risk of prostate cancer. Bayer had made claims in its packaging and promotional materials that selenium in its men’s vitamins reduced the risk of certain cancers. In June 2010, the FDA concluded that there was very limited credible evidence for qualified health claims for selenium dietary supplements and prostate cancer. In addition to the monetary payments, Bayer was revising its packaging and promotional materials.

Significantly, the FDA made findings about selenium dietary supplements as it relates to other site-specific cancers. The FDA concluded that there is no credible evidence to support qualified health claims for selenium dietary supplements and a reduced risk of urinary tract cancers other than bladder cancer, lung and other respiratory tract cancers, colon and other digestive tract cancers, brain cancer, liver cancer, or breast cancer. However, FDA concluded that there is very limited credible evidence for qualified health claims for selenium dietary supplements and bladder cancer,  prostate cancer, and thyroid cancer, provided that the qualified claims are appropriately worded so as not to mislead consumers. 

This settlement and the FDA findings should remind all dietary product manufacturers to use caution when making health benefit claims about their products and to appropriately limit claims so as not to mislead consumers.

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Earlier this month mortgage giant Bank of America announced that it would be freezing foreclosures sales nationwide amidst allegations of possible foreclosure fraud inherent in its mortgage servicing policies.  Bank of America’s action was partly in response to attorney generals from various states announcing investigations into the lender’s foreclosure process.  More layers were revealed just last week when deponent-mortgage servicers in a Florida suit against Bank of America brought by defaulting homeowners testified that it was common practice to sign loan serving documents without reading them.  Many other banks have also acknowledged employing these “robo-signers”.  In response to Bank of America’s decision to halt foreclosures, Harry Reid, the Senate Majority Leader, who had been hard on Bank of America in the past, stated “I thank Bank of America for doing the right thing.”

Now, just ten days after announcing its nationwide foreclosure freeze, Bank of America claims it has sufficiently reviewed its foreclosure process, and thus presumably corrected it, to allow the bank to restart foreclosure sales.  And Bank of America isn’t alone.  GMAC, too, claims it has cleaned up its mortgage servicing procedures, and has announced it will be refilling cases.  Understandably, consumer attorneys are skeptical.  So while Bank of America and other mortgage lenders alike will continue foreclosing on defaulting homeowners, the bright side may be that the banks’ opposition will continue to grow as word spreads of lender culpability among homeowners facing foreclosure.  Stay tuned.

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On October 18, 2010, the Wall Street Journal reported the results of their investigation which found that many of the most popular applications or “apps” on Facebook have been transmitting the names of Facebook users and, in some cases, the names of their friends to dozens of internet advertising and tracking companies. Apps are pieces of software that let Facebook users play games or share information.

The Journal reported that at least one data gathering firm, RapLeaf, Inc., linked Facebook user IDs to its own database, which it sells. The apps are extremely important o Facebook as it transforms Facebook into a hub of activity and extends the usefulness of its network. Seventy-percent of Facebook users reportedly use apps and the apps are a source of revenue for Facebook itself, which sells it own virtual currency to pay for games. 

According to the article, the biggest apps allegedly involved are FarmVille, Texas HoldEm Poker and Frontierville. The issue affects tens of millions of Facebook users, including those who set their profile as completely private. It is reportedly unclear how long the breach took place and Facebook claims it is making attempts to “dramatically limit’ the exposure of users’ personal information.

Another article in today’s New York Times  reveals that privacy advocates and technology experts are split on the significance of the breach. Privacy advocate, Peter Eckersley, argues that by transmitting a user’s ID to advertisers, the advertisers could link the ID to information collected about the user anonymously on the Web, thereby giving the advertiser the “magic key to tracking you online”. Others downplay the significance claiming that knowledge of a user’s ID does not enable anyone to access private user information without explicit consent and that credit card companies and magazines have access to far more personal information about customers than any Facebook app.

One thing is certain; this activity will result in litigation. Such breaches likely violate Facebook’s Terms and Conditions and Privacy Policy and well as state computer crime laws, federal Electronic Privacy and Stored Communications Acts and other consumer protections statutes.

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Have you purchased any or all of the products from the Lancóme High Resolution- 3x line, including its High Resolution Refill-3x Day Cream, Night Cream and/or Eye Cream and failed to see the advertised results? Specifically, have you found that the products failed to “[r]efill wrinkles in just one hour!”? Or that the product didn’t live up to the claim that “[i]n 4 weeks, wrinkles appear significantly reduced, as though refilled from within”? Did you find that the claim that “skin is saturated with moisture 94% and looks youthfully plumped” was misleading based on the actual results the product produced?

