AT&T v. Concepcion: Has the worm turned?

AT&T v. Concepcion (which has nothing to do with the map of the Paraguaian province to the left) is a case that came down today from the U.S. Supreme Court. It has considerable significance in the world of consumer class action litigation and, by extension, also in the world of consumer finance. Access to the briefs and other materials considered by the high court can be found on the SCOTUS blog, here.

At its core, Concepcion holds that the Federal Arbitration Act preempts a California law that rendered unenforceable any arbitration clause that contained a class action waiver. In other words, prior to Concepcion, California courts more or less treated availability of class litigation as more of a right than a matter of procedure, and arbitration clauses that contained class action waivers were seen as a denial of the right to litigate (whether in court or before an arbitrator) as a class. Today, the Supreme Court ruled otherwise. What makes Concepcion such a meaningful case is that jurisprudence surrounding enforcement of arbitration clauses has been evolving at the state level around the country over the past decade, and many states, including BB&R's own North Carolina, have controlling cases with rules that are similar in many respects to California's pre-Concepcion rule. All of those states are now faced with determining how Concepcion applies to their rules related to contract unconscionability.

The Wall Street Journal blog seems to be of the opinion that Concepcion will serve as a high water mark of sorts for consumer class action litigation because, it implies, everyone will run quickly to rewrite their contracts to include both arbitration clauses and class action waivers. The idea is that companies are more than happy to expose themselves to individual arbitration claims for $30.75, but a putative class of 2,000,000, each with a claim for $30.75 is an entirely different animal altogether. Consider this, if you were a consumer would you be more likely to initiate an arbitration over $30.75 or eat it. Conversely, if you were a consumer that received an "opt out" notice regarding a class action settlement related to the $30.75 claim that you had against ABC Bank, would you be more or less likely to opt in when all you had to do was sign your name and await a check in some amount? Regardless...says the Supreme Court.....if you execute a contract and it contains an arbitration clause and a class action waiver, you will not avoid enforcement of the arbitration clause due to the mere existence of the class action waiver, even if your claim is only for, say, $30.75.

Now, our friends at the WSJ make good points, and Concepcion is certainly a hurdle that the class action bar will have to clear, but consumer class actions aren't dead...not by a long shot. The people who bring and litigate those claims are among the most creative in the legal world. They will find the weaknesses in Concepcion, and they will exploit those weaknesses. Turns out, hundreds of millions of dollars can serve as quite an incentive.

Federal Banking Enforcement Up Sharply in 2010

Last week, the Bureau of National Affairs printed a must read review of the 2010 enforcement actions by federal banking agencies. The article, entitled "2010 Bank Enforcement Actions: A Hardened Government Attitude" contains a sobering account of the federal government's 2010 enforcement activity, penalties assessed, consent orders executed and, perhaps most importantly, enforcement trends as compiled by the authors.

That the article was not published until mid-April 2011 is likely not so much a comment on its importance (it is important) as a comment on the amount of time required to obtain the enormous amounts of information and data that were crunched into nine single spaced pages. Bottom line: If you work in the world where finance and law intersect, represent players in the financial industry, are interested in understanding why "recrimination" is in the title of this blog, or would like a view into what we can expect from the Consumer Financial Protection Bureau and/or the states' Attorneys General in the coming months and years, this is required reading. Thanks to my partner and leading banking law expert, Don Lampe for turning us on to this excellent piece of journalism.

If the current trends continue, it appears that our major banks have no more chance to avoid recrimination and enforcement than the Pink Floyd's plaintiff children have to avoid "education" and "thought control" in "The Wall Part 2." And, at the risk of stretching the metaphor, the "teacher" will not "leave those kids alone."

CFPB and NAAG release joint statement of principles

Yesterday, the CFPB and the Presidential Initiative Working Group of the National Association of Attorneys General announced a joint statement of principles, which the Consumer Finance Protection Bureau describes as "the first step in forging a new partnership between federal and state officials to protect consumers of financial products and services." The statement, which is available here, sets out the following principles that have been agreed between and among NAAG and the CFPB:

1. Develop joint training programs and share information about developments in federal consumer financial law and state consumer protection laws that apply to consumer financial products or services;

2. Share information, data, and analysis about conduct and practices in the markets for consumer financial products or services to inform enforcement policies and priorities;

3. Engage in regular consultation to identify mutual enforcement priorities that will ensure effective and consistent enforcement of the laws that protect consumers of financial products or services;

4. Support each other, to the fullest extent permitted by law as warranted by the circumstances, in the enforcement of the laws that protect consumers of financial products or services, including by joint or coordinated investigations of wrongdoing and coordinated enforcement actions;

5. Pursue legal remedies to foster transparency, competition, and fairness in the markets for consumer financial products or services across state lines and without regard to corporate forms or charter choice for those providers who compete directly with one another in the same markets;

6. Develop a consistent and enduring framework to share investigatory information and to coordinate enforcement activities to the extent practicable and consistent with governing law;

7. Share, refer, and route complaints and consumer complaint information between the CFPB and the state attorneys general;Analyze and leverage the input they receive from consumers and the public in order to advance their mutual goal of protecting consumers of financial products or services; and

8. Create and support technologies to enable data sharing and procedures that will support complaint cooperation.

Our view is that the two organizations have already exhibited signs of being both serious about this cooperative endeavor and relatively effective in pulling it off. One need only look to the Financial Services Committee's concern regarding the CFPB involvement and consultation with the associated group of 50 attorneys general in connection with the national mortgage documentation issues to see evidence of that effective cooperation.

