The Federalization and Privatization of Public Consumer Protection Law in the United States: Their Effect on Litigation and Enforcement
| Citation | Vol. 24 No. 3 |
| Publication year | 2010 |
Georgia State University Law Review
3-21-2012
The Federalization and Privatization of Public Consumer Protection Law in the United States: Their Effect on Litigation and Enforcement
Mark E. Budnitz
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Budnitz, Mark E. (2007) "The Federalization and Privatization of Public Consumer Protection Law in the United States: Their Effect on Litigation and Enforcement," Georgia State University Law Review: Vol. 24: Iss. 3, Article 1. Available at: http://digitalarchive.gsu.edu/gsulr/vol24/iss3/!
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THE FEDERALIZATION AND PRIVATIZATION OF PUBLIC CONSUMER PROTECTION LAW IN THE UNITED STATES: THEIR EFFECT ON LITIGATION AND ENFORCEMENT
Mark E. Budnitz*
Introduction
The public law of consumer protection in the United States is a mess. As a result, the effectiveness of litigation and other methods to enforce those laws is in jeopardy. This has occurred because those who decide the country's public policy on consumer protection are torn between two opposing perspectives. On the one hand, policymakers strive to preserve freedom of contract and a marketplace unburdened by the costs that result from government agencies and individuals enforcing strong consumer laws. Under this free market model, favored by the business community, consumers are responsible for their actions, and "free" to enter into bad deals, including contracts that take away their right to resolve disputes in court. Consumers should be able to sue companies only for breach of contract and common law fraud in individual, not class, actions. Government regulation that protects consumers should be kept to a minimum, and should be enacted and enforced by the federal government rather than the states so companies do not have to comply with fifty different state laws.
On the other hand, policymakers have tried to respond to persistent practices by exploitative merchants and creditors who often target those consumers who are most vulnerable: the elderly, the sick, the poor, and the uneducated. This article describes the current state of the public law that has resulted, focusing on enforcement of that law by government agencies and litigation pursuant to that law. As used in this article, public consumer protection law refers to those laws that are intended to protect the public as a whole, not just to provide
* Mark E. Budnitz is Professor of Law at Georgia State University College of Law.
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rules for deciding private disputes.1 These laws typically authorize government agencies to promulgate regulations and enforce the law. Recognizing the resource limitations of government agencies, many consumer laws provide a private right of action so individual consumers also can litigate violations of these laws. Many of these laws also provide class actions and statutory damages which encourage consumers to act as "private attorneys general."3 Reflecting the principle of federalism that is a long-standing national tradition, federal statutes often include provisions that generally preempt state law but permit states to have laws that are more protective than the federal law.
There is great variation among consumer protection laws, however, because each law deals with a specific matter, and deals with it in its own somewhat unique way. The law varies depending on whether a transaction involves credit cards or debit cards, home mortgage loans or loans not secured by a personal residence, heavily regulated financial institutions such as banks or loosely regulated institutions such as companies that cash checks. There is no uniformity and no consistency among the various consumer protection laws and how they are enforced because there is no national consensus on what laws are necessary to protect consumers and who should enforce those laws.
The development of public consumer law in the United States differs significantly from the approach of the European Union where there is a modicum of consensus and uniformity.4 The trend in the United States since the 1980s has been to rely less on statutes and
1. See, e.g., Federal Trade Commission (FTC) Act, 15 U.S.C. § 45 (2000). In contrast, "private" law consists primarily of the obligations, allocation of risks, liability, and remedies provided in the parties' contract. Enforcement is limited to an action for breach of the duties imposed by the contract. Government agencies do not police these contracts.
2. E.g., 15 U.S.C. § 1607 (2000).
3. Fed. r. Civ. P. 23 (permitting class actions). Statutes typically impose restrictions on consumer class actions to prevent them from forcing a company into bankruptcy. See, e.g., 15 U.S.C. § 1640(a)(2)(B) (2000); 15 U.S.C. § 1640(a)(2)(A) (2000) (providing statutory damages).
