Monday, December 7, 2009

Commercial Law Course Survey Update

I have received 70 responses so far. Once again, I am only reporting the raw numbers to this point, so the percentages reflect the number of times the course option was selected as against the other options (including write in variations). I also include a list of institutions in which someone has posted a response, so if your institution is not represented, please take two minutes to complete the survey by clicking here.

Marc (MLR)

Martin, Evans, Wright and More on Consumer Issues in New Lydian Payments Journal

A little self promotion and more. Take a look at the new Lydian Payments Journal. The December issue features:
  1. David Evans and Joshua Wright: How the Consumer Financial Protection Agency Act of 2009 Would Change the Law and Regulation of Consumer Financial Products
  2. Jennifer S. Martin: What You Should Know about the Debit Card in Your Wallet: Where the Federal Reserve's New Overdraft May Fall Short
  3. Francesc Prior Sanz and Javier Santomá: Banking the Unbanked Using Prepaid Platforms and Mobile Telephones in the U.S.
  4. Ulf Mattsson: Demystifying PCI Technologies

Happy reading! Yes, after reading all the examinations. I've got a stack of first year Contracts exams coming my way this afternoon.


Sunday, December 6, 2009

Commercial Law Welcomes Glenys Spence!

Commercial Law is pleased to announce Professor Glenys Spence as our newest guest blogger. Professor Spence practiced civil litigation and immigration law both as a solo practitioner as well as with JBM Immigration Group. In her practice she has represented clients in family-based immigration and deportation defense since 2007. Glenys is an Assistant Professor at Phoenix School of Law. Professor Spence's research focuses on the United Nations Convention on the International Sale of Goods. We hope to hear her thoughts on the CISG and other commercial topics!


Wednesday, December 2, 2009

What the Fed's New Overdraft Rules Don't Do

Now that classes are over, I've been wanting to turn back to the Federal Reserve's new rules bank overdraft programs (See Hooray for the New Overdraft Rules). Here's a portion of an essay that I've put together for the Lydian Payments Journal:

The largest problems facing regulation of consumer depository accounts are ones created by the need to keep regulations in pace with innovation. That is, bank innovation results in products on the marketplace that are either completely new or are comprised of such variation that the products might as well be new. Services associated with debit cards are a perfect example because debit cards were not commonplace until the late 1990s. Debit cards attach to regular bank depository accounts, yet are not checks, pure ATM cards, or even credit cards. Due to the changing nature of banking products, any regulation must be flexible, rather than static. With respect to debit cards, innovation has progressed unchecked in the wake of consumer excitement for the innovation itself, without creating a parallel regulatory framework. Accordingly, any discussion of the issues consumer depository accounts should take up an examination of the relationship between consumers and banks and explore possible improvements to existing regulatory structure so it may better adapt to innovations in banking products.

Full disclosure of the benefits and detriments of the overdraft programs prior an active enrollment decision is the best approach. If under the Final Rules a consumer enrolls in overdraft protection, resolution of assent and fairness hinges upon the disclosure of the terms of the overdraft service and the practices involved in securing assent. For instance, even though Regulation DD affirmatively requires disclosure of fees, a GAO study found that consumers have difficulty obtaining account terms and conditions and complete fee information even when requested. Moreover, even if the bank discloses the fees, the government does not regulate the reasonableness of fees or the manner in which they are imposed. The terms of overdraft fees are most likely ones of “adhesion,” in that they are offered or imposed without the ability to negotiate them, “take it or leave it” terms. If the GAO is correct, then Banks often fail to disclose the terms at all, even when asked. So, will the Final Rules result in substantial changes in banking practices?

Disclosure is at the cornerstone to most consumer regulations and is the primary prong of financial regulation. The Final Rules address disclosure issues primarily through the model opt-in form that accompanies the rules (the “form”). Importantly, the form: (i) requires that banks affirmatively give customers knowledge of enrollment in overdraft services; (ii) specifies the fee amounts that a bank charges per overdraft transaction, any daily fee charged for the account being overdrawn, and any daily limits on overdraft fees; and (iii) contains information about other, less costly banking services and where the consumer can obtain more information. These changes are significant because under current practice banks enroll many consumers without their knowledge or consent and without such disclosures. Up front disclosure is a key feature of the Final Rules, especially since consumers sometimes have difficulty obtaining fee terms at many banks despite Regulation DD requirements of fee disclosure. Of course, no form is perfect and there remains the potential for consumer confusion.

Curbing bank practices that disadvantage consumers by increasing the amount of overdraft fees incurred is the second prong in the solution to the problems with overdraft protection services banks currently offer. On this point, the Final Rules fall short. Although the Proposed Overdraft Rules addressed the issue of debit card holds by reducing many of the holds from days to just hours, the Final Rules contain no restrictions on holds, leaving wide discretion for the length and size of holds. It is doubtful that a consumer who goes out to gas up the car and buy groceries will know that in order to avoid an overdraft fee caused by a two hour gas pump hold on their card, he or she may want to buy groceries before gas when account balances are low. The Final Rules also do not take up other banking practices that increase the amount of overdraft fees, such as batch reordering of transactions from largest to smallest.

The final prong of any solution regarding overdraft fees must address the size and numerosity of fees imposed for consumers who opt-in the service. While banks typically impose credit card over the limit fees on a monthly basis, banks charge overdraft fees on a per transaction basis. Some consumers may continue to believe that credit and debit cards work the same in this respect. Consumers also tend to believe that government regulation is merit oriented, rather than disclosure based. While some in Congress have urged restrictions on overdraft fees to a “proportional” amount, the Final Rules do not take up fee size (see Dodd Says Senate May Expand Beyond Fed Overdrafts). To the extent that some banks charge overdraft fees on NSFs of less than $5, the size of the fee imposed is clearly material to consumers. Some banks have altered current practices to address this issue.

While the Final Rules represent an improvement over the status quo in terms of informing consumers about enrollment in overdraft services, they do not represent a complete solution to open issues of debit and ATM overdrafts. From the industry perspective, there are genuine operational issues at some banks that will require retooling of existing systems. Much of this must take place by July 1, 2010. Despite the successes in the Final Rules, consumers should not believe that they represent a panacea for overdrafts. If they do, disappointment will follow. This type of regulation is long overdue, probably owing to the more recent development of the product and regulatory system’s inability to respond effectively and promptly to developing issues in newer products. At its simplest, a solution to the problems of consumer choice and disclosure in debit card overdrafts favors a default rule system that gives the consumers an arrangement with the lowest cost. Despite the criticisms herein, the Final Rules go a long way toward that goal.


Thursday, November 19, 2009

Call for Papers: February 2010 Contracts Conference at UNLV

UNLV's William S. Boyd School of Law will host a two-day conference, February 26 & 27, 2010, designed to afford scholars and teachers at all experience levels (including those preparing to enter the academy and those whose primary teaching appointment is not in a law school) an opportunity to present/demonstrate and discuss (formally and informally) recently-published and accepted-but-not-yet-published scholarship, works-in-progress, as-yet-fully-formed ideas for scholarship, and pedagogical innovations, and to network with colleagues -- and potential collaborators or mentors -- from around the country and the rest of the (predominantly) common-law world.

Invitation: We invite paper, presentation, and panel proposals exploring any aspect of contract law, theory, and policy writ large (including, but not limited to, bankruptcy/insolvency, commercial law, consumer law, dispute resolution regimes, family law, insurance law, legal systems, and restitution, in addition to more traditional contract topics) from a behavioral, comparative, critical, doctrinal, economic, empirical, equitable, historical, institutional, interdisciplinary, jurisprudential, pedagogical, philosophical, policy-driven, or political perspective. We also solicit volunteers to serve as moderators or discussants for panels that are not "packaged deals."

