Warren on the New Consumer Agency

Elizabeth Warren has been speaking about the new role of the Consumer Financial Protection Agency. Who should be scared? Businesses want to know whether they should be worried about her role. For those that are making money from tricking and trapping people, the new agency will be a problem for them. She's been reaching out to business to let them know that she wants to learn about what will work and wants to "get it right." Basically, we cannot re-build an economy where families cannot pay for goods and services. She's ready to get to work getting the agency up and running.

- JSM

Opportunity for Self Regulation?

The Financial Crisis Inquiry Commission is examining the causes underlying our current financial crisis. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling is charged with examining the causes and circumstances surrounding the BP oil spill in the Gulf this year. The Consumer Financial Protection Agency's job might be so large that we can only guess what it might tackle first, including credit scoring, student loans, overdrafts and payday loans (See, Six Problems the Consumer Financial Protection Agency Should Tackle First). Business interests oppose government involvement and oversight pretty broadly across the board (see, Fight Over Consumer Agency Looms, Business Groups, Obama Administration Spar Over Corporate Governance, The Case Against Corporate Social Responsibility, Businesses Buy Ads vs. Health Overhaul, US Must Control Deficit).

Yet, isn't there an opportunity here for businesses to engage in increased self oversight and regulation? One of those the best offense is a defense line of thinking. The Financial Services Forum states relative to financial oversight "[t]he Forum will continue to work constructively with the regulators charged with implementation of the legislation to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also meeting the financial needs of American businesses, workers, consumers, and investors." The Business Roundtable's list of Initiatives stresses outright that corporate leadership is the best way to foster trust in corporations. The Business Roundtable's list includes health care and retirement, education, fiscal policy, globalization and environmental concerns.

An aggressive list of priorities without dispute. But has business come through on these fronts? And, I mean not individual companies, but as a group? Despite the commissions investigating, new agencies and increased regulation, there is always an opportunity for business to head off looming problems, whether it is speculation, an innovation like credit derivative swaps poised to cause the next financial crisis or plain overreaching by businesses with consumers.

Self regulation and coordination is not unknown to business generally or to specific industries. Anil Gupta and Lawrence Lad commented "Researchers generally have viewed non-market regulation of firm behavior as synonymous with direct regulation by the government." Industry Self-Regulation: An Economic, Organizational, and Political Analysis. See also, Toffel, Industry Self-Regulation: What's Working (and What's Not)?. The whole idea, of course, is that self-regulation can either supplement or take the place of government regulation. While industries can engage in self-regulation more or less and in different manners, it has its effectiveness.

When I hear of businesses opposed to government regulation of a perceived problem, a common complaint is that government regulation hampers business growth generally, costs a lot and stifles innovation. While I understand that businesses want to make money off of the newest innovation, self regulation would seem to allow the financial community for instance to head off some of the systemic risks of the "innovation," such as the credit derivative swaps. Just because there is money to be made does not mean that it should be made if the "innovation" will lead to over-speculation causing a financial crisis. Yet, government regulation would not seem to always be the most efficient in these cases due to the time involved in establishing oversight of newer financial products.

Michael Toffel argues there are four main facets to self-regulation: "how the rules are designed, who adopts them, whether and how compliance is monitored, and whether these rules actually achieve what they purport to achieve." I agree that these considerations dictate whether the laudatory goals of the Business Roundtable and Financial Services Forum will have any effect on market participant behavior. Self regulation must be meaningful. While the door is open for financial services companies to show leadership on many open regulatory issues, movement is slow. With so much attention being given to opposing Elizabeth Warren as the new head of the Consumer Financial Protection Agency, perhaps business might be better served by turning to the issues (See, Warren's New Job).

- JSM

Teaching Statute of Frauds

Today in Contracts we covered the Statute of Frauds. The casebook, by Burton, includes the case of Cloud Corp. v. Hasbro, Inc., 314 F.3d 289 (7th Cir. 2002), a Posner decision. The case involves a toy, the Wonder World Aquarium, governed by our beloved UCC 2-201's Statute of Frauds. Posner, wanting to find that either the parties satisfied the statute of frauds or some exception applied, lays out a multitude of reasons to find an enforceable contract. Surely a delightful opinion helping the students to see that sometimes the formalism of a rule gives way to the realities of business practices. The dispute involved excess gelled filling produced by Cloud for the Hasbro aquariums, which had no other use. Alas, the Wonder World Aquarium was a passing fad.

