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Article:
Keeping America’s Economy Strong: Enforcing
Consumer Protection Laws as Congress Intended
Jacksonville Attorney - Lawyer,
providing experienced Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law legal
representation in Jacksonville, Hilliard, Duval County,
Nassau County and the surrounding Northeast Florida areas.
By Tom Domonoske
Beginning in 1969,
Congress began passing important statutes designed to
allow our free- market economy to function properly.
These statutes are collected in the Consumer Credit
Protection Act (CCPA), 15 U.S.C. §§1601-1693r. For
instance, the Truth in Lending Act, Title I of the CCPA,
was passed by Congress on May 29, 1968, P. L. 90- 321,
"to assure meaningful disclosure of credit terms so that
the consumer will be able to compare more readily the
various credit terms available to him." 15 U.S.C. 1601.
See Beach v. Ocwen, 523 U.S. 410, 413 (1998). The Act is
designed to promote "the efficient functioning of a free
economic system" by providing consumers with information
that allows them to shop for the best possible credit
terms. Mourning v. Family Publications Service, Inc.,
411 U.S. 356, 363-64 (1973). When consumer lawyers
enforce the CCPA, the lawyers are implementing the will
of Congress to strengthen the economy by ensuring that
accurate information is used in market decisions. In
this way, effective enforcement of all parts of the CCPA,
the Truth in Lending Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, and the Fair Debt
Collection Practices Act, is necessary to keep the
American economy strong. As consumer lawyers, we are
never merely advocating for our individual client's
rights, we are in fact protecting the American way from
the danger posed by inefficient markets.
The Basic Problem:
A Completely Unregulated Market Does Not Work
The basic premise of the
market economy is that a knowledgeable seller and a
knowledgeable buyer will come together and make a
decision in their own interests. Under the market
theory, the combined effect of the many millions of such
decisions on all levels of the economy is an
ever-increasing efficiency in the distribution of goods
and services. The ever-increasing efficiency is to occur
because, through innovation and creativity, sellers will
be continually and necessarily motivated to "build a
better mouse- trap." Although this system creates the
possibility and the reality of large disparities in
income and wealth, the inequalities of that disparity
are accepted as a necessary by- product of the
efficiencies and benefits of the market system.
In actual practice,
certain controls and protocols are necessary to make a
market perform properly. Financier George Soros has
said, "The truth is that market fundamentalism is itself
naive and illogical. Even if we put aside the bigger
moral and ethical questions and concentrate solely on
the economic arena, the ideology of market
fundamentalism is profoundly and irredeemably flawed. To
put the matter simply, market forces, if they are given
complete authority even in the purely economic and
financial arenas, produce chaos and could ultimately
lead to the downfall of the global capitalist system."
Consequently, even people like George Soros, who believe
strongly in the power of the market, understand that the
market forces must be directed to ensure the viability
of the market system.
One of the important
factors is honest information. If a seller misrepresents
the value or nature of any type of goods or services,
buyers will purchase from that seller rather than from a
different seller who is actually providing better goods
or services. In the same way that millions of separate
transactions between a knowledgeable buyer and seller
can produce a functioning economy, millions of separate
transactions based on misinformation will pervert and
fundamentally harm an economy.
This article explores the
engines that work together to create an inefficient
market.
Greed and the New
Corporatists
Despite an attitude that
gained acceptability in the 1980s, greed is not good.
Unfortunately, because the market system allows the
financial rewards of transactions to be distributed
based on individual decisions, huge disparities of
wealth are a reality of our system. "As wages fell for
the typical worker, executive pay soared. From 1989 to
2000, the wage of the typical (i.e., median) chief
executive officer grew 79.0%, and average compensation
grew 342%. In 1965, CEOs made 26 times more than a
typical worker; this ratio had risen to 72-to-1 by 1989
and to 310-to-1 by 2000. U.S. CEOs make about three
times as much as their counterparts abroad." The State
of Working America, Economic Policy Institute.