The CFPs issued earlier this year for the AALS Section on Contracts' January annual meeting program on New Approaches to Teaching Contracts: A "Teach-In" and the AALS Section on Commercial and Related Consumer Law's January annual meeting program on The Principles of the Law of Software Contracts: A Phoenix Rising from the Ashes of Article 2B and UCITA? each yielded more excellent proposals than either section could accommodate in New Orleans. Both topics remain quite relevant, and I hope to assemble one or more panels on each that will continue the conversations begun in New Orleans. I am also working on the opening plenary, my UNLV colleague Jeff Stempel is organizing a panel on insurance contracts, and Wayne Barnes (Texas Wesleyan) is organizing a panel on comparative contract law and theory. Those efforts, if all bear fruit, still leave room for many more presenters, moderators, and discussants.

We will try to accommodate as many presenters, moderators, and discussants as possible. We particularly encourage junior scholars and those who work in non-U.S. legal systems to propose papers or panels and to volunteer to serve as a discussant or moderator. We also welcome anyone who wishes to attend the conference without presenting or serving as a discussant or moderator. The educational and networking benefits alone are worth the price of admission.

Publication: There is no publication requirement for conference participants, although experience suggests that individual papers and panels often find good homes. The Nevada Law Journal encourages participants to submit individual and panel papers and hopes to publish several works from the conference in upcoming issues.

Likely Attendees: In addition to me, Jeff Stempel, and Wayne Barnes (mentioned above), as of November 18, the following have committed to attend, or expressed a strong desire to attend: Eniola Akindemowo (Thomas Jefferson), Roy Anderson (SMU), Wayne Barnes, Dan Barnhizer (Michigan State), Charles Calleros (Arizona State), Hazel Glenn Beh (Hawaii), Barbara Bucholtz (Tulsa), Gerald Caplan (McGeorge), Miriam Cherry (McGeorge), Carol Chomsky (Minnesota), Karen Cross (John Marshall), Sidney DeLong (Seattle), Larry DiMatteo (Florida, Warrington College of Business), Jay Feinman (Rutgers-Camden), Marjorie Florestal (McGeorge), David A. Friedman (Willamette), Larry Garvin (Ohio State), Danielle Kie Hart (Southwestern), Nicholas Johnson (Fordham), Yong-Sung Jonathan Kang (U. of Washington), Tadas Klimas (Lithuania), Chuck Knapp (UC-Hastings), George Kuney (Tennessee), Peter Linzer (Houston), Charles Martin (Florida Coastal), Jennifer Martin (Oregon), Meredith Miller (Touro), Marcy Peek (Whittier), Joe Perillo (Fordham), Deborah Post (Touro), Michael Pratt (Queen's University/Ontario), Cheryl Preston (BYU), Scott Pryor (Regent), Val Ricks (South Texas), Caprice Roberts (West Virginia), Irma Russell (Tulsa), Adam Scales (Washington & Lee), Andrew Schwartz (Colorado), Sean Scott (Loyola-L.A.), Jeff Stempel, Otto Stockmeyer (Cooley), Howard Walthall (Cumberland), Jarrod Wong (Pacific), and Debbie Zalesne (CUNY). All this without a proper CFP until now. I expect attendance will be at least double this number.

Submitting a Proposal: If you would like to propose a presentation or panel, please e-mail a title, brief description, and any supporting materials by January 4, 2010 to or snail-mail it to me at 4505 S. Maryland Pkwy., Box 451003, Las Vegas, NV 89154-1003. If you would like to discuss or moderate, please let me know your interests and availability by January 4. We will evaluate proposals as they come in and will consider on a space-available basis any we receive after January 4.

Preliminary Schedule: The conference program will begin both Friday and Saturday morning no later than 9:00 a.m. (grazing and conversational opportunities will start earlier) and will run until 5:00 or 5:30 p.m. each day.

Accommodations: The Hyatt Place next to campus (4520 Paradise Road, Las Vegas, NV 89169) is holding a block of rooms at the rate of $118.00 per night (plus tax). The official deadline for hotel registration at the conference rate is January 25, 2010. However, I encourage you to book sooner, as we blocked a limited number of rooms (due to the The Hyatt Place requiring the law school to guarantee at least 80% occupancy and pay the difference if actual registration was less than we anticipate) and will be more likely to get the Hyatt Place to make the conference rate available to additional attendees if early registration is robust.

To book a conference-rate room at The Hyatt Place, go to; choose a check-in date no earlier than February 25, 2010 and a check-out date no later than February 28, 2010; enter group code G-BOYD for Boyd School of Law Contracts Conference in the box labeled Group/Corporate #; hit the check availability button; if a room is available, verify that your group name is specified next to rate details and if everything matches, then hit book. If you have trouble booking online, or if you prefer to reserve a room over the phone, please call the hotel at (702) 369-3366.

Transportation: For attendees who stay at the conference hotel, The Hyatt Place provides airport shuttle service and we'll provide transportation between the Hyatt Place and the law school for those not wanting to walk the mile or so. Attendees who prefer to stay on The Strip or elsewhere are responsible for their own transportation.

Sustenance: Your registration fee will cover the costs of lunches both days and a reception and dinner Friday evening, as well as coffee, fruit, and baked goods each morning and cold beverage service and morsels each afternoon. The Hyatt Place also offers a complimentary continental breakfast, which might be particularly attractive to those whose body clocks are on Eastern or Central Time.

Registration: We're still finalizing the conference registration fee and process. The registration fee will be no more than $250. This is higher than past spring contracts conferences. Fortunately, the lower conference hotel rate than at prior conferences, free airport transportation for those staying at the conference hotel, and the relative ease and low cost of flying into and out of Las Vegas's McCarran Airport (which is less than two miles from the hotel) compared to the last three venues, will offset the higher registration fee.

Commercial Law Course Survey

I have received 43 responses to the survey on Commercial Law Courses that I posted yesterday. See below for the results so far (note that right now I am only reporting the raw numbers, but I may break the numbers down further as information continues to come in). Also the percentages at this point reflect the number of courses offered, not the number of institutions offering the course. As more numbers come in, I will break down the numbers to reflect institutional offerings, rather than mere occurrences. If you have not entered information on behalf of your school, please do so by clicking here. Its a very short survey and only takes two minutes to complete, if that.

Wednesday, November 18, 2009

Commercial Law Offerings

I am doing a quick curriculum survey of commercial law offerings at various schools in an effort to see how commercial law courses are taught in a variety of configurations. The survey is only two questions long and will require less than a minute of your time (maybe less than two minutes -- but I offer no warranties as to the time). Please click the link, identify your school and check all of the boxes that apply to your institution regarding the commercial law courses offered by your school. And for those curious as to the overall results, I will post results as they come in updating as appropriate. I will not post by school, but rather will likely group the results according to tiers or by overall group size.

Marc (MLR)

Monday, November 16, 2009

Fed Targets Gift Cards

The Federal Reserve is on a consumer protection roll. Last week, the Fed tackled overdraft fees on point-of-sale and ATM transactions (see Hooray for the New Overdraft Rules). Today, the Federal Reserve announced proposed rules concerning gift cards aimed at fees on the cards and expiration dates (see press release). The highlights are that providers cannot charge fees unless:
  1. The card is inactive for one year;
  2. No more than one fee is charged monthly; and
  3. The provider gives notice of the fees to the consumer.

Moreover, cards cannot expire for at least five years after purchase or reloading of the card. Both store-specific and network based cards are covered by the rules.