- JSM

Commerce Hums Along Even in Hard Economic Times

We hear much news about the trouble with the economy. In today's news alone, there were concerns about cooling in auto manufacturing, losses in technology, slower manufacturing in New York, and double dip risks in Europe. Alongside the financial turmoil and worries, Bloomberg yesterday ran a piece on parents who must not be overly concerned about such things. Apparently, there is quite the market for designer clothing for children, including a $750 Burberry trench coat! Sale of designer coats and jackets for children is expected to be up a whopping 12% this year. Luxury goods generally are expected to be up 10%. Apparently, there are nice Gucci lines for pets as well . . . Not bad in a year with worldwide GDP quite low (see, EU Raises Italian 2010 GDP, Canada's GDP Growth Sets, China's GDP Slows, Oil Spill May End Up Lifting GDP Slightly).

While I am a believer in doing my part for the economy, my group of three kiddos (3, 5 and 13) are not partaking in these really cool clothing options! Not only is this a really lot of money, but my kids grow way too fast for this extravagance! Hope that those who are buying designer children's clothing are not financing the purchases on a credit card. Consumers living beyond their means certainly contributed to the current financial downturn.

- JSM

Two Debit Fee Regulation Issues Emerge as The FED Gathers Information

The financial reform legislation enacted this summer included the Durbin Amendment requiring the FED to regulate fees that banks charge to merchants when consumers use debit cards to make purchases. The legislation gave the FED until April of next year to come up with the specifics of a plan that will ensure that debit card fees reasonably and proportionally reflect the actual costs of running the banks' debit card programs. Bankers have reported that the FED has begun an information gathering process designed to gather information about the banks' debit businesses. Although the situation is sure to evolve in the coming months, there are two questions that are now drawing a lot of attention.

First, the legislation included the cost of fraud protection in the costs that the banks should be permitted to recover. Banks are arguing that fraud costs should include the costs of data protection and claims investigation in addition to actual losses. Merchants are questioning the propriety of including costs beyond losses. Another question involves how the FED will deal with the differences across institutions with respect to fraud losses. Will it use average costs, stimulating competition among the banks to lower fraud costs. Or will it try to implement a system that will tie recovery more closely to specific institutions.

Second, the legislation exempts banking institutions with less than $10 billion in assets from the regulation. But most small banks issue debit cards using the Visa and MasterCard system. Will those systems, dominated by larger banking institutions, permit the smaller institutions to recover higher merchant fees than the big banks recover? Small banks became part of the Visa and MasterCard systems for complex reasons. Initially, they played a crucial role developing a critical mass of credit cardholders and especially merchants willing to accept credit cards. By the time the debit card systems became serious business, the smaller banks were less important to the systems' success. But by that time, Visa and MasterCard had grown sufficiently that trying to exclude smaller banks would have been seen as a group boycott potentially violating the antitrust laws. The large banks were content to charge the small banks somewhat higher network fees. Small bankers expect that the Visa and MasterCard networks will limit their debit card merchant fees to the same extent as the large banks. It will be interesting to see, however, if one of the major networks, or perhaps one of the on-line ATM networks, makes a competitive play for smaller banks by offering higher debit card merchant fees than the big banks are permitted to charge. SS

Why Do We Teach Commercial Law?

Among other courses, my new law school home, St. Thomas University in Miami, will have me begin teaching commercial law courses in the spring. St. Thomas has not had a commercial law "die-hard" as regular faculty, but several faculty have taught Sales, Secured Transactions and Commercial Paper from time to time in addition to other courses (for a recent study of course offerings in commercial law, see Mark Roark's Commercial Law Course Survey). Without the dedication of a commercial law faculty member, the course descriptions were not surprisingly out of date.

So, today, I will be off to a curriculum committee meeting to discuss revised course descriptions for the commercial law offerings. This process brings to mind not only Mark's survey of what is being taught, but also Larry Garvin's The Strange Death of Academic Commercial Law, where Larry advocates the rescuing of academic commercial law lest it fall into a void of nothingness crowded out by other new seminars and other nouveau studies. Florida just added articles 3 and 9 to its bar exam (See Florida Bar News), giving commercial law more footing at my law school and more draw to students generally. I hesitate to advocate that we teach a variety of commercial law courses merely because it is examined at bar time. Yet, surely the bar examiners also must believe there is something important here as well.