The potential to live like
royalty in the midst of others who struggle daily is a
lure too strong for many of weak moral fiber. The Enron
debacle is a prime example of a whole system of managers
and executives who found no problem in using
misrepresentations to funnel millions of dollars into
their own pockets. Whether the misrepresentation is made
by a used car dealer about a car's accident history or
made by a corporate executive about the debts and
profits of the company, the fundamental fraud is the
same: misrepresent value to illegally acquire dollars.
Once the dollars are in a bank account, whether they
were obtained honestly or dishonestly, does not alter
the ability to spend those dollars freely.
As society is increasingly
fragmented, corporations and the people that identify
with corporations lose touch with average citizens.
Unfortunately, a class of people has developed, called
corporatists, who live, think, and act differently than
ordinary citizens and even other corporate employees.
This process can best be seen by the generational change
since World II in military service. In World War II,
powerful wealthy families commonly sent their sons into
harm's way. Even future presidents like John Kennedy,
were on the front lines, were living and mixing and
risking death with other Americans from all walks of
life. Currently, the idea of a corporatist’s son or
daughter going to serve in combat in a place like Iraq
not only seems unlikely but also seems somehow out of
place. The background question created by such an idea
is "why would they do that?" Well, the development of
that question is the cultural change created by the
corporatists, by gated communities where part of America
lives without ever developing the ties that bind them to
the rest of America.
Although this simplistic
example is not meant as an explanative model for
societal change, the effect of executive pay jumping
from 26 times the average worker's pay to 310 times the
average worker's pay is one measurement of the distance
created between the executive class and the working
class. The gap has increased over tenfold, and although
dollars readily jump the divide in one direction,
community ties nolonger cross it. The wide gulf that has
opened up between the corporatists and the vast majority
of the rest of the population is expressed by those
corporations that exist merely to prey upon people and
extract value from them.
“Generally Accepted
Procedures” Instead of Honest Procedures
The distance between the
corporatists and the average citizen has led to a
complete breakdown of accountability to any community
standards other than "generally accepted procedures." As
long as the corporation follows "generally accepted
procedures," its managers, lawyers, accountants, and
other corporatists have convinced themselves that
nothing else is required. Under "generally accepted
procedures," many corporatists have allowed greed to
dictate their actions. Viewed properly, their actions
are many times simply fraud.
Many generally accepted
procedures take an initially proper concept and twist it
beyond the truth. The October 23, 2002, Washington Post
reported in an article titled "Pension Reports Return to
Haunt U.S. Companies” that under generally accepted
procedures, large corporations report profit on pension
plans as income to the corporation. Because the actual
returns on the investments in the pension plans vary
each year, large swings in profits on the pension plans
may give a misleading appearance to a corporation's true
profits. To decrease the volatility of such swings, the
generally accepted procedure is for the corporations to
use an estimated percentage return each year on the
plans. The problem is that in the past few years many
pension plans have not only been performing far below
the historic estimate, but they have been losing money.
Consequently, some
companies have been reporting an overall profit by using
an estimated return of 8 or 9% on a pension plan, even
though the pension plan actually lost money and the
corporation overall actually lost money. Of the 50
largest U.S. companies in 2001, $54 billion of pension
income was reported in this way even though the plans
lost $38 billion. This single generally accepted
procedure thus accounted for a $90 billion
misrepresentation to all investors in these 50
companies.
This $90 billion
misrepresentation was made to investors to use in
deciding which companies to invest in and how much to
invest. The best way to test any generally accepted
procedure is to imagine an ordinary American utilizing
the procedure. When a consumer applies for a loan, the
consumer must disclose financial information in the same
way corporations disclose financial information to
investors. Imagine the consumer who fills out the credit
application that asks net worth information. The
consumer could use "generally accepted procedures" to
estimate the value of her IRA account as if she received
an 8% return last year when in fact she lost 35% over
the last two years; she could put down that her IRA was
worth over $116,000.00 rather than $65,000.00. The
creditor who extended credit on such misinformation
would scream “fraud” and perhaps seek criminal charges.
Through use of "generally
accepted procedures" the corporatists truly believe that
they and their corporations are no longer held to the
standards of behavior applied to normal citizens. These
procedures have poisoned the behavior of the
corporations and, at all levels of the economy,
introduced false information into market transactions.