Saturday, November 14, 2009

AALS Program and Print Symposium on the Principles of the Law of Software Contracts

The AALS Section on Commercial and Related Consumer Law invites you to attend our Annual Meeting program on The Principles of the Law of Software Contracts: A Phoenix Rising from the Ashes of Article 2B and UCITA? and solicits additional proposals for the companion symposium issue.

The Topic: On May 19, 2009, the ALI approved the Principles of the Law of Software Contracts, which undertake to weave the currently divergent threads of law governing software contracts into a coherent whole that will guide parties in drafting, performing, and enforcing software contracts, assist courts and other arbiters in resolving disputes involving software contracts, and, perhaps, inform future legislation addressing software contracts. Do the Principles clarify the law of software contracts? Will they successfully unify the law of software contracts? Are they consistent with current best practices in software contracting? Will they encourage desirable future developments in the law and practice of software contracts? These are among the questions our program speakers will address.

The Program: Our annual meeting program, scheduled for Saturday, January 9, 10:30 AM to 12:15 PM, in the Magnolia Room, Third Floor, Hilton New Orleans Riverside, will feature Principles Reporter Bob Hillman (Cornell) and Associate Reporter Maureen O’Rourke (Boston U.), who will offer their unique insights on the drafting process, key substantive provisions, and their legal and practical implications; Amy Boss (Drexel), who will add her insights about the failures of the UCC Article 2B project and UCITA and the prospects for the Principles’ success; Juliet Moringiello (Widener), who will discuss her and co-author Bill Reynolds's (Maryland) paper "What's Software Got to Do With It?," offering their perspectives on the Principles process, largely ignoring past efforts and debates, and addressing some of the assumptions underlying the Principles and how they address those assumptions; and Florencia Marotta-Wurgler (NYU), who will discuss her and co-author Yannis Bakos's (NYU Stern School of Business) paper "How Much Does Disclosure Matter?," which delves deeper into the value of disclosure -- an important assumption underlying the Principles and a subject the Principles tackle substantively -- and augments the conceptual discussion with empirical analysis.

The Symposium Issue: The Tulane Law Review will publish a print symposium issue including papers from most of our presenters, papers selected from among those who responded to our initial call for proposals as well as others from whom we solicited contributions, and some shorter responses and replies. We can accommodate a limited number of additional papers, responses, and replies in the symposium issue, which is scheduled to go to press in late summer 2010.

How to Submit a Paper or Proposal: If you would like to contribute to the print symposium, and want your proposal to receive full consideration, please e-mail an abstract, précis, or draft by Monday, December 14, 2009 to Professor Keith A. Rowley, Chair of the AALS Section on Commercial and Related Consumer Law. E-mail: We may consider submissions received after December 14 on a space-available basis. Executive Committee members and the Tulane Law Review's symposium editors will review all timely submissions and notify no later than Monday, January 11, 2010 those authors we would like to contribute to the print symposium.

Friday, November 13, 2009

Hooray for the New Overdraft Rules

Yes, its taken a long time. Yes, it has needed urging through proposed legislation in Congress. Yes, it has taken the coordinated efforts of several federal agencies. But, success at last. Yesterday, the Federal Reserve Bank announced final rules amending Regulation E of the Electronic Funds Transfer Act (see press release). As we've complained here before, these overdraft charges amount to about $1.7 billion each year in fees to banks (See FDIC Study, How Your $4 Cup of Coffee). There were a number of touchy issues with the banks pushing back firmly on how the rules would come out. Fortunately, the Federal Reserve seems to have come down firmly on the side of consumers on most of the issues primarily raised by debit card use.

So, here are the highlights:
  1. Banks must comply with the Final Rules as of July 1, 2010

  2. Banks cannot charge an overdraft fee on ATM and point-of-sale debit card (POS) transactions without the customer affirmatively opting-in to overdraft protection

  3. The rules apply to existing and new accounts

  4. Banks must offer the same account terms to customers who do not choose overdraft protection for ATM and POS transactions

Three issues remain unresolved by the Final Rules: (i) the size of overdraft fees (often $35 per transaction with no daily limit on the number of transactions charged; (ii) the batch reordering of transactions done by banks to increase the amount of fees generated on transactions by customers who do opt-in; and (iii) debit holds that trigger overdraft fees on transactions such as gasoline, hotels and restaurants. These gaps aside, the progress made by the Federal Reserve on debit cards is substantial.

Remember, banks can still charge the fees on those who have not opted-in until July 2010. So, still use your debit cards with care. As for me, I will not be opting-in, but will await the sales pitch that banks will inevitably make.


Thursday, November 12, 2009

Phillip Keitel on Gift Cards

'Tis the season for gift cards! While this piece is from 2008, Phillip Keitel of the Philadelphia Branch of the Federal Reserve Bank has written The Laws, Regulations, Guidelines, and Industry Practices that Protect Consumers Who Use Gift Cards. Here's the abstract:

This paper discusses consumer protections available to gift-card users. Specifically, it examines the ways in which value loaded at the time of purchase is protected for future card use or returned to consumers when the card is not used or has expired. The consumer protection information included in this paper is derived from a number of sources, including several types of state statutes, Federal Trade Commission decisions, financial industry regulatory agency guidelines, and previous interviews with payments industry experts regarding practices concerning network-branded gift cards. This paper expands research begun by the Payment Cards Center in 2004 into prepaid cards generally and the protections available to consumers who use gift cards specifically.

Happy shopping!


Tuesday, November 3, 2009

Update on H.R. 3126 Consumer Financial Protection Agency Act of 2009

The U.S. House of Representatives Financial Services Committee passed H.R. 3126, a bill for the creation of the Consumer Financial Protection Agency (CFPA), Oct. 22 in a 39-29 vote. The bill does not have a date scheduled for a full House vote, and the Senate does not have a companion bill proposed at this time.

In case you've not been following this, the CFPA would have the authority to write new consumer protection rules in the arenas of lending and credit, to monitor banks and other financial institutions for compliance with these rules, and to penalize institutions for any infractions. The CFPA would also have the ability to ban products, marketing tactics, and other business practices that it deems “unfair, deceptive, or abusive.”

The Financial Services Committee added several amendments which altered the Obama Administration’s original outline of the agency. An amendment added Oct. 21 exempts the insurance agency from CFPA oversight and prevents the agency from interfering with state insurance regulators’ oversight of insurance companies and products. An amendment offered by Rep. Maxine Waters (D-CA) adds five representatives from the fields of “consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgages” to the CFPA Oversight Board. Another amendment phases out the Home Valuation Code of Conduct; the amendment would allow all originators, licensed or registered in accordance with the SAFE Mortgage Licensing Act, to order appraisals directly.

The bill is now over at the House Energy and Commerce Committee which appears to be amending the bill to replace the executive who was to run the agency with a five-member commission with staggered terms.
- RH (Reid Haataja, posted by JSM)

Monday, November 2, 2009

Harry Flechtner on the Scope of the CISG

Those those CISG fans, Professor Harry Flechtner, University of Pittsburgh School of Law, has a new piece Selected Issues Relating to the CISG's Scope of Application. The abstract is as follows:
This paper addresses two issues concerning the scope of the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), both of which have arisen in recent decisions applying the Convention: 1) whether requirements imposed by U.S. domestic sales law on attempts to disclaim implied warranties apply to attempts to derogate from the seller‘s obligations under Arts. 35(2)(a) & (b) CISG; and 2) whether burden of proof questions that are not expressly addressed in the CISG are governed by the general principles of the CISG. The paper defends the use of the distinction between substantive and procedural law in defining the scope of the CISG with respect to burden of proof issues, and in determining the whether the Convention provides for the recovery of damages for attorneys’ fees incurred to litigate a claim under the CISG. The paper concludes by arguing that defining the limits of the Convention‘s scope is critical to its success, and to the success of future attempts to create uniform international commercial law.