It is well recognized that so long as we have commerce, there is a need for commercial law. Bar exam or not. We have an obligation to prepare our students for the commercial transactions and disputes that arise naturally in our world of business. Law schools are in "partnership" with the community of judges, businesses, legislatures and communities that expect attorneys who will continue to improve the law and promote new ideas. While there is a temptation in states such as Florida that now test commercial law on the bar exam to teach only what is required on the bar, or for schools in states like Pennsylvania which dropped much of commercial law from its bar exam to not teach it at all, we should resist this urge. There is a richness to the study that goes beyond bar requirements, and is a service to students and community alike.

For my part, I will make my case that the course descriptions here at St. Thomas should go beyond what is required for the Florida bar exam. One of my proposed changes is to rename "Commercial Paper" "Payment Systems," reflecting a course that would go beyond the bar exam's UCC Article 3 to include the multiple ways in which we pay for things in commerce. An intelligent study should include checks, credit cards, debit cards, letters of credit, wire transfers and electronic payment devices, as well as promissory notes and guaranties. Thankfully, I expect the faculty here believes that while we need to prepare students to take a bar exam, our obligation goes deeper than that.

Once I get the course descriptions in order, my next job will be to convince the students that the study is important. I hope to teach Payment Systems here at St. Thomas this Spring. On that score, the bar exam looming before them will help. Once in class, though, I hope they see the richness of the study that affects their own every day lives each time they write a check, pull a card out of their wallet or obtain a student loan. The client needs become more clear to them once they appreciate the importance to ordinary transactions.

So, why do we teach commercial law? The answer is simple. Our students need it personally and professionally. And, the wider community needs them to know it.

- JSM

Business Credit Cards Under the CARD Act

With the restriction from the CARD Act still coming on-line (see More New Credit Card Rules Take Effect), one can expect the card issuers to look for alternate ways to boost their bottom line. Over the weekend, the Wall Street Journal ran a piece "Beware That New Credit Card Offer" highlighting the differences between personal and business credit cards (see also, CARD Act Doesn't Help Small Businesses). The WSJ reported that mailings of applications for business, rather than personal, credit cards are reportedly on the rise. The reason? The Credit Card Accountability and Responsibility Disclosure Act only applies to consumer cards, not business ones.

About 64% of small businesses use credit cards, giving banks a good opportunity to market cards as business cards to avoid the CARD Act's strictures. With applications and pre-approvals up for business cards, it is easy to see how small business owners will need to be savvy about the differences of the cards in their wallet. The advances made with credit cards are simply not universal. Business cards are still subject to the same practices, like interest rate hikes and excessive fees that used to be the norm for consumer cards. It helps businesses to make sure that expenses are deductible for tax reasons (as well as the interest), so their might be incentive to use a business card after all. Aside from possible tax incentives, small business owners might not want to put business debt on personal credit cards as there is a potential for a negative impact on the personal FICO score by increasing the debt to credit ratio.

So, when is a small business issue also a consumer protection issue? One of the lingering problems all along with cards is consumer confusion over terms. The differences in card types are sure to pose problems over time. Moreover, the WSJ reported that some card issuers may be pushing business card applications toward consumers who otherwise would not be looking at these cards and are not likely to understand the differences under the CARD Act. Senator Charles Schumer has already asked the Federal Reserve to look into the practice of marketing business cards to consumers (see Bloomberg). While the CARD Act made headway in the realm of credit card protections, the failure to include business cards may turn out to pose a problem for consumers and small business alike. Pardon my skepticism about the card issuers and their practices, but my expectation is that we will see a rash of business card complaints over deceptive terms.

- JSM

Bernanke Speech in Jackson Hole, Wyoming

In case you missed it, Ben Bernanke spoke at the Kansas City Federal Reserve annual meeting in Jackson Hole, Wyoming (see transcript). The bottom line: Bernanke is not too concerned about the slowdown in growth and we should expect some relief in 2011 and beyond in the economy. Basically, just wait it out and hope for the best.

For a recap of the speech,

Visit msnbc.com for breaking news, world news, and news about the economy

-JSM

More New Credit Card Rules Take Effect

New credit card rules under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act took effect this week (See Federal Reserve Press Release)! The Fed, in its effort to be more consumer friendly, has put out another "What You Need to Know" about the rules. One of the big improvements is in the area of late payment fees. Under the old system, card issues could charge basically whatever fee they wanted, whether the card holder was late on a $20 payment or a $100 payment. Now, the fee is set at $25, but the card issuer can charge $35 if one of the last six payments was also late or a larger amount if the company can justify the cost for the higher fee. In any event, the fee cannot be higher than the minimum payment due. For instance, if the minimum due was $20, then the fee cannot exceed $20.