Debt Is the American Way
Household debt grew much
more rapidly than household income in the last decade.
By 2001, total household debt exceeded total household
disposable income by nearly 10%. Households in the
middle of the wealth distribution absorbed the largest
share of this run-up in debt. While low nominal interest
rates have made it easier for households to carry the
greatly expanded debt, many households appear to be
straining. Recent government data show that 14% of
middle-income households have debt-service obligations
that exceed 40% of their income; 9% have at least one
bill that is more than 60 days past due. Comparing
household debt of 2002 to household debt of the previous
decades shows a shocking change in the American economy.
As of February 2002, household credit stood at
approximately $1.75 trillion dollars; a dramatic
increase from the $6 billion when the Truth in Lending
Act was passed. Consumer spending is recognized as the
engine that keeps our economy going, and consumer credit
is the fuel for that engine.
If this fuel is impure,
the engine can sputter or stall. Bankruptcies, both
corporate and personal, rise as credit obligations
exceed ability or desire to pay. Because credit that is
granted based on imperfect or faulty information is
imperfect or faulty fuel, misinformation in credit
transactions will stall our economy.
Advertising Works
The huge advertising
budgets and all the work by advertising firms are not
wasted. Advertising, done properly, works and motivates
people to want more than they have. A common idea is
that almost everyone, regardless of income, believes
that if they had $10,000 per year, then they could
afford all they wanted. The level of income is merely a
platform from which each person is targeted by
advertisements for goods that are just beyond their
current reach.
As a recent Saab ad
stated, you are simply a boring person if you cannot
spend $3,500 down, and $399 per month on a car. Despite
the rational knowledge that all non-Saab owners are not
really boring, people do tend to measure each other by
public displays of material possessions. Advertising
feeds on this measurement, and people can spend an
enormous amount of time trapped by living according to
this measuring stick.
The combination of
effective advertising and easy availability of credit
results in many impracticable credit purchases. When
purchasers willingly enter into transactions that are
not in their best interest, the market can never
function properly.
The Result of These
Factors
The result of the
unmitigated greed, the substitution of generally
accepted procedures in place of honesty, loss of
community values, the acceptance of debt, and the
effectiveness of advertising, have combined to create
some disturbing statistics. The wealthiest 1% of all
households control about 38% of national wealth, while
the bottom 80% of households hold only 17%. This
disparity in wealth then directly translates into
disparity of political power.
In 2002, default rates on
home loans were at historic highs when interest rates
were at historic lows. That combination is a telling
sign of an ailing economy. Across the country, people's
retirements have been threatened by massive declines in
the stock market, and large corporate bankruptcy filings
dominate the news. The United State's foreign trade
deficit continues to set new records. This article does
not attempt to explain the link between all these
events, but these events all show the need to develop
the controls that are necessary to allow our market
economy to perform properly.
The Controls Selected by
Congress to Increase the Efficiency of the Market
Congress has already
acted— the Truth in Lending Act (TILA), the Equal Credit
Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA),
the Fair Debt Collection Practices Act (FDCPA) all
regulate the credit economy. They define the environment
for credit transactions that is the only permissible
structure within which individual credit decisions are
to be made. Regarding the TILA, the Supreme Court has
recognized that Congress created this "barrier between
the seller and the prospective purchaser in the form of
hard facts." Mourning, 411 U.S. 356, 377 (1973). Most
important, it also stated that Congress changed "the
philosophy of 'Let the buyer beware' to one of 'Let the
seller disclose.'" Id.
A few simple principles
are incorporated into these federal statutes:
TILA - tell them what the
deal will be before they sign; ECOA - tell them what
action was taken and why; FCRA - tell them what
information was used and where it came from; and FDCPA -
do not lie to collect anunpaid debt.
Under the TILA, each
creditor is required to place accurate TILA disclosures
in each consumer's possession before the consumer signs
to accept the credit. Under the ECOA, within thirty days
after receiving an application from a consumer, each
creditor must accurately inform the consumer of the
action taken on the application. Under the FCRA, a
creditor must inform the consumer about the information
that was used to evaluate the credit. Under the FDCPA,
debt collectors must not lie to consumers to coerce them
to pay an alleged debt.