Happy reading.


Thursday, October 29, 2009

Consumers May Buy Less Halloween Candy

A Time story this week reports that consumers will spend less on Halloween candy this year! Don't worry too much about this being a terribly large crisis driving little children into a frenzied panic comparable only to a bank run . . . the average spending is expected to be $56.31 per person, down from $66.54 last year. And, no worries, apparently the name brand candies will win out over store brand. As for our family, with three kids we've invested in our share to keep the economy going forward. Miniature Play Dough, chocolates and bubble gum eyeballs will be featured at our door on Saturday.

For the safety conscious, Consumer Reports has a nice piece on Halloween safety. Light the front walk, drive carefully, carry flashlights, practice fire safety with those pumpkins, etc.

Happy Halloween and have fun trick-or-treating!


Baby Einstein May Not Make Your Kids Smarter!

Meredith Miller over at the Contracts Blog reported on this little dispute that Disney has had with a consumer group over its Baby Einstein products. See, Miller, Important Consumer Alert. I have to admit that we own about fifty of these dvds that came in a set and my little guys loved them. Are they smarter as a result of Baby Einstein? Well, of course I think they are . . . I can say the kids like the classical music and I play them in Spanish so that they dvds reinforce the second language they are learning.

From Disney's website:

For the past several years, Baby Einstein has been under attack by propaganda groups taking extreme positions that try to dictate what parents should do, say and buy. Our philosophy has always been to focus on creating products that parents and babies love, and to not get sidetracked and pulled down into their street fight.

Unfortunately, with Susan Linn’s latest stunt, we cannot be silent any longer. Linn’s obvious dislike for Baby Einstein has now turned into a sensational, headline-grabbing publicity campaign that seeks to twist and spin a simple, customer satisfaction action into a false admission of guilt. This is clearly not the case.

Linn’s moves are carefully crafted to prey on parental guilt and uncertainty. This time, she began by asking the Federal Trade Commission (FTC) to go after Baby Einstein because, she said, we claimed that Baby Einstein was educational. But we do not make any such claim – and the FTC brought no action.

Not content to rely on the judgment of the federal government, her attacks continued and escalated despite the fact that her assertions have no merit.

That’s where we are today. However, we took a very different approach. We strongly believe that, unlike Linn, our consumers find value in our product, and rather than continue to fight with her, we decided to leave it up to those consumers. That is why we extended a refund policy that was already in place. Although she would like to claim otherwise, there is nothing extraordinary about a company’s willingness to stand behind its product. To the contrary, it is the strongest possible show of confidence in it.

Baby Einstein announced this offer in a press release issued on September 4, 2009, which was largely ignored by the media. Linn’s latest public relations blitz simply distorts the facts and misleads the public. In the end, this smear campaign has everything to do with Linn trying to generate ink and funding for her cause, and not about the value that consumers find in our product.

Thank you for letting us set the record straight.


Susan McLain
General Manager, The Baby Einstein Company
Not being a big fan of television for kids, we actually found the Baby Einstein dvds had some positive, if not wholly education components. But, clearly there is a difference of opinion. It is difficult to make this really a good case of a breached warranty. It would have to be an express warranty (affirmation of fact) under UCC 2-313. The case that the dvds did not make your kids smarter would seem to have problems on the arguments of opinion, puffery and the like. Disney has put a stop to any claims by just offerring the refund.

In case you want your refund, see

Credit Card Rates Up 20%

This Today Show piece discusses a study about increasing credit card rates which finds a 20% across the board rate increase. On of the consumers interviewed is actually a banker complaining of a 20% increase by Chase on his card.


Tuesday, October 27, 2009

Dodd Seeks to Freeze Credit Card Rates

In a new move against the credit card interest rates, Senator Christopher Dodd introduced new legislation attempting to freeze credit card rates. It seems that many card companies are attempting to increase rates before the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act goes into effect (see Dodd Bill and Dodd Pushes). The banks argue that the freeze would require them to cut back on lending.

Consumers are justifiably mad about the rate hikes (See Debtors Revolt). The Debtor's Revolt has a new youtube video where she calls Chase Bank for raising her interest rate to 21% and closes the account. While I applaud her "revolt" response to bank's raising rates without good cause to do so, consumers need to be cognizant about the effect that closing accounts has on their credit scores. This is particularly true when it is a longer held account (in the Debtor's Revolt Chase incident, it appears to be a newer account as she mentions an introductory rate). Having received one of these rate increases in the mail myself recently, it reminds us all to read these stock letters from the card companies. While paying off credit card debt has historically been a good thing, the changing strategies of banks raising rates, closing accounts and reducing credit lines may force consumers to be more cautious than ever with card companies (See Suzi Orman, Change in Credit Card Strategy). Let's see if Dodd can plug this hole.
See here for the video:


Toys R Us to Feature FAO Schwarz

Something to expect this holiday season, Toys R Us will now feature FAO Schwarz boutiques. See Toys R Us to Feature. When FAO went out of business, Toys R Us bought the rights to the name and now intends to use it in about 600 of its stores. Not only will there be in-store purchasing, but there is a website ( and a holiday catalogue coming. The concept, of course, is to offer different toys that aren't otherwise available. Yes, the prices may be higher in a year that consumers might be looking to cut back a bit. Toys R Us has bought up a number of other brands of late (, babyuni- and the resource site Always on the lookout for fun toys for my own kiddos, I found a set of World of Eric Carl Bath Squirty Toys that my boys will love. And, priced at just $7.99, very reasonable.

Happy shopping!


Monday, October 26, 2009

Banks Impose Fees on Those Who Pay Off Credit Cards

Yep, had to know this one was coming. As I watched the Today show this morning, a piece came on about credit card fees (see also MSNBC, USA Today). Not only has the financial crisis resulted in consumers being squeezed by rate hikes (see Consumer Revolt), but banks face new disclosure and other requirements under the Credit Card Holders Bill of Rights Act (see Obama Signs). Banks are also scrambling to head off new debit card rules that will surely curtail fees generated by overdraft charges (see Big Banks Alter and Back to Work on Debit). Citibank and Bank of America are the banks imposing these new fees, for consumers who pay off the balance every month, who don't carry a high enough balance or who keep open lines of credit in the event of emergency. Of course, consumers have to be careful in cutting up cards to avoid these fees as it can negatively affect their credit scores. Although consumers can shop around for banks that are not imposing these fees, one must wonder how quickly other banks will follow suit. While credit unions and smaller banks might still provide low cost cards, those options might not be available to many consumers who've been hit hard by the financial crisis. As always, be careful with your cards and reexamine which ones you really want to keep.

Here's the Today show piece:


Saturday, October 24, 2009

Bernanke Speaks on "After the Fall"

This week Ben Bernanke spoke in Chatham, Massachusetts on the role of the Federal Reserve after the crisis (See Bernanke Speech). Bernanke took the opportunity to observe the difference that a year makes in world finances, but urged (again) that with the crisis "abating" Congress must still act to prevent a future crisis of this severity.