Other new rules eliminate fees for inactivity and extra fees for violating more than one part of the cardholder agreement on a single transaction.

Another twist is requiring card companies to reevaluate rate increases every six months after an increase and to reduce the rate 45 days after an evaluation, if appropriate. Remember all those rate increases companies passed onto card holders prior to the CARD Act's implementation in 2009? Issurers are supposed to lower rates for consumers if the reason for the increase no longer exists. Basically, the Fed is supposed to monitor compliance. I've not heard of any credit card issuers widespread lowering interest rates, but here's to hoping.

- JSM

New Rules of Bank Fees Now In Effect

Now that August has come around, there are new rules coming online to benefit consumers. One of my favorites is the overdraft protection rules for debit cards coming into effect on August 15, 2010 for existing bank customers (See FRB: New Overdraft Rules). In the past banks often charged a $34+ fee to consumers who use their card for debit purchases or ATM withdrawals when they do not have enough money in their account to cover the cost of the purchase or withdrawal. The new rules require banks to get consumer's consent (which they should not give) for these "programs."

While the big accomplishment here is disclosure with an opt-in system to benefit consumers using debit cards, as always, consumers can still make financial mistakes that result in fees (see, WSJ, Getting Going: Ferreting Out Those Hidden Fees). For instance, just because you don't opt-in to overdraft protection, that doesn't mean you cannot overdraw your account or be charged a fee for doing so. The new rules apply to debt and ATM transaction, so consumers can still overdraw their accounts and be charged fees for check and automatic bill payments. While this system may be much superior to the previous one, consumers must still mind their balances. The new rules don't eliminate overdrafts completely, leaving some protection for transactions that consumers typically want overdraft protection.

Is this enough? One worry is that banks may push consumers into opting in or consumers may simply not understand (see, USA Today, Bank Overdraft Fees). When opening an account at Chase Bank recently, I was asked to opt-in to overdraft on my debit card. While the clerk was not pushy, I was asked if I was "sure" and did I really understand. Oh, yes, I told them. While I did not opt-in, if a consumer does opt-in the rules may not go far enough. A consumer who opts-in won't get the warning at the counter that their account is low. They will just get the fee, even for the $4 cup of coffee, rather than the ability to choose another form of payment.

All and all, this is all good news for consumers, but banks will take a hit in revenue. Wells Fargo is expecting a $500 million loss in revenue for 2010 as a result of the overdraft rules (see, Wells Fargo Sees $500 Mln). Of course, banks will find other ways to make up the lost revenue. Hopefully, the banks will clearly disclose any new fees to consumers and keep fees manageable While simple fee disclosure for me is important, those with low incomes can be faced with the choice of paying fees or not having a checking account. Some have chosen not to have accounts at all. (see, USA Today, Many Shun Bank Accounts). Consumers opting out of banking completely because the fees are either undisclosed or too high is a lingering problem beyond the reach of the new rules.

- JSM

Finally a Homeowner in Florida

Yes, I finally closed on a home in South Florida. Now that the boxes are unpacked (well, mostly), some thoughts on the process. Not to deter any wanting to purchase a home, the real estate market in South Florida is particularly daunting if you are wanting a mortgage (See, South Florida Mortgage Rates At Record Lows, but Who Can Get Them?). And, I was moving to a new area to start new employment adding complication to any mortgage application. The loan approval came less than a week before closing, and I breathed a great sigh of relief that the worst part was over (the tax returns, w-2s, document requests, interviews, etc.).

By the time I closed, though, new lending requirements meant a change in lending product and another round of documents! The closing was also delayed a few days. Since our family's belongings were already en route from two far reaching parts of the country (Oregon and Massachusetts), we were faced with the prospect of furniture arriving before the home closed. While it all worked out well in the end, there was much stress and the specter that it might not close at all. The lender's agent seemed unprepared for the changes in requirements for home mortgages that are ever changing, so that the lender was working last minute on details that should have been addressed much earlier in the process (i.e., calling for employment verifications for all employers for the last 5 years the day before closing). I thought to myself, with all this headache, who would actually want to buy a home in South Florida!