These principles are
focused to ensure that the market functions properly and
that people have the information to make knowledgeable
credit decisions. At their core, these are merely
mandated honesty. The required disclosures are not
invasive notices that mandate disclosure of trade
secrets. The required disclosures are simply the
information required by the underlying theory of the
market that is necessary to have the market perform
properly. Because an unscrupulous seller will want the
buyer to have as little information as possible and
thereby increase how much the buyer will pay, these
statutes are necessary to ensure that an informed
consumer can exist.
These principles are
fundamentally designed to protect the business that
"builds the better mouse trap." In theory, the consumers
will choose to give their dollars to those businesses
that are delivering better value or lower prices. The
mandated honesty of these statutes gives the more
efficient credit business the means to effectively
compete with the less efficient credit business. The
corporations that violate these statutes are stealing
business from those that comply. To effectively enforce
these statutes, every consumer lawyer should recognize
and argue that really she is working on behalf of the
honest creditors to curb anti-competitive behavior by
those businesses that act in unlawful and even criminal
ways.
Because these statutes
were designed to strengthen the American economy,
willful violations done as a matter of practice are
efforts to weaken our economy. Consumer lawyers are
truly acting in a national interest by enforcing these
statutes. The phrase "private attorney general"
describes the reality of these statutes. Judges will be
motivated to enforce the statutes if the very important
policies behind them are explained.
Countering the Argument
That a Consumer With Debts is a Bad Person
The basic defense tried in
most consumer credit cases is that the consumer is at
fault for not paying all his bills. Let Congress explain
the true picture:
One of the most frequent
fallacies concerning debt collection legislation is the
contention that the primary beneficiaries are
"deadbeats." In fact, however, there is universal
agreement among scholars, law enforcement officials, and
even debt collectors that the number of persons who
willfully refuse to pay just debts is miniscule. Prof.
David Caplovitz, the foremost authority on debtors in
default, testified that after years of research he has
found that only 4 percent of all defaulting debtors fit
the description of "deadbeat." This conclusion is
supported by the National Commission on Consumer Finance
which found that creditors list the willful refusal to
pay as an extremely infrequent reason for default."
Senate Report No. 95-382 on the FDCPA.
That report also states
that "[t]he Commission's findings are echoed in all
major studies: the vast majority of consumers who obtain
credit fully intend to repay their debts. When default
occurs, it is nearly always due to an unforeseen event
such as unemployment, overextension, serious illness, or
marital difficulties or divorce."
The statutes in the CCPA
were necessary to protect the economy because of the bad
actions of certain industries. "The committee believes
that the serious and widespread abuses in this area and
the inadequacy of existing State and Federal laws make
this legislation necessary and appropriate." Id. These
are not just legislative history comments but can also
be found in the express words of Congress regarding all
of these statutes.
In 15 USC §1692, under the
“Congressional Findings and Declaration of Purpose:”
(a) There is abundant
evidence of the use of abusive, deceptive, and unfair
debt collection practices by many debt collectors.
Abusive debt collection practices contribute to the
number of personal bankruptcies, to marital instability,
to the loss of jobs, and to invasions of individual
privacy.
(b) Existing laws and
procedures for redressing these injuries are inadequate
to protect consumers.
(c) Means other than
misrepresentation or other abusive debt collection
practices are available for the effective collection of
debts.
(d) Abusive debt
collection practices are carried on to a substantial
extent in interstate commerce and through means and
instrumentalities of such commerce. Even where abusive
debt collection practices are purely intrastate in
character, they nevertheless directly affect interstate
commerce.
(e) It is the purpose of
this subchapter to eliminate abusive debt collection
practices by debt collectors, to insure that those debt
collectors who refrain from using abusive debt
collection practices are not competitively
disadvantaged, and to promote consistent State action to
protect consumers against debt collection abuses.