We have seen numerous instances when weaknesses and gaps in the regulatory structure itself contributed to the crisis, many of which can only be addressed by statutory change. Notably, to promote financial stability and to address the extremely serious problem posed by firms perceived as "too big to fail," legislative action is needed to create new mechanisms for oversight of the financial system as a whole; to ensure that all systemically important financial firms are subject to effective consolidated supervision; and to establish procedures for winding down a failing, systemically critical institution without seriously damaging the financial system and the economy.
Bernanke went on to comment on a number of actions the Federal Reserve has taken and also to to take up the issue of consumer protection. Bernanke observed that "effective consumer protection promotes healthy competition in the financial marketplace, supports sound lending practices, and increases confidence in the financial system as a whole." Bernanke commented on the Fed's efforts using consumer testing to help determine when consumers understand financial products and communications from financial institutions. The Fed has used consumer testing in the debate involving debit cards, for instance. While no final regulations are yet in place for debit cards, the consumer testing tool may turn out to help the Fed tackle issues surrounding clarity of disclosures.

Bernanke has been hammering on the topic of needed regulatory changes for some time now. Let's hope that Congress is listening.


Tuesday, October 20, 2009

Back to Work on Debit Card Rules

We've been discussing for some time on the issue of debit card overdrafts (See Big Banks Alter Debit Overcharge Rules , New York Times Takes on Overdraft and How Your $4 Cup of Coffee Can Cost $34 or More), with no success on the rulemaking front. The Federal Reserve has announced, though, that rules are close to completion and will be in the form of an opt-in option for consumers (See WSJ, Fed is Near New Fee Rules). Governor Tarullo of the Fed testified last week before the Senate Subcommittee on Financial Institutions, Committee on Banking, Housing, and Urban Affairs that the rules are near completion.

Although the Fed seems poised to finally move on debit cards, Congress appears to lack faith in the ability of the Fed to get this one done. While the Fed has lingered in its rulemaking, the Center for Responsible Lending reports that overdraft fees have increased 35% in the last two years alone. Senator Chris Dodd is leading the charge for Congressional intervention on debit cards. While rulemaking has been long coming, the pressure by Congress seems to also draw attention to the Fed's inability at times to protect consumer interests as part of its core mission. The situation of debit cards is but another example of why the Consumer Financial Protection Agency is a good idea (See Debate Heating Up). This may well be enough to spur the Fed to finishing up the debit card rules. Here's a piece on the proposed legislation.


Monday, October 12, 2009

Comsumer Financial Protection Debate Heating Up

This weekend's New York Times had a piece by Joe Nocera titled Have Banks No Shame? in favor of the Consumer Financial Protection Agency (CFPA). Nocera hits it plainly remarking the CFPA's "sole goal would be to try to keep bank — and nonbank — customers from being gouged, deceived or otherwise taken advantage of." It seems like a simple proposition. How could anyone be opposed to this? Of course, there are detractors. The American Banker's Association's (ABA) website has as one of two "urgent action alerts" the opposition of the CPFA. The ABA explains "a separate consumer regulator is not necessary and is in direct contradiction with the existing approach which recognizes that consumer protection and safety and soundness are inextricably bound and should not be separated." Not necessary is a translation of business as usual. A recent editorial at the Wall Street Journal argues that the CFPA will unleash Fifty Eliot Spitzers on the banks for the purpose of harassment. Both represent a call to defeat the CPFA. This piece simply sounds in scare tactics.

Todd Zywicki of George Mason has argued one of the more reasoned oppositions that I've seen. His basic argument seems to be that the CFPA will not increase market competition and goes beyond historical restraints on lending. Zywicki believes that credit card debit is simply in substitution for other debt that consumers have always had, the CFPA will increase the cost of credit and that most consumers understand the products (See, Zywicki Testimony). I disagree with Zywicki on a number of points, particularly with respect to complexity of and transparency in marketing of financial products and basic fairness. I don't believe that consumers understand the terms offerred on financial products or even that lenders and banks actually disclose all relevant terms (c.f., FDIC Study on Bank Overdrafts). Moreover, without a regulator whose mission it is to take up consumer issues, there are impediments to regulatory intervention in products that are not as much on the Federal Reserve's top list, such as debit card overdraft fees. Nocera pretty much sums it up well: "The sooner we can pass the thing, the better."

Here's an interview that Zywicki arguing against the CFPA:


Friday, October 9, 2009

Obama Speech on Consumer Protection Agency

Sure, President Obama won the Nobel Peace Prize today, but he also spoke in support of the proposed Consumer Financial Protection Agency (CFPA). Interestingly, President Obama took up issues not only of mortgages, but of loans in general, even payday loans. He even mentioned one of my favorite gripes, bank overdraft fees. Moreover, he took aim at those opposed to the CFPA. From the transcript:
This agency will have the power to make certain that consumers get information that is clear and concise -- in plain language -- so they can compare products and know exactly what they're getting themselves into. It will ensure that banks and other firms can't hide behind these ridiculously confusing contracts -- pages and pages of fine print that nobody can figure out. It will have the ability to enforce and build on the credit card reforms we passed earlier this year, so that consumers aren't hit with unfair rate hikes and penalties, or hidden charges. It will require brokers to look out for the interests of families if they give advice about mortgages. And it will ensure transparency and fair dealing for other financial products, like bank overdraft services and payday loans.

Here's the video:


Adam Levitin on the Consumer Financial Protection Agency

Georgetown's Adam Levitin recently wrote The Consumer Financial Protection Agency, a Pew Financial Reform Project briefing paper. Adam's work is important to this initiative to create the CFPA (See Communication From Academic Faculty). Here's the abstract:

The Obama administration has proposed restructuring financial services regulation by transferring all consumer protection functions from existing agencies to a new Consumer Financial Protection Agency (CFPA). The goal of the CFPA legislation is to address the flaws in the regulatory architecture that have inhibited effective responses to the substantive problems, rather than mandate specific new substantive consumer protection laws.

The current consumer financial protection is based on disclosure regime and is policed through supervisory feedback, enforcement actions, and occasionally prohibitions on terms, products, and practices that are deemed inherently unfair and deceptive. On the federal level, consumer protection in financial services is divided among a number of agencies: the OCC, OTS, NCUA, Federal Reserve Board, FDIC, FHFA, HUD, VA, FTC and DOJ. Some of these agencies have the ability to promulgate regulations, some also exercise supervisory authority over financial institutions, and some may only enforce existing regulations. Sometimes authority is over a class of institutions, and sometimes it is over a particular type of product.

There are four main structural criticisms of the current regulatory structure: that consumer protection is a so-called 'orphan' mission; that consumer protection conflicts with, and is subordinated to, safety-and-soundness concerns; that no agency has developed an expertise in consumer protection in financial services, and; that regulatory arbitrage of the current system fuels a regulatory race-to-the-bottom.

Consolidation of consumer financial services protection authority could: place all financial services companies, regardless of the form of their charter, under a single regulator, thus ending its orphan status; separate consumer protection from safety-and-soundness regulation, thus ending subordination; encourage the development of a deep bench of regulatory expertise and knowledge, and; end the opportunity for regulatory arbitrage and any potential race to the bottom.

There are several potential concerns about a CFPA: conflicts with prudential regulators; ambiguity with respect to Consumer Reinvestment Act authority, and; potential overregulation resulting in higher costs of financial products, less product availability, and discouragement of innovation. Still, there are compelling reasons to believe that the present regulatory architecture cannot produce the optimal consumer protection regime and will continue to fail in its task, resulting in unfair treatment of consumers and a potentially significant source of systemic risk. To this extent, consideration of a CFPA should strive to distinguish between the basic thrust of the legislation - a consolidation of the regulatory authority of - and the proposed new substantive powers granted to the agency.