So, what does this all say? It seems to me a sign that changing, strict credit standards will impede the real estate market. (See, Borrowers Hit New Home-Loan Hurdles). While credit standards for home loans may have been too easy, they might now be too hard. Of course, the Florida market still has signs of distress, so it may be one of the last markets to see easing of credit standards in real estate. An excess of care and caution of lenders, though, impedes their own business and the real estate market as a whole, making recovery further off. When I listen to NPR on the drive to the office in the morning and hear reports of the sluggish real estate market, I am not surprised. The core of the problem is confidence in borrowers and the real estate market as a whole. While those in the real estate industry attempt to be optimistic, more marked recovery would seem to require a level of confidence that does not permeate South Florida at this time.

As for me, I'll be finishing off the last of my boxes for another week or so . . . glad that I can now send in that first mortgage payment next month!

- JSM

Tales of a Homeowner Wanna-Be

Part of my adventure of moving to Miami, Florida to join the faculty at St. Thomas University School of Law involves the purchase of a new home. Yes, I've already written about the beginning of this journey (See Tales of a Prospective Homebuyer). That was back in April! So, what is it really like? Three months later? Well, I am just a week out of closing and don't have an "official," "final" loan approval yet for the mortgage. There was the "first application," the phone interview, the mass of financial documents for the last two years, the changing loan terms, the worry over the home appraising (this is South Florida after all).

Other parts of this adventure? I since discovered that the seller had been behind on taxes and the house was listed for auction, but was just brought current in the last two weeks. There is also a pending issue on a leaking roof that I was told was fixed, but when I had the roof re-inspected found out the broken parts were just glued together! My prospective insurance agent raised the hazard insurance premium by 50% on the spot, even though his quote was only two weeks ago (found new insurance agent!). The new challenge is the documentation on the purchase funds for the mortgage lender, which is very particular.

Seriously, the days of no-documentation loans seem to be past, as far as I can see (See, The Basics: No Doc Mortgages, MSN). So, things are naturally hard out there from a loan perspective. Perhaps they should be . . . The large number of foreclosures and short sales out there also make it difficult for home buyers, even though prices can sometimes be favorable. My limited experience in shopping around for lenders indicates that while mortgage rates might be good (See, Mortgage Rates on 30-Year US Loans Fall to Record), the lenders are being more careful than in the past making it harder to purchase even if you want to in this market. But, with the housing market plunging after the government incentives for home buyers ended in April (See, Pending Home Sales Fell off A Cliff, CNN), one might expect things to be easier on buyers.

In some ways it is easier than back in April. For instance, it was much easier to secure a contract on a home than a couple of months ago. But closing is still difficult. While I have every hope that the home will close on time, my skills as a detail, paper-collecting transactional lawyer have served me well! There is now talk of what "time of day" we might be closing, so the hope is that this homeowner wanna-be will actually be just plain homeowner soon.

-jsm

Albert H. Kritzer, 1928-2010

My recent posts about the status of the CISG and CUECIC and the possible CISG implications of the McDonald's glassware recall sent me, as is almost always the case when I want to refresh my recollection of CISG text or catch up on recent cases and commentary, to the Pace Law School Institute of International Commercial Law's expansive, free, and always helpful online CISG Database.

Revisiting the site yesterday, I read the sad news that Albert H. Kritzer, the Institute's founder and godfather of the CISG Database, passed away June 1, while in Egypt to receive the 2010 Arab Conference for Commercial and Maritime Law Career Achievement Award. Pace Law School's notice, including comments from Dean Michelle Simon, is available here.

I met Al Kritzer only once, and briefly, in person, during a break in a conference at Pace Law School that his colleague Jim Fishman hosted commemorating Wood v. Lucy, Lady Duff-Gordon. However, Al and I corresponded (mostly by e-mail) and he was kind enough to introduce me (again, via e-mail) to Joseph Lookofsky (another CISG luminary) and to introduce much of the domestic and international CISG community (via the CISG Database) to my work analyzing the then-entire corpus of published U.S. CISG case law in the chapter on the CISG that I comprehensively revised and greatly expanded a few years ago for Howard O. Hunter's Modern Law of Contracts. Al subsequently invited me to contribute substantive case commentaries to the CISG Database, in which I have been largely remiss for a variety of reasons. I hope that his successor will allow me to honor Al's invitation -- and his life's work.