Please contact us here or by calling 213.596.6530 to tell us about your experiences.

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Bank overdraft fee cases across the country are moving forward after U.S District Judge James Lawrence King dismissed requests from banks to stop overdraft lawsuits.  As reported in Saturday's Miami Herald, customers are taking action against many of the country's most popular banks for manipulating the way charges are posted to bank accounts, triggering overdraft fees to apply to accounts when they shouldn't.

If you have been a victim of deceptive banking practices, check out this blog for more information.

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Have you been allowed to continue charging to your bank debit card, even though insufficient funds were available in your account? After being able to make a charge with insufficient funds, have you found your bank has charged an overdraft fee upwards of $35? Overdraft charges can easily add up to hundreds of dollars without you knowing it!

If you have been INVOLUNTARILY enrolled in overdraft protection services, you may be eligible to seek compensation!

You may also be eligible to seek compensation if you enrolled in overdraft protection services and found the terms of your service to be false, misleading or deceptive.

If you have been the victim of deceptive bank overdraft protection practices, contact us here or by calling 213.596.6530.

This is not an issue of banks applying current debits to your account in reverse order of their value, and not the chronological order in which they were made, this is an instance of banks using deceptive practices to apply overdraft protection to your account.
 

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Kellogg, the nation’s largest cereal maker, recently slapped a label on its kid-friendly Rice Krispies and Cocoa Krispies cereal brands which tout that the product “Now Helps Support your Child’s Immunity.” While it’s true that Kellogg added some vitamin A, B, C and E to their cereal, health care professionals have been extremely critical of the leap Kellogg has made from the addition of certain vitamins to the claim that the product “helps support immunity.” One vocal critic is Kelly Brownell, director of Yale University’s Rudd Center for Food Policy who was quoted as saying “[b]y their logic, you can spray vitamins on a pile of leaves and it will boost immunity.”

Health care professionals aren’t the only consumer advocates who have taken issue with Kellogg’s claims. Shortly after the “immunity claim” plastered boxes hit shelves, , the city of San Francisco wrote a letter to Kellogg and the FDA asking Kellogg to prove its claim. “I am concerned the prominent use of the immunity claims to advertise sugar-laden chocolate cereal like Cocoa Krispies may mislead and deceive the parents of young children” said Dennis Herrera, San Francisco‘s City Attorney.

Following San Francisco’s efforts to demand substantiation of  Kellogg’s  claim, the Attorney General’s office of Oregon made a similar appeal to the company. Keith Dubanevich of the Oregon’s Attorney General’s office offered the following reasoning for seeking substantiation, “[t]he implied claim that if somebody ate Cocoa Krispies it might help them avoid getting swine flu, and given the season, that’s a pretty important claim to be making.”

It is telling that in response to the public pressure, rather than provide scientific data to support its claims, Kellogg has opted to remove the label from all cereal boxes by January 15, 2010. This response not only offers insight to the validity of Kellogg’s claims, but begs the broader questions:  to what degree should we accept manufacturer’s claims at face value, and how often are we, as consumers, unconsciously manipulated by deceitful advertising?

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In October 2009, shortly after TD Banknorth changed its name to TD Bank - "America’s Most Convenient Bank" - there were apparently some major IT glitches that resulted in many customers having difficulties with their direct deposits and viewing real-time account balances. As a result, many customers were charged overdraft fees through no fault of their own. It was at this time, while viewing numerous overdraft fees on their statements, that the public became more aware of a little known banking trick. When there are several current debits to an account, many banks, not just TD Bank, apply the debits in reverse order of their value and not the chronological order that they were posted to the account. Therefore, no matter the order received, the largest current debit is applied to the balance FIRST, then the second largest debit, third largest debit and so forth. This is important because, if for some reason that largest debit makes you go over your balance, you are then charged overdraft fees for every other debit – even if the remainder of the debits would have been covered by your initial balance. (read this customer's complaint.)

For example, on one date this past fall, a TD Bank customer had approximately $2500 in a checking account and had previously scheduled electronic payments in the amounts of $12, $300 and $2700. Additionally, on that day, two checks written for $20 were presented for payment and $200 in cash was withdrawn at an actual bank location. As bank policy is to apply the largest debits first, TD Bank applied the $2700 electronic payment first, thereby overdrafting the account of $2500. This resulted in the first of six $35 overdraft fees totaling $210 - only one of which was actually greater than the balance of $2500 and three of which were actually less than the $35 penalty. However, had TD Bank applied the lesser debits first, the account would only have been overdrawn for one transaction (notwithstanding the questionable banking practice of charging the $35 overdraft fee in the first place - without any consent from the customer to engage in this practice.)