4. Jane K. Winn & Mark Webber, The Impact of EU Unfair Contract Terms Law on U.S. Business-To-Consumer Internet Merchants, 62 BUS. LAW. 209, 214 (2007); Jane K. Winn & Brian H. Bix, Diverging Perspectives on Electronic Contracting in the U.S. and EU, 54 clev. St. L. rev. 175, 183 (2006).
2008] FEDERALIZATION OF CONSUMER PROTECTION LAW 665
regulations to protect consumers and increasingly on litigation to enforce the laws enacted in the 1960s and 1970s, and "economic regulation" to foster market competition.5 The European Union, in contrast, has taken a "social regulation" approach, treating consumer protection as one aspect of its duty to protect public health and safety.6 Therefore, the goal of consumer legislation in the European Union is to make markets safe for consumers. Regulatory agencies take the lead in enforcing consumer laws, rather than litigation.
Two increasingly robust developments receive special attention in this article because they pose serious threats to the viability of effective enforcement of the public law of consumer protection. One development is the federalization of consumer law. The prime example is preemption of state law by federal agencies. That type of preemption often negates aggressive state law protection and replaces it with lax federal enforcement.8 The second is the privatization of consumer law, primarily through mandatory pre-dispute arbitration. Arbitration privatizes the justice system, hiding litigation involving consumers from government review. Arbitration also stymies effective and efficient consumer enforcement by banning class actions. In addition, privatization has occurred in payment system law, where a private organization has issued the rules that govern many aspects of the electronic transfer of funds.
The consumer protection laws discussed in this article are those involving consumer sales, payment, and credit transactions. Part I describes several of the major federal statutes and regulations that govern the consumer marketplace. This is followed by a description of how government agencies enforce that law. Part II describes some of the laws the states have enacted to protect consumers, the federal agency preemption battles that have erupted as a result, and the effect of preemption on litigation and enforcement. Part III focuses on
5. Winn & Webber, supra note 4, at 212-13.
6. Id. at 212. Several other countries have adopted a similar approach, including Canada, Australia, New Zealand, and Japan. Id.
7. Id. at 213.
8. The term "preemption" also is used in relation to federal statutes that preempt state law. Federal agencies that preempt state law base that action on alleged authority to do so in federal statutes.
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litigation brought by consumers, describing some victories as well as defeats, and what they reveal about the development of consumer protection law. Part IV examines the role of private organizations in drafting legislation, commenting on proposed regulations, and enforcing the law. This article concludes with recommendations for dealing with the threats posed by federalization and privatization.
I. Federal Law
A. Federal Laws and Regulations: The Lack of Uniformity and Spotty Coverage
Federal consumer protection law is not uniform and its coverage is not comprehensive. These characteristics have a substantial effect on litigation and the enforcement of these laws.
Over the course of several years, Congress seemed to be headed in the direction of establishing a national uniform law to protect consumers. The Consumer Credit Protection Act regulates the disclosure of credit terms9 and discrimination in the granting of credit.10 Despite the title of the Act, it also covers many areas besides credit transactions, for it governs consumer leases,11 consumer reporting agencies gathering information for non-credit transactions such as employment and insurance,12 debt collection,13 and electronic fund transfers.14 Other federal statutes contribute to providing national protection for consumers. The Magnuson-Moss Warranty
9. Truth-in-Lending Act, 15 U.S.C. § 1631 (2000). The Truth-in-Lending Act is primarily a disclosure statute, requiring creditors to disclose how much they are charging consumers, but not imposing limits on those fees and rates. Some members of Congress, however, have expressed impatience with this approach in light of what they regard as abusive practices by the issuers of credit cards, and have threatened to introduce legislation that industry characterizes as price controls. Stacy Kaper, Levin Takes Broad Aim at Card Tactics, AM. banker, May 16, 2007, at 1, available at 2007 WLNR 9608538.
10. 15 U.S.C. § 1691(a)-(c) (2000).
11. 15 U.S.C. §§ 1667-1667(0 (2000).
12. 15 U.S.C. § 1681 (a)(dX 1XA), (b)...
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