May 17, 2012

Consumer Financial Protection Bureau Seeks Public Comment on Arbitration

Forced arbitration is a scourge on consumers' access to the courts. Private arbitration is unaffordable to most people. Shockingly, the arbitrators can ignore the facts and are not even required to follow the law. Often the case is kept secret. Corporations love arbitration as a way to immunize themselves from consumer protection laws. The courts have repeatedly said that Congress must act to limit the scope of arbitration. The opportunity to do that is finally here. Last year Congress enacted the Dodd-Frank Act, which set up the Consumer Financial Protection Bureau. This agency was the brainchild of Elizabeth Warren, who is now running for Senator in Massachusetts.

Under the Dodd-Frank Act, the CFPB is tasked with studying the arbitration problem in the consumer context and could even limit the scope of consumer arbitration. The study has just gotten underway. The Consumer Financial Protection Bureau has issued a call for public comment. The CFPB seeks to learn how arbitration clauses affect consumers and how effective arbitration is in resolving consumers’ issues. This inquiry will help the Bureau assess whether rules are needed to protect consumers.

Comments are welcomed until June 23, 2012. The Request for Information on Arbitration, as submitted to the Federal Register for publication, is available here

May 17, 2012

NHTSA Investigates Ford Sudden Acceleration Problems

Sudden acceleration complaints continue to plague Ford and now it looks like NHTSA may expand its probe of the problem. 2005-Ford-Taurus-4-Door-Sedan.jpg Initially the investigation focused on the 2005 and 2006 model years. However, The Detroit Bureau and other sources are suggesting that more models and model years could come under scrutiny, as the Mercury Sable joins the Taurus as a target of inquiry. The two sedans are similar, so this is not a surprise to many. But the move would expand the investigation from a few hundred thousand to over a million cars on the road.

Sudden acceleration continues to be an enigma in many instances. In the Ford cases, NHTSA experts are investigating a potential problem with the throttle getting stuck in open position, cruise control, other electronic components, and even the brakes. No one is suggesting this is a floor mat issue, as Toyota infamously claimed with respect to its sudden acceleration problems a couple of years ago. Ford says it is eager to cooperate with the investigation, but like other manufacturers, it refuses to rule out driver error. This is insulting to drivers who said they could only stop the vehicle by shifting into neutral or turning it off.

Until now, the main complaint against the Ford Taurus was that it had insufficient power in accelerating mode. In some parts, it even suffered the nickname "Ford Tortoise." The victims of sudden acceleration whose terrified accounts prompted the current investigation are not calling it a tortoise anymore.

May 16, 2012

Keyless Ignition - The Dangers of Convenience

keyless-ignition.jpg Carbon monoxide poisoning is a high price to pay for a little convenience. Incessant idling, however, can lead to injury or death in circumstances where a car's ignition does not turn itself off. There have been reported deaths related to vehicles that were inadvertently left running in closed garages, leading to build-up of the notorious odorless gas. This is particularly true since cars now run so much more quietly than before. Experts say drivers forget to press the "off" button, when they eliminate the habit of removing the key.

Consumer advocates including the American Association for Justice have urged the National Highway Traffic Safety Association to adopt a rule requiring keyless ignition engines in cars and trucks to shut themselves off after 30 minutes of idling. Even this request seems to allow excessive idling duration, due to the serious danger involved.

Gas poisoning is not the only problem with keyless ignition systems. It is one thing to forget to turn off a car, but it is scary to think of being unable to do so. Difficulties with engine shut-off arose in NHTSA hearings concerning sudden acceleration problems as well.

Meanwhile, the market continues to grow for keyless ignition options, as well as keyless entry systems. Who has not had the frustrating experience of losing one's keys? Unfortunately, the technology is struggling to meet the demand.

May 14, 2012

FTC Holder Rule Strengthens Consumer Rights

Last week, the Federal Trade Commission strengthened an important aspect of consumer protection, which we often use to prosecute cases of car dealer fraud. Formally referred to as The FTC Rule on the Preservation of Consumers' Claims and Defenses (16 CFR § 433), it is commonly referred to as “The FTC Holder Rule.”

The rule allows a defrauded purchaser to sue the lender, who has funded the fraudulent transaction, when the dealer arranged financing at the point of sale. Basically, when a car dealer sells a defective vehicle or otherwise commits fraud, the consumer may raise that claim as a reason not to repay a car loan, rather than have to sue the dealer separately while continuing to make car payments. The FTC Holder Rule makes it easier to resolve the matter and unwind the deal.

Actually an exception to the “holder in due course" rule, the FTC Holder Rule makes it far more practical for consumers to raise claims against sellers, even when the car dealer goes bust or bankrupt. This scenario is very common in the recent economic downturn, and we have seen many dealers commit egregious fraud in the desperation that prevails just before they go out of business. This might include selling rebuilt wrecks, failing to pay off trade-ins, finance fraud, loan-packing, forgery, selling flood-damaged cars, undisclosed resale of prior daily rentals, and all sorts of other deceptive practices. The FTC Holder Rule benefits the consumer public by encouraging lenders to scrutinize the car dealers with whom they form business relations and to insure that they are not just financing fraud.

The Rule is not new, but banks and their lawyers have long sought to limit its reach and effect. That will be a lot harder for them to do now. On May 10, 2012, the Federal Trade Commission (FTC) issued an advisory opinion affirming that consumers retain important rights under the FTC Rule. This does not change the law, but the formal clarification is welcome news for consumers. The opinion was requested by the National Consumer Law Center (NCLC), and joined by Public Citizen, U.S. PIRG, the Center for Responsible Lending, and the National Association of Consumer Advocates.

May 7, 2012

Senator Boxer Fights for Safer Rental Cars

U.S. Senator Barbara Boxer (D-CA) announced today that she has sent formal letters to the four leading rental car companies - Hertz, Enterprise, Avis and Dollar/Thrifty - (representing 92% of the daily rental car market) asking them to commit to protecting consumers from unsafe vehicles. She wants each company to go on record with the following pledge: “Effective immediately, our company is making a permanent commitment to not rent out or sell any vehicles under safety recall until the defect has been remedied.”

According to the National Highway Traffic Safety Administration (NHTSA) records, Hertz contends it has already adopted a policy consistent with this pledge. Senator Boxer’s letters urged the other companies to follow the example set by Hertz within the next 30 days. After that, Senator Boxer intends to publicize which companies have joined Hertz in this regard. “I will announce at that time which companies have agreed to make this pledge and which companies have instead chosen to continue putting their customers’ lives at risk,” she says.

Meanwhile, Senator Boxer has taken the matter a step further. She, along with Senator Chuck Schumer (D-NY), have introduced new legislation, S. 1445, entitled the "Raechel and Jacqueline Houck Safe Rental Car Act," that would bar rental car companies from renting vehicles under safety recall that have not been fixed. The bill is named after Raechel and Jacqueline Houck, two sisters, ages 24 and 20, who were killed when a recalled car they had rented from Enterprise caught fire and crashed into a truck.

We previously reported on similar California state legislative efforts here.