Based on this system of accounting, excessive bank overdraft fee lawsuits have been filed against numerous banks, including Wells Fargo, Bank of America, M&T Bank and Wachovia. The lawsuits allege that these banks have used unethical practices to send bank accounts into overdraft mode. More specifically, the lawsuits allege that the reordering of credits and debits so that customers are forced into unwarranted overdraft fees is outrageous. Further complicating the issues with this practice is that bank customers have never actually requested any type of overdraft protection.

Legislation currently under consideration in Congress would prohibit banks from levying more than one overdraft fee per month or six per year. According to a Bill under consideration in the House, overdraft fees would be subject to the Truth in Lending Act, requiring consumers' permission before enrolling them. Further, it would prohibit rearranging the order in which transactions are posted, which can trigger an overdraft, and it would require fees to be in proportion to the amount overdrawn (i.e. a $5 purchase could not have a $35 fee).

This proposed legislation could save each bank customer hundreds of dollars, and prevent banks from preying on these unsuspecting customers to the tune of millions of dollars each year.

If you have been the victim of these deceptive bank practices, please do not hesitate to contact us.

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Consumers have paid upwards of $100 for cables whose performance is equal to a standard $10 six-foot HDMI cable. Many electronic stores and manufacturers have made claims that these “premium” cables outperform standard cables. However, many well respected third party reviewers, such as cnet.com contend that this isn’t necessarily the case. “Do you really need to spend that much money on a single HDMI cable? Absolutely not – those cables are a rip-off” says CNET. “And despite what salesman and manufacturers might tell you, there’s no meaningful difference between the $10 cable and the $50 cable.”

Cases where consumers have been mislead about the quality of the cables, and extreme up-selling has also been happening more frequently than not. According to engadgethd.com “Upon further inspection, he realized that the difference in picture quality wasn't due to the gold-plating or fancy braiding, but rather the use of composite cables on the non-Monster TV.” And according to gizmodo.com “While Monster cables are of good quality and engineering, when it comes to digital signals, specifically HDMI cables, we know that its a better idea to buy a $5 dollar HDMI cable today, and then when bandwidth requirements go up in future specs of HDMI, just buy another $5 cable then. It's a lot cheaper than $100 HDMI cables from Monster.”

If you have experienced any of these practices, contact us immediately. Practices such as these are misleading to consumers and are leaving them with no choice but to pay premium prices for unnecessary high-end cables.
 

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In a push to beat the new federal regulations, credit card companies across the nation are sending out notices to their customers that their interest rates will be increasing. The Credit Card Accountability, Responsibility and Disclosure Act, passed in May, takes full effect next year. One provision of this act prohibits credit card companies from increasing interest rates on fixed rate cards for reasons other than a cardholder being late 60 days or more on making a payment. To counter that restriction, many credit card companies are now sending out notices to their customers that their interest rates will be increased – often up to 30% - and without any late payments or negative history on the customer’s account. 

These interest rate increases directly contradict Congress’ explicit desire to end deceptive credit card practices. In a letter to the Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Bank of America, pledged not to increase the interest rates of its customers prior to the effective date of the Act. Congress responded quickly, and issued a press release calling on all credit card companies to follow Bank of America’s example. “This Congress has made it clear that abusive credit card practices are no longer acceptable.” Clearly, not all credit card companies have heeded Congress’ request, as the Chairman recently introduced new legislature seeking to freeze rates on existing credit cards until the Act becomes effective. 

Under the Act, a consumer has the right to refuse such an increase, but exercising such a right may negatively impact their credit score. A portion of the Act went into effect in August, 2009, and requires the credit card companies to give 45 days notice of an increased rate, and provides the consumer the right to opt out of the rate increase. The problem with opting out of the interest rate increase, however, is that even though the consumer will be able to pay off the balance at the present interest rate, they are no longer able to use that credit card anymore for purchases or cash advances. This can affect the consumer’s credit score as they now appear to have more debt and less available credit. 

You can see a full discussion of the Credit Card Accountability, Responsibility and Disclosure Act.

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Between the period of October 16, 2009 and October 19, 2009, four separate publication requests were filed in Cohen v. DirecTV. The requests are contained here, here, here and here.