Mark Roark on Fixtures

Commercial Law's Mark Roark (LaVerne) has written Defining Fixtures in Law and Policy in the UCC, which will appear in the Cincinnati Law Review. It always warms my heart to see great law review placements on UCC papers! Here's the abstract:
This article offers both a concession and a critique. The article concedes that the law of fixtures under the Uniform Commercial Code is helplessly tied to the various state laws dictating real estate. The natural impact of explicitly tying a UCC doctrine to multiple state law variation is the automatic loss of uniformity. At the center of the fixtures discussion in the UCC is a definition that does not define, and more importantly, does not limit doctrinal extension. Because the UCC offers a non-defining definition, this article considers the function of the fixtures definition. Specifically, the article looks to the original drafters comments about what the purpose of the fixtures definition was intended to accomplish.

Conceding that the definition in the UCC does not define, the article then critiques the definition by asking what role the definition plays in the game of seeking uniformity. Specifically, the article argues that the fixtures definition in UCC Section 9-102(a)(41) performs a function just as important as defining - it narrates. The article argues that the drafters in deciding on a definition of fixtures isolated themes of commonality and described those themes in a concise, but useful description of the fixture. Those themes include the joining of goods to realty, the concept of relation, and the emphasis on interests as a governing factor in the fixtures analysis. The article argues that the narration accomplished by the UCC allows for uniformity, not by mandatory uniformity, but by synchronic dialogue - allowing the themes to create images and the images to compel instinctive beliefs. The article argues, however, that the description provided by the drafters should be reunited with the substantive provisions relating to fixtures since each are tied to the other’s understanding.


Thursday, October 8, 2009

Consumer Revolts Over Increased Credit Card Fees

I liked this story about a woman who took on Bank of America after they increased her credit card rate to 30% after she was late on one payment in 2008 and a second in 2009. After she launched a widely distributed youtube video, Bank of America agreed to reduce her rate to 12.99%. It is a shame that consumers have to go to such lengths to get a favorable bank response. Here are the videos before and after the renegotiation:


Lenders Modifying Home Mortgages

Today's news included a Treasury report that lenders have modified 500,000 home loans to keep home owners in the homes under a trial loan modification program. I applaud the government for encouraging such modifications which would hopefully increase the value to both the mortgage holders and homeowners alike by protecting the asset and obtaining payment on the loan. Yet, I am reluctant to find joy in the number of loans so modified or the ease for consumers seeking loan modifications.

The Making Home Affordable modification program originally advertised that it would help 4 million homeowners retain their homes. (See, Foreclosures, New York Times). Mortgage foreclosures during the second quarter of 2009 were up 16%, reflecting falling housing values and rising unemployment. New Treasury plans include incentives for "short sales," which allow homes to be sold at less than loan value (i.e. market value) to head off foreclosures that are coming in the future (Short Sales Plan).

Two of the biggest impediments to modifications or short sales seems to be time and difficulty. While keeping homes out of foreclosure appears a good idea, lenders are likely earning default fees on the loan. Lenders may also be reluctant to modify loans too early, hoping owners will bring the loans current. Yet, waiting too long can allow the home to slip into foreclosure. Buyers interested in a short sale may also bolt if the bank takes too long or does not approve the home price, which is likely to be substantially below the loan value on the property. The difficulty of obtaining loan modifications and conflicting information received from lenders discourages eligible modifications under the federal plan.

While our home thankfully is not in foreclosure, I can report on our in process home refinancing that probably represents much of the frustrations that home owners face. For instance, in shopping for rates and costs, we found that some of the lending representatives did not return calls. Others had voice-mail boxes that were full so that messages could not be left. One Citi Mortgage representative gave us refinancing numbers, but then later we were never able to reach her. A second Citi Mortgage representative told us the initial numbers were actually wrong. Hardly inspiring. In the end, Wells Fargo actually negotiated rates that beat the competitors, so we are now working on reviewing paperwork with them. We're not done, but at least the refinance is locked in at a favorable rate. Yet, I can see from our own experience for an uncomplicated refi the frustrations that homeowners are reporting, particularly when the situation is complicated by a delinquency or foreclosure.

So, is the 500,000 milestone a reason to celebrate? Probably. But my enthusiasm is lessened by the amount of transactions that remain.


Tuesday, October 6, 2009

Are Card Companies Reverse Robin Hoods?

The New York Times is running a series on various forms of payment cards, and a re-occurring theme appears to be whether card companies effectively rob the poor to reward the rich. Are they Reverse Robin Hoods. Last Friday, Floyd Norris's High & Low Finance column claimed that low income consumers actually pay more than the affluent. He reached this conclusion by reasoning that merchants charge everyone the same price, but that those who carry reward credit and debit cards get a rebate from their card companies. The less affluent who pay in cash thus effectively pay more. I have argued elsewhere that Norris's analysis is too simple and may well be wrong. On today's front page, however, Times reporter Andrew Martin has a story entitled "Prepaid, but Not Prepared for Debit Car Fees" that shows that the situation for the poor may be even worse. This piece argues that pre-paid debit cards -- used by many low income people who lack bank accounts -- charge outrageous fees. These cards are a relatively new product not addressed in the recent credit card legislation or bills addressing traditional debit cards linked to checking accounts. One has to wonder why a pre-paid product should trigger high fees given that the issuer is bearing no credit risk or the administrative costs of billing the cardholder.

These articles, of course, raise more questions than they answer. Is it really true that merchants could lower their prices if they stopped accepting credit cards? If so, why don't we see more merchants doing it. Wouldn't the lower prices they could charge give them a competitive advantage? If not, what is it about the payment card market that seems immune to many forms of competition? For example, why would low income consumers waste money on a pre-paid debit card when they could open a bank account with lower fees? Banks seem to be responding to threatened debit card legislation, and American Express has taken a competitive stance on gift card fees, apparently spurred by recent credit card legislation. Shouldn't market pressures produce competition without actual or threatened legislation? In future posts, I'll try to explore some of these questions and consider ways in which the law might help advance consumer interests.

Wednesday, September 30, 2009

Confusing a Butt with a Face

Take a look at this funny story about a St. Louis teen in hot water for starting his own line of clothing in competition with North Face Apparel. The teen, Jimmy Winkelman, has marketed clothing under the name of "South Butt," making a whopping $4900 in annual revenue his first year. Despite the meager earnings of this 18 year old's company, North Face Apparel has threatened to sue. Albert Watkins, attorney for Winkelman, commented: “North Face has indicated as a matter of record that the public will somehow be confused by the South Butt product,” Watkins said. “There appears to be little recognition, if any, that the savvy of consumers precludes anyone from confusing a face with a butt.”

Jimmy and his friends even have a web site and a marketing video:

While I have no idea how the intellectual property issues will play out, I have utmost respect for the budding entrepreneur. You go Jimmy!


Tuesday, September 29, 2009

Commercial Law Welcomes Brian McCall!

Commercial Law is pleased to announce that Professor Brian McCall from University of Oklahoma will be guest blogging with us. Brian's most recent papers The Achitechture of Law: Building Law on a Solid Foundation The Eternal and Natural Laws and Its Just Secured Credit: The Natural Case Law in Defense of Some Forms of Secured Credit (Indiana Law Review), Learning From Our History: Evaluating the Modern Housing Finance Market in Light of Ancient Principles of Justice (South Carolina Law Review) all employ a historical look at the law and finance.

We look forward to having Brian's historical viewpoint.