Would you like some cadmium with your soft drink?

Yesterday, the Consumer Product Safety Commission (CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's (D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co. (DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinner that transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

All fun aside, why is a commercial law blog interested in allegedly cadmium-contaminated glassware products introduced into the stream of commerce without any warning about or disclaimer regarding the possibility that they might contain an alleged carcinogen?

If this were a tort law or products liability blog, we might opine about the inevitable class-action product liability lawsuit against some combination of McDonald's, Arc International, Arc International North America, Durand Glass Manufacturing Co., the as-yet undisclosed supplier(s) of the cadmium-contaminated paint or other ingredient Durand used to commemorate Shrek™, Fiona™, Donkey™, and Puss in Boots™ (okay, Puss is probably not trademarked, given that the character's name dates from the late Seventeenth century, but we want to minimize our exposure to IP liability because most of us teach at public universities and neither we nor our employers can afford, in the current fiscal climate, to defend any infringement claim that survives a Rule 12(b)(6) motion) on the glassware (and, perhaps, DreamWorks -- for making a movie about which McDonald's predicted sufficient interest that it undertook to procure the offending glassware for resale).

If this were a civil procedure blog we might weigh whether the terms and conditions (no doubt, conveniently located somewhere on the Internet) purportedly governing McDonald's sale of the collectible glassware unconscionably compel non-class arbitration (assuming facts not in evidence) in light of the Supreme Court's recent grant of certiorari in AT&T Mobility LLC v. Concepcion, No. 09-893 (cert. granted May 24, 2010), about which my friend and UNLV colleague Jean Sternlight and my friend and ContractsProf Blog colleague Meredith Miller have recently blogged here and here, respectively.

If this were a consumer law blog, we might wring our hands or cluck our tongues at yet another clear example of Corporate America's crass exploitation of our children and squeeze-the-last-penny sellers who outsource production of low-priced, lower-cost consumer goods to Third World outposts like ... New Jersey. (Just kidding, Jay.)

But, again, what's the commercial law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warranties each seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international spice to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are parties to the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

Meanwhile, on the UNCITRAL Front

Having recently updated you on the status of the various official UCC revisions and amendments (nothing new to report on that front, by the way), I thought it would be worthwhile to take UNCITRAL's pulse and see how the U.N. Conventions on Contracts for the International Sale of Goods (CISG) and on the Use of Electronic Communications in International Contracting (CUECIC) are faring.

Both strike me as profoundly relevant to anyone teaching Contracts, Sales (or a UCC survey course that includes sales), International Sales (or an International Commercial Transactions survey course), or -- at least in the CUECIC's case -- an Electronic Commerce course. The CUECIC's fortunes might also shed some light on the likelihood that the ALI Principles of the Law of Software Contracts will influence contracting practices, contracting disputes, and the evolution of contract law outside the U.S.

CISG

The U.N. first approved the CISG 30 years ago, and it had gathered the requisite ten ratifications and accessions to take effect ("enter into force" to use the U.N.'s terminology) on January 1, 1988. As of June 1, 2010, when Albania's accession entered into force, the CISG was in effect in 74 countries, including Australia, Canada, China, France, Germany, Italy, Japan, Mexico, the Russian Federation and ten of the other fourteen former Soviet republics, Singapore, and South Korea. Great Britain and most of OPEC's member-states are notable non-signatories.

CUECIC

The U.N. General Assembly adopted the CUECIC in November 2005. Despite the International Chamber of Commerce's endorsement, only 18 countries have signed the convention, and none has acceded to, accepted, approved, ratified, or succeeded to it. Consequently, it is not yet in effect anywhere. Moreover, nearly 2-1/2 years have passed since Honduras became the most recent signatory in January 2008. The United States and most of its major trading partners -- excluding China, the Russian Federation, Singapore, and South Korea -- have not signed the CUECIC.

FED Introduces Credit Card Agreement Tool

After a relative lull in payment card regulation news over the past few months, cards are back front and center. The big news, of course, is that the financial reform bill passed by the Senate would limit debit card interchange rates and provide merchants more flexibility in steering customers toward various means of payment. More on that as the final legislation takes shape.

Today, I wanted to highlight the FED's credit card agreement tool. A little publicized provision of the Credit Card Holders Bill of Rights required the FED to establish a website providing ready access to the credit card agreements of major issuers. In theory, such a tool would permit inexpensive comparison shopping. In reality, the website is of limited utility to consumers. The agreements are long and complex, making comparison shopping difficult for everyone and probably impossible for non-lawyers. In addition, very small card issuers are not included.