In Cohen, the Second District upheld denial of certification of a UCL class because the proposed class included persons who had not viewed alleged deceptive promotions by DirecTV. The Court reasoned predominance could not be met under circumstances, and in fact, went so far as to state that “we find Tobacco II to be irrelevant because the issue of ‘standing’ simply is not the same thing as the issue of “commonality.”

As discussed at the Bailey Class Action Daily in this previous post, Cohen's analysis conflicts with the California Supreme Court's decision in In Re Tobacco II Cases.

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In recent years, cellular telephone users have been increasingly subjected to a scheme known as “cramming,” which has been described by the Federal Trade Commission as “the placement of unauthorized charges on telephone bills.” Unscrupulous companies use a variety of methods to “cram” charges, such as deceptive promotions of free ringtones, game downloads, games, contests, jokes and sweepstakes bidding to entice consumers to provide their cell phone number so that monthly service fees may be charged to the consumer’s cellular phone bill.

If your cell phone bill has contained a charge for an unauthorized service, then please contact us to discuss your experience.

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On October 5, 2009, the FTC announced approval of final revisions to the guidance it gives to advertisers on how to keep their endorsement and testimonial ads in line with the FTC Act.  The new guidelines, as explained in the official press release, require advertisers to affirmatively disclose when promotional claims regarding a product or service is not typical, and also make it clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media. Perhaps the most significant revision, however, relates to the use of company sponsored research to promote a product or service. This practice has been a favorite tool of drug companies and the tobacco industry who seek to leverage sponsored research to promote the benefits of their products, or create the appearance of a scientific “debate” over risks. Under the new guidelines, the promotional reference to the findings of research sponsored by the company must be disclosed to the consumer.

A more detailed discussion of the New FTC Guidelines is addressed at the Bailey Class Action Daily at the link here.

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In Zaragoza v. Ibarra (2009) 174 Cal.App.4^th  1012, the Court clarified the issues of homeowner liability to workers hired by non-licensed contractors, and addressed the limitations on worker’s compensation as an exclusive remedy in cases dealing with employees in a residential setting.

Homeowner Maria Ibarra engaged Claudio Quiroz, an unlicensed contractor, to construct four room and two bathrooms on her premises. Quiroz hired Eliazar Zaragoza to assist him. Zaragosa was an employee of Taco Bell. Zaragoza was injured on his second day on the job. Zaragoza slipped off a ladder while trying to pull a nail out of the wall. He fell approximately nine feet and injured his knee. He sued Ibarra. The trial court granted Ibarra’s motion for summary judgment and the appellate court affirmed.

The Court held that Zaragoza’s claim qualified as “incidental to the ownership, maintenance or use” of a residential dwelling, despite the fact that the scope of the work comprised an extensive remodel. Zaragoza was classified as a residential employee under Labor Code Section 3351(d). When the worker has worked less than 52 hours in the 90 days prior to the accident, the law is clear that any claim the worker has against the homeowner for the injury is outside the ambit of the worker’s compensation system. Labor Code Section 3351(d). The worker may bring a claim against the homeowner for negligence.

The Court held that the provisions defining who qualified as a residential employee under Labor Code Section 3351(d) must be reconciled with the provisions of Insurance Code Section 11590, which requires that all personal liability policies provide worker’s compensation coverage. The Court further held that Cal-OSHA regulations did not apply to homeowners. Zaragoza could not rely on the doctrine of negligence per se (a violation of a statute) based on alleged Cal-OSHA violations.

Moreover, the Court concluded that as a matter of law there was no triable issue of fact concerning Ibarra’s negligence, since he positioned, adjusted, and climbed the ladder before he fell. There was nothing Ibarra could have done to prevent the accident. Zaragoza’s injury was entirely his own fault, and Ibarra exercised ordinary care under the circumstances.

Homeowners should be weary of non-licensed and day laborers who carry no worker’s compensation insurance. Whether it is a painter, gardener, landscaper, or handyman, ask yourself the question: Does the gardener carry his own liability and Workers' Compensation insurance? Otherwise anything that happens on your property is your responsibility. An insured gardener may charge a bit more, but is worth the peace of mind. Next time you hire anyone to perform services on your property, make sure that person is insured, something not many homeowners think or contemplate but merely roll the dice. Make the individual working on your home produce a copy of his liability insurance certificate, and make sure it is current.

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Many consumers have been faced with "low ink" or "change toner" warnings issued by their printers, even though they may be able to print hundreds of pages more.  Some printers even refuse to complete print jobs until the low ink cartridge is replaced - even though it may still have ink remaining!