Communication From Academic Faculty Who Teach Courses Related to Consumer Law and Banking Law

Seventy-three professors issued a joint letter supporting the creation of a Consumer Financial Protection Agency at the federal level. We are strong supporters of the importance of this legislation in that consumer transactions lack the transparency that is necessary for honest and fair financial products, including, a wide variety of debt instruments (i.e., mortgages, credit cards), payment devices such as debit cards, and banking fees in general. The letter supports the passage of H.R. 3126, introduced by Rep. Barney Frank (D), creating the oversight agency. Some of the impediments to governmental oversight have included the dispersion of regulatory authority over a number of federal agencies none of whom has consumer issues as the primary mission, emerging financial products and technology that raise new regulatory issues, and industry opposition. We will certainly follow the progress of this legislation (and related legislation such as the Consumer Overdraft Fair Practices Act) and the industry response (see, Big Banks Alter Debit Overcharge Rules).

The press release:

FOR RELEASE ON SEPT. 29, 2009 AT 10:00 AM:
Consumer and Banking Scholars Show Support for the Consumer Financial Protection Act
Hempstead and Jamaica, NY – On September 30, 2009, the House Financial Services Committee, chaired by Representative Barney Frank, will hold hearings on H. 3126, titled “the Consumer Financial Protection Act” which would create an independent Consumer Financial Protection Agency. Today more than seventy law scholars who teach in fields related to consumer law and banking law have signed a detailed Statement of Support demonstrating their strong views about the importance of this legislation.

The faculty endorsing the Statement of Support include leading scholars who teach in fields related to consumer law and banking law who teach at many of the nation’s leading American law schools—in states including Alabama, Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New York, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming as well as Washington, D.C. The signatories have no economic stake in the passage of this legislation.

The Statement concludes that on balance, the existing regulatory structure places “a higher value on protecting the interest of financial product vendors who promote complex debt instruments using aggressive sales practices, than on protecting the interests of consumers in transparent, safe, and fair financial products.” The body of the Statement is 8 pages long, single-spaced. It refers specifically to dozens of scholarly articles and studies demonstrating that at critical moments of consumer confusion and vulnerability,” the existing regulators “have been unwilling to expend resources to develop appropriate rules and guidelines and to police mortgage and credit instruments.” The Statement urges passage of H. 3126 because “consolidated authority and a dedicated consumer-oriented mission would be likely to improve public confidence in the safety and efficiency of the vast consumer financial products marketplace.” It further provides an analysis of desirable aspects of the legislation and points to extensive scholarship supporting the need for a new approach to handling consumer financial regulation.

For further information please contact the signatories of the Statement at their home institutions or:

Norman I. Silber
Professor of Law
Hofstra Law School

Jeff Sovern
Professor of Law
St. John's University School of Law


Wednesday, September 23, 2009

Big Banks Alter Debit Overcharge Rules

Presumably trying to get out in front of proposed legislation that would require banks to ask their customers if they want to "opt in" to debit card overdraft protection, JP Morgan Chase and Bank of American recently announced that they would be altering their overdraft policies. Both banks will stop charging overdraft fees for very small amounts (less than $5 for Chase and $10 for BofA) and will soon provide their customers with the option to opt out of overdraft protection so that a purchase would not be authorized if it would put the cardholder into an overdraft position. Both banks also plan to limit the number of overdraft charges that may be imposed in a single day, and Chase will also drop a controversial method of calculating overdrafts.

According to the N.Y. Times, both banks described their actions as responsive to their customers. “We made the decision that we had to help customers now and help those most stretched by the economy,” said Brian T. Moynihan, president of Bank of America’s consumer and small-business banking operations. “They found themselves getting hit by too many fees, and they said, ‘Help us out.’ ” There is little doubt, however, that threatened legislation has played a role. According to Michael Moebs, an economic advisor for many banks and credit unions, the banks understandably oppose this legislation because many of them collect more in overdraft fees than they earn in profits. Moebs argues that many banks would not be able to replace the revenue soon enough to stay in business.

So, have Chase and BofA, done enough to forestall legislation? While the changes they plan to implement are certainly a step in the right direction, they hardly eliminate many concerns.

For example, the exception for small overdrafts may only protect the cardholder if they deposit sufficient funds to cover the overdraft before making additional charges. But if the cardholder is not notified of the overdraft situation, how often will that happen?

The limits on the number of overdraft fees also hardly eliminate the seeming unconscionability of the arrangement. As an initial matter, they will apply only to purchase at stores, not ATM withdrawals. Second, the amount of fees will continue to bear no reasonable relationship to amount of the overdraft. Bank of America is limiting its cards to no more than four overdraft fees per day. But the fee remains $35 per overcharge, regardless of the amount. So, a customer that makes four purchases over the limit that total just $11 or $12 dollars would pay $140 in fees. The result at Chase is only marginally better. It will impose a limit of three fees per day, but they would total $89 on three overcharges that could amount to as little as $5.01. As Brad Tuttle wrote on the Time website, "[s]o the poor saps who are dumb enough to spend more than they have in their accounts—and who do so more than three or four times a day—are thrown a bone." I would add, a very small bone at that.

I have not seen any justification for these fee levels. Surely, a bank providing overdraft protection should be entitled to a reasonable return on the money it effectively lends to its customer as well as a reimbursement for the incremental administrative fees it incurs because a charge results in an overdraft. These fees appear to exceed the bounds of reason by several orders of magnitude. And surely, the banks would produce the data necessary to justify them if it existed.

Even the proposed new opt out provisions are less than they seem. They will require the customer to forgo overdraft protection for check writing as well as debit card use, a risky proposition given that many vendors charge their own penalty fees for bounced checks.

One doubts that these steps will satisfy the concerns of those in Congress who have proposed legislation to limit overdraft fees.

PayPal Account Hacked!

While working in my office this week I received an email "receipt" from Paypal reporting a $10.00 payment to Skype (an online phone service). I've not used my Paypal account in some time, so my first thought was that this was a fake Paypal email. After all, it is commonly known that Paypal is regularly fighting the fake emails that are sent out hoping that the recipient will click on the embedded links. See, How Do I Report Paypal Fraud or a Paypal Scam. Nevertheless, I logged into my Paypal account to make sure (opening a new browser and entering the web address manually). There it was, a $10 payment to Skype on my Paypal account. The email I received was not a fake one from Paypal. It really was a receipt for a $10.00 charge.

Now, I do have a Skype account that I used when travelling abroad (worked great in Moscow), but it is not active at this time with any on-going subscriptions. Moreover, I never used Paypal to pay Skype in any event. I logged into the Skype account to verify nothing was active, which was still the case. Apparently, there have been some complaints that consumers are unable to cancel Skype once they open an account (see Skype forum).

Since the problem did not appear to be with Skype, I called Paypal. Although it took two customer service reps to get to the bottom of the problem, it turns out someone had logged into my Paypal account four times that day and authorized the transaction to Skype. Kudos to Paypal for agreeing to reverse the charge quickly and sent me an email within 24 hours "resolving" the case in my favor and saying that the charge will be reversed within five days on my American Express card.

Luckily for me, I do not have my bank account connected through Paypal. Paypal does, though, encourage users to connect bank accounts. As a payments professor I can easily imagine the havoc a Paypal hacker can create by draining a user's checking account, leaving the user waiting as long as ten days for a provisional recredit (Federal Reserve Consumer Handbook to Credit Protection Laws: Electronic Funds Transfers). So, consumers should exercise caution with all payment devices that are connected to their checking accounts in case of fraud, including both debit cards and services like Paypal.

A final interesting question is why did the thief choose $10 and why Skype? The $10 amount is not as likely to get noticed or to encourage authorities to make the chase. Skype is a European company which also might make catching thieves more tricky. But, since it deals in phone services, the thief probably either used the $10 asset before being caught or resold it to someone else. All of which contribute to the success of the hacker in these instances. What else can be done in these cases? It seems that the best solution is preventing the hacking in the first place through better security. Not sure how the hacker managed to get into my Paypal account, but there appear to be web sites that claim they can instruct you how to do it. Just another wild day in modern payment systems.