Still, the tool may be of use to consumer groups who could review the offerings and make recommendations to consumers in language that would be easier to understand.

The New Math?

Q: When do 731 + 451 = 38?

A: When the subject is state enactments of Revised Article 7.

I reported earlier this month on recent state enactments of Revised Article 1 and the 2002 amendments to Articles 3 and 4. I didn't forget Revised Article 7; I was simply waiting for definitive action on bills in two states that had made their way to their respective governor's desk, but on which neither governor had yet acted.

Last Thursday (May 27) and Friday (May 28), Florida Governor Charlie Crist and Georgia Governor Sonny Perdue, respectively, signed Florida HB 731 and Georgia HB 451, making Florida and Georgia the 37th and 38th states to enact Revised Article 7. Both enactments will take effect on July 1, 2010.

Additional bills are pending in Massachusetts, Ohio, Washington, and Wisconsin. As of May 28, Massachusetts HB 89 and Ohio HB 490 are showing some signs of life; but Washington SB 5154 and Wisconsin AB 688 do not appear to be going anywhere in 2010.

Mississippi Makes Ten

Mississippi became the tenth state to enact the 2002 amendments to UCC Articles 3 and 4 when Governor Haley Barbour signed SB 2419* into law on April 13. SB 2419 will take effect on July 1, as will Indiana SB 501 (now Pub. L. No. 135-2009), enacted last year with a delayed effective date of July 1, 2010.


* - If SB 2419 looks familiar, it's the same bill by which Mississippi enacted Revised Article 1 -- making it a 1-3-4 bill, which is even more rare than a 1-3-4 double play!

UCC Article 1 Legislative Update

As I predicted in my last legislative update, Mississippi and Wisconsin are the 38th and 39th states to have enacted Revised Article 1.

As introduced on January 11, 2010, Mississippi SB 2419 initially included a choice-of-law provision similar to the original version of Revised § 1-301 that every enacting state has rejected and that the ALI and NCCUSL replaced in 2008. Subsequently amended to replace the introduced version of § 1-301 with language tracking the now-official version, SB 2419 passed the Mississippi Senate on February 10 and the Mississippi House on March 9, and Governor Haley Barbour signed it into law on April 13. Mississippi SB 2419, which adopts uniform Revised § 1-201(b)(20), defining good faith as "honesty in fact and the observance of reasonable commercial standards of fair dealing," takes effect on July 1.

As introduced on January 22, 2010, Wisconsin SB 472 initially included uniform Revised 1-201(b)(20), but was subsequently amended to substitute the pre-revised § 1-201(19) "honesty in fact in the conduct or transaction concerned" definition in existing Wisconsin law. So amended, SB 472 passed the Wisconsin Senate on April 13 and the Wisconsin Assembly on April 22, and Governor Jim Doyle signed it into law on May 12. Wisconsin Act 320 (née SB 472) should take effect on August 1.

As of July 1, the effective date for Mississippi SB 2419 and the delayed effective date for last year's Indiana SB 501 (which I previously discussed here and here), which replaces the existing "honesty in fact in the conduct or transaction concerned" good faith definition in Indiana's version of Revised Article 1 with the uniform Revised 1-201(b)(20) definition, will tilt the balance in favor or uniform Revised 1-201(b)(20) -- as opposed to retaining the pre-revised 1-201(19) definition -- to 28-10 in favor of uniform Revised 1-201(b)(20). When it takes effect on August 1, Wisconsin Act 320 will tilt the balance back slightly to 28-11 in favor of uniform Revised 1-201(b)(20).

Inexpensive Mother's Day Gifts.

There are 83 million moms in the United States! I just came home from the florist with my children ($10.47 in flowers), am getting ready to order pizza ($25 for two extra large at Pappa John's), and settling in for a movie night with my children ($40 for new dvds) for our little Mother's Day celebration! Mother's Day is a billion dollar business just behind the winter holidays! The cost in jewelry for moms is $2.5 billion,$1.9 billion for flowers for moms and $2.9 billion for eating out! Wow! (See CNN, Cost of Mother's Day). Just saw this piece on inexpensive gifts for Mother's Day!


Hopefully some of this consumer spending helps the economy. Happy Mother's Day to all the moms out there!

- JSM