If you have been forced to replace your ink or toner cartridge earlier than necessary-- and wasting precious money buying new cartridges--you need to read more about the unneccessary replacement of faulty ink and toner cartridges.

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In March 2007, Caremark Rx, Inc. completed its merger with CVS Corporation. This union has had a significant negative impact on patients’ access to the pharmacy of their choice as Caremark Rx, Inc. has been forcing its insured to get their prescriptions from out-of-state mail order warehouses and away from their local community pharmacist.  In addition, CVS pharmacy benefit managers have steered patients to their own drugstores by raising co-pays for drugs bought elsewhere or by requiring that they be purchased at CVS.  This has particularly been difficult for some patients who have been with the same pharmacy for literally decades. 

Eight members of Congress — four Democrats and four Republicans — have asked the Federal Trade Commission in a letter to reopen its investigation into the 2007 merger, citing concerns about competition and consumer privacy.  In a letter signed by Reps. Anthony Weiner, D-N.Y.; Marion Berry, D-Ark.; John Boozman, R-Ark.; Michael Acuri, D-N.Y.; Mike Rogers, R-Mich.; Walter Jones, R-N.C.; Robert Aderholt, R-Ala.; and Lloyd Doggett, D-Texas, the lawmakers said the merger created opportunities for the company to enrich itself at the expense of competition and consumers. 

Among the company’s practices have been putting consumers on a “maintenance choice” program, under which they can only get their prescriptions by mail or at CVS pharmacies, without their permission; charging lower co-pays to members who fill their prescriptions at CVS pharmacies; misusing information collected by Caremark to find out if customers are using non-CVS pharmacies, and then advising them not to; and co-branding its prescription drug card in a way that falsely suggests it can only be used at CVS pharmacies, the letter said. 

While the FTC is looking into the issues revolving around the merger, privately owned pharmacies continue to lose their patients and long time customers thanks to the company’s practices.  We can assist these pharmacies in protecting their rights against such practices.

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On August 13, 2009, Bank of America announced that it would be ending a requirement that consumer credit card disputes be settled through binding arbitration. This announcement followed the determination by two major arbitration forums, the American Arbitration Association and National Arbitration Forum that they would no longer accept consumer-debt-collection cases.  

Bank of America also announced that the change would cover auto, recreational vehicle and marine loans as well as the credit-card disputes. 

This decision is a major win for consumers. As detailed in my earlier post, arbitration is unfair to the consumers. Big companies prevail in a majority of arbitration cases, to the detriment of the consumer. Bank of America’s decision is a pivotal change in the way that consumer disputes are handled, and may greatly increase the consumer’s ability to challenge big business. 

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For years, companies, including credit card and cell phone companies, have included mandatory arbitration provisions in consumer contracts. However, a recent series of events has put the future of forced arbitration into question.

On July 14, Minnesota Attorney General Lori Swanson sued the National Arbitration Forum (NAF), one of the nation’s largest providers of arbitration services for the credit card industry, for consumer fraud, deceptive trade practices and false advertising. The complaint alleged that the company deceived consumers into thinking it was a neutral arbitrator in debt collection when, in reality, NAF worked behind the scenes with credit card companies and other creditors, such as cell phone providers, to write itself into small-print purchase agreements as the sole arbitrator consumers could use if they had problems with creditors. NAF quickly settled the lawsuit, agreeing not to take accept any new cases.

In the aftermath of the NAF lawsuit, the American Arbitration Association (AAA) has announced that it will also stop participating in consumer-debt-collection disputes until new guidelines are established. Additionally, JPMorgan Chase, one of the nation’s largest credit-card issuers, has announced it will no longer submit disputes to arbitration and is evaluating the inclusion of arbitration provisions in its consumer contracts.

As Ashby Jones wrote in a blog at the Wall Street Journal (7/22), “It’s too soon to say, in all likelihood, but we could be in the early stages of an arbitration revolution.” Consumer advocates are hopeful that the settlement reached between the Minnesota Attorney General and NAF, as well as AAA’s withdrawal from the consumer debt collection disputes, will lead to the end of mandatory arbitration. Consumer attorneys have argued that the recent chain of events shows a need for Congress to pass two bills currently before it, the Arbitration Fairness Act and the Fairness in Nursing Home Arbitration Act, which ban forced arbitration. Consumer attorneys have also responded by filing lawsuits seeking to set aside thousands of arbitration awards and judgments in consumer debt cases.

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