Monday, September 21, 2009

Securities Regulation and the Global Economic Crisis: What Does the Future Hold?

For those in the NY area, Seton Hall has an upcoming symposium entitled "Securities Regulation and the Global Economic Crisis: What Does the Future Hold?", and will take place on Friday, October 30, 2009, at Seton Hall University School of Law in Newark, NJ. The event is free and open to all. Plus Seton Hall is offering six (6) New York CLE credits for full-day attendance. Further information about the Symposium, a list of presenters, and a link to register can be found at


Wednesday, September 16, 2009

From the World of Law Reviews: Game Theory and Law Review Submissions

As the height of the law review submission season is coming to a close, I thought I would observe an interesting approach by a law review editorial board and some other general observations.
Law Reviews Gaming it Up. The editors at the University of Cincinnati Law Review, who will ultimately publish my piece on fixtures Groping Along between Things Real and things personal, engaged in a nice piece of behavioral prediction in making the offer to publish. In the offer letter the editors offered two choices: (1) I could expedite with anyone over the next two days; or (2) I could expedite with only the top 30 law reviews over the next 10 days. This strategy is genius from the law review editor standpoint. First, its highly likely that the reviews most likely to take the piece out from under Cincinnati are those ranked between 31 and 51. The strategy by Cincinnati reduces to almost near absurdity the time frame for journals to respond. On the
other hand, if they are likely to lose an article to a top 30 journal, then 10 days will likely not be needed for that decision to reveal itself. This is the kind of law review gamesmanship that I like and support! Has anyone else seen an offer like this before?
Lex Opus is a good secondary alternative to Bepress's Expresso. In some ways, the system operates just a smoothly. Another feature that I liked was Lex Opus allows law reviews to view the work sua sponte and make the author an offer -- I received one offer that was not unattractive. That seems to me to be a pretty good idea and, though I imagine that such offers are rarely accepted, it is still a nice feature. But the best feature is its cost -- its free.
Peer Review of General Law Review Articles. Brian Leiter this morning posted a link to PRSM -- A consortium of law reviews engaging peer review processes. Journals that have signed on to the consortium include The South Carolina Law Review, The Mississippi Law Journal, Stanford Law Review, and the Wake Forest Law Review. It will be curious to see if this is successful.

Marc (MLR)

Tuesday, September 15, 2009

Bernanke Believes Recession "Over"

Happily, Bernanke stated today at the Brookings Institute that he believes that the growth we are seeing in the economy suggests that the recession is technically over. Unfortunately, the unemployment rate, currently around 9.7%, will be slow to come down. This will leave many still struggling with the pace of a slower recovery. This is good news, for sure. Since last fall we were bracing for another "Great Depression," pehaps we can be contented with simply riding out slow economic growth. And, of course, Bernanke emphasized yet again the need for regulatory overhaul of some type. Perhaps the more times we hear this, the more likely it might be that action will follow. Let's hope.


Monday, September 14, 2009

Obama on Financial Rescue and Recovery: market regulation and the "false choice"

In case you missed it, President Obama spoke this morning on the financial crisis and recovery efforts (see Obama Remarks on Financial Rescue). In terms of regulatory overhaul, President Obama remarked that it is a "false choice" to believe that entrepreneurism and innovation are sacrificed by regulation. Something President Obama has stressed is "common sense" rules of the road. People's memories seem to falter once a crisis begins to pass. After all, government intervention seems to work, so why burden business with onerous regulations? For my part, I believe the United States has been lucky in its ability to slow the financial crisis and begin rebuilding. Recovery, though, may turn out to be much slower than we might hope (see Recovery Slower). As we've said here before (see War of Wealth), this country has been down the road of bank failures and financial crisis before. President Obama and Chairman Bernanke (see Bernanke Sees Progress) are telling us that something substantial needs to change. With competing issues like health care and impending flu concerns, will we heed the warnings that are Obama, Bernanke and others have delivered? Or, will we continue on with business as usual? Hmm, the markets are up today (see Bloomberg) .


Who's the Bull, and Who's the Matador Here?

Photo by pasotraspaso

This one wasn't hard to predict: credit card issuing banks are already making lemons out of lemondate with the new regulations aimed at curbing abuses. Business Week reports (no link available) that issuers are expecting new fee income (especially from cardholders who pay off their balances in full every month or don't use their cards very often) to more than make up for the losses caused by the new regs. Prohibit them from raising rates without 45 days' notice, and they all switch to variable rates (jumping throung one huge loophole in the regs). Prohibit marketing to college students "near" campus, and they set up tables two blocks away, say near a fraternity or sorority house. For those of us teaching commercial law and regulation, consumer protection, and administrative law, this is one more chapter in the saga of regulators' introducing rules that both fail to curb the real abuses, as well as increasing the abusive potential of the work-arounds put in place by the industry. When are we going to learn?

Saturday, September 12, 2009

Not Reading a Contract is No Defense: Even in Italian

Many of you are probably snickering just reading the title. Seems obvious enough to most. Nevertheless, it seems from time to time even a business party to a contract will claim they did not read the contract. Such was situation in the recent case of Amit Israeli v. Dott. Gallina S.r.l. Dario Gallina and David Gallina (W.D. Wis. 2009). Not a simple case of not reading, but not a surprising outcome. Israeli, a U.S. citizen, contracted with Gallina, an Italian concern, to sell Gallina plastics in the United States according to a price list that Gallina provided. The operating agreement was in English, but the price list was only in Italian. While the operating agreement specified that the law of Wisconsin applied, the price list stated that disputes would be resolved exclusively in the Court of Turin. Israeli, who did not speak Italian and did not ask for a translation, initialled the price list anyways. When a dispute developed about the price charged for shipments and Israeli brought suit in Wisconsin, Gallina argued that the Court of Turin should resolve the dispute. The CISG, which applied to the transaction since the parties were both doing business in contracting states, does not address issues of "validity" of specific contract provisions. See Article 4.

Israeli claimed unconscionability should prevent the application of the forum clause since: (1) he did not read the price list and (2) it was in Italian, which he could not read, even if he tried. The court, agreeing that there was some procedural unconscionability, rule that the forum selection clause was not substantively unconscionable. Not only was Israeli's claim that he did not read the contract a "nonstarter," his claim that the price list was in Italian was also a loser:
Equally unpersuasive is plaintiff's argument that the forum selection
clause was written in a foreign language. "[Plaintiff] makes much of
the fact that the written order form is entirely in Italian and that [Plaintiff]
. . . neither spoke nor read Italian. This fact is of no assistance
to [Plaintiff's] position. We find it nothing short of astounding
that an individual, purportedly experience in commercial matters, would sign a
contract in a foreign language and expect not to be bound simply because he
could not comprehend its terms. We find nothing in the CISG that might
counsel this type of reckless behavior and nothing that signals any retreat
from the proposition that parties who sign contracts will be bound by them
regardless of whether they have read them or understood them.

Id. (quoting MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, 144 F.3d 1384, 1389 n.9 (1998)).

This outcome holds no surprise to me. Quite simply, the party who chooses to do business in a language that they do not understand bears the risk of having done so. Israeli did not speak Italian and did not arrange for a translation. As such, he bore the risk of having done so. While this is not a case where both parties subjectively understood they chose to resolve all disputes in Turin, Italy, the forum selection clause is easily allocated to Israel who could have avoided the misunderstanding. Off to Turin, Italy he should go!