The “Congressional
Findings and Statement of Purpose” of the ECOA makes the
same point:
The Congress finds that
there is a need to insure that the various financial
institutions and other firms engaged in the extensions
of credit exercise their responsibility to make credit
available with fairness, impartiality, and without
discrimination on the basis of sex or marital status.
Economic stabilization would be enhanced and competition
among the various financial institutions and other firms
engaged in the extension of credit would be strengthened
by an absence of discrimination on the basis of sex or
marital status, as well as by the informed use of credit
which Congress has heretofore sought to promote. It is
the purpose of this Act to require that financial
institutions and other firms engaged in the extension of
credit make that credit equally available to all
creditworthy customers without regard to sex or marital
status.
Under 15 USC §1601, the
"Congressional Findings and Declaration of Purpose" for
TILA is equally clear:
Informed use of credit
The Congress finds that
economic stabilization would be enhanced and the
competition among the various financial institutions and
other firms engaged in the extension of consumer credit
would be strengthened by the informed use of credit. The
informed use of credit results from an awareness of the
cost thereof by consumers. It is the purpose of this
subchapter to assure a meaningful disclosure of credit
terms so that the consumer will be able to compare more
readily the various credit terms available to him and
avoid the uninformed use of credit, and to protect the
consumer against inaccurate and unfair credit billing
and credit card practices.
Under 15 USC §1681, the
FCRA "Congressional Findings and Statement of Purpose"
explains how inaccurate credit information harms our
economy:
(a) Accuracy and fairness
of credit reporting
(1) The banking system is
dependent upon fair and accurate credit reporting.
Inaccurate credit reports directly impair the efficiency
of the banking system, and unfair credit reporting
methods undermine the public confidence which is
essential to the continued functioning of the banking
system.
(2) An elaborate mechanism
has been developed for investigating and evaluating the
creditworthiness, credit standing, credit capacity,
character, and general reputation of consumers.
(3) Consumer reporting
agencies have assumed a vital role in assembling and
evaluating consumer credit and other information on
consumers.
(4) There is a need to
insure that consumer reporting agencies exercise their
grave responsibilities with fairness,impartiality, and a
respect for the consumer's right to privacy.
(b) Reasonable procedures
It is the purpose of this
subchapter to require that consumer reporting agencies
adopt reasonable procedures for meeting the needs of
commerce for consumer credit, personnel, insurance, and
other information in a manner which is fair and
equitable to the consumer, with regard to the
confidentiality, accuracy, relevancy, and proper
utilization of such information in accordance with the
requirements of this subchapter.
All of these statutory
provisions make the same point. Congress has determined
that to make the market perform properly, these statutes
must be followed. To enforce these statutes, the Court
and the defendant must fully understand the importance
of compliance with the statutes. Because of the
importance of these statutes, a consumer advocate must
cite these provisions and connect the harm that
violations pose to our national interest. Consequently,
a consumer advocate is really working on behalf of the
law-abiding businesses that are losing customers because
of the anti-competitive action of the businesses that
violate the statutes; the consumer advocate is also
working on behalf of the country as a whole to sustain
and support the life-blood of our economy.
The Congressional Record
can also be used to put a citation to all of these
important truths. Regarding the FCRA and the importance
of accurate credit information "[i]f these reports are
not accurate, or if they are distributed without a
legitimate purpose, then our whole society suffers.
Consumers may be unfairly deprived of credit,
employment, and their privacy. And businesses may lose
out on the opportunity to gain new customers." 140 Cong.
Rec. H9809, September 27, 1994, Statement of Rep.
Kennedy.
Real Individual Harm
Results From Violations of These Statutes
After ensuring that a
judge understands that the policies and purposes of
these statutes, the consumer advocate must explain the
real individual harm that results from violations. In
passing each of these statutes, Congress documented
those harms. Under the FCRA, "[t]he credit reports they
compile determine whether a consumer will obtain a
mortgage, a car or business loan, a job, and even an
apartment.” 16 USC §1681.
A common problem in the
credit reporting industry is inaccurate information
flowing from identity theft, and anyone who has been
subject to such a problem will know the frustration that
results. At the hearing before the Subcommittee on
Social Security Of the Committee on Ways and Means
(House of Representatives, One Hundred Sixth Congress
Second Session, July 17, 2000, Delray Beach, Florida,
Serial No 106-43) Representative Mark Foley related his
own experience.
And it was clearly
insulting having a collection agency calling you
constantly at home, leaving messages, when you get a
live person on the phone, threatening you if you didn't
pay your bill that you'd be listed as a deadbeat. It was
mind-numbing. . . . The collection agency, even after I
reached Target, consistently tried to call and disrupt
me at all hours of the day.
I can only imagine the
senior citizen who has had their card stolen having fear
of these type of tactics on the phone, threatening that
they would lose their home, that they'd lose their
credit, that they'd be taken seriously. And some may
even pay the bill that they did not owe simply to get
rid of harassers.
This testimony from
Representative Foley is not unique in content but is
rather unique in the first person from an elected member
of Congress. If more members of Congress were similarly
abused by corporate practices, then we could see even
better statutory protections for both the economy and
for individual consumers. For instance, if
Representative Foley had been a victim of a consumer
fraud and then forced into arbitration as a result of
small print clause on the back of the fourth page of a
form contact, then perhaps the Federal Arbitration Act
would be amended to protect consumers.
Information is power and,
to the extent that a consumer is denied information, the
consumer loses power. Although the loss of that power is
hard to value, it is always a loss. Especially when the
federal government has given the consumer an automatic
right to that information, no defendant can credibly
claim the information is not important. Late delivery of
the TILA disclosures is the main problem under the TILA
in the context of retail sales. A barrier to full
compliance of the TILA is that consumers do not know
about the creditor's obligation to deliver the TILA
disclosure prior to signing. Thus, they do not know that
the disclosures are to be used to shop for credit. Most
consumers are not even aware of the vital information
being withheld from them.
A final important fact
about all these statutes is that they were developed in
close consultation with the regulated industry. Each
statute is fine tuned for ease of compliance and lack of
barriers to legitimate business practices. Consumer
advocates also need to show how the statutes work
together and are easy to comply with. If a judge
believes a statute is a barrier to a business rather
than a benefit to the market, the judge will probably be
more reticent to enforce it.
As consumer lawyers become
better at explaining and enforcing these statutes, the
industry will respond. The response can be compliance or
it can be an effort to allow non-compliance to continue.
Mandatory pre-dispute binding arbitration clauses are
one of the most prevalent shields that some corporations
have recently adopted to avoid changing practices that
violate the law.
Conclusion
The basic principles of
the federal consumer statutes are easy to state and make
sense. Mandated honesty and required disclosures create
an informed consumer public and protect honest
businesses.
The statutes of the CCPA
are designed to keep our economy strong, and strong
enforcement of them is in the national interest. Without
honest and accurate information in the market, the
market misfires. The Enron and Worldcom debacles, are
examples of the tremendous harm that occurs when market
decisions are manipulated by false information. Truth in
individual decisions is important for the overall effect
when those decisions are summed.
By linking the violation
of each statute to the purposes of the statute, we can
clarify the issues and enforce the statutes as intended.
The reason to do so is simple. "No one has the right to
take for granted his own advantages over others in
health, in talents, in ability, in success, in a happy
childhood or congenial home conditions. One must pay a
price for all these boons. What one owes in return is a
special responsibility for other lives." Albert
Schweitzer, "Reverence for Life."
Disclaimer: The above Article
is intended to give you, the consumer, insight into various legal topics. This
information is not intended as legal advice, but rather helpful topical
information.
 If
you require professional legal services regarding
Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law issues, be proactive in
protecting your legal
rights by seeking the legal advice of
an experienced
Jacksonville criminal defense attorney
& lawyer. Contact
The Law Offices of
Steven M. Fahlgren, P.A.,
by calling
904.845.2255.
Jacksonville Attorney - Lawyer,
providing experienced Consumer Protection, Family Law, Estate Law,
Employment Law, Business Law, and Bankruptcy Law legal
representation in Jacksonville, Hilliard, Duval County,
Nassau County and the surrounding Northeast Florida areas.
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