Ms. Warren....or Marshall Dillon

For for the unindoctrinated, visiting your grandparents' homes may have been more about sitting on plastic covered sofas or eating crumpets with tea. You would have no idea who these two heros pictured to the left are. For me, it was a steady stream of Gunsmoke (and Clint Eastwood, but that is a different post entirely)...and the venerable Marshall Matthew Dillon. A law man with fast hands, whose words were his bond and whose principles were unassailable. Fast forward now from the '50s, '60s and '70s (yes, for those of you who thought that Cheers, Friends, E.R. and N.Y.P.D. Blue had good runs, try a show that aired for twenty years on television (and nine separately on the radio)) all the way to 2011, where we find that our newest most venerable "sheriff," Elizabeth Warren of the Consumer Financial Protection Bureau, is being criticized for allowing the CFPB to participate in some manner in the separate federal and State investigations into mortgage lenders and servicers who are embroiled in the mortgage documentation investigation regarding practices such as "robosigning." It seems that Ms. Warren appeared before the House Financial Services Committee and testified that the CFPB had a lesser role in the investigations than it may have (a "lack of role" that we here at BB&R can embrace insofar as the State investigations are based almost exclusively on State law that is not only "not federal," but often is specific to the particular State and different amongst them). That was all fine, until some on the Committee learned that the CFPB is actually being consulted by federal agencies such as the DOJ and FBI in connection with mortgage servicing related investigations and also being consulted by the 50 State A.G. coalition. For her part, Ms. Warren's reaction was at least as tough as Marshall Dillon's would have been, while being as coy as an undercover Andy Sipowicz. As reported by The Hill, she wrote a letter responding to her critics in which she bluntly explained the principles and ideals behind the CFPB involvment, but declined to explain precisely what that involvement is, due to ongoing nature of the investigations. Okay, so no one really gets to mislead Congress, no matter how easy or well-intentioned it may be, but that isn't what captured our attention. And, anyone who is seriously complaining on the one hand about effective information sharing between and amongst the fledgling CFPB and federal agencies such as the DOJ and FBI whist bruising their knees jumping on the bandwagon of similar information sharing where terrorism is concerned....well, they should just consider being quiet--but that isn't what caught our attention either. What caught our attention is the implicit acknowledgment in all this that is relevant to BB&R, mortgage services and every single person in the consumer finance industry and/or who practices law in the world of consumer finance...what caught our attention is the fact that the Designated Transfer Date is still over 100 days away, and the CFPB and State Attorneys General appear to already be effectively cooperating, sharing information and consulting one another toward a common end--and without any real indication of thought by Ms. Warren or anyone on her still growing team of clammering for credit (of course, with no announcement in the States' A.G.s' investigations and negotiations, it is to early to formally conclude that there is actually credit to share...but there will be). Is this the first cooperative effort? And, can we gauge the likely success of future interaction and cooperation by this effort? We'll see. Oh, and for those of you who are lucky enough to know of Gunsmoke, I've learned this of Ms. Warren: Festus, she's not.

Late last week, rulings were issued in a cluster of cases that BB&R has been following. The rulings, in class action law suits against the former Wachovia (purchased in early 2009 by Wells Fargo), while not the first major rulings to emanate from mortgage-related business models being pursued at the time of the meltdown, came out of the United States Federal District Court for the Southern District of New York, which, is one of the more relevant U.S. District courts in the country, because it catches a relatively high percentage of major financial industry-related cases.

You can read about the rulings here. While some of the claims will be allowed to go forward, the multiple dismissals and sharp reduction of the number of claims is a good example of agressive advocacy and limiting exposure within otherwise dangerous cases by patiently using the court's procedural process and forcing Plaintiffs to meet certain benchmarks before rushing to settle. For those "court watchers" in our readership, the subject cases are In re: Wachovia Equity Securities Litigation, case number 1:08-cv-06171; Stichting Pensioenfonds ABP v. Wachovia Corp. et al., case number 1:09-cv-04473; FC Holdings AB et al. v. Wells Fargo & Co. et al., case number 1:09-cv-05466; and In re: Wachovia Preferred Securities and Bond/Notes Litigation, case number 1:09-cv-06351; in the U.S. District Court for the Southern District of New York.

Will the real Ms. Warren please stand up?

"Will the real Slim Shady please stand up, please stand up, please stand up." It is that refrain that rang out through the Grammy Awards several years ago. The point of the song is that there are "posers" who pretend to be something that they are not...and that they shouldn't do that. Now, as the above attached video demonstrates, Eminem expresses that idea more colorfully than we will here, but lets be clear, I've been watching, reading about and listening to Elizabeth Warren closely for nine months, and have determined that she is a chameleon.

She not only changes colors, but appears to change her entire message to suit her audience. Take, for instance her appearances on HBO's decidedly liberal "Real Time" program, which you can watch here and CNBC's "Squawkbox" here, and compare it to the message that she was hawking that was reported on in yesterday's "Deal B%k" post, by New York Times reporter Ben Protess, in which Ms. Warren consderably softened her anti-industry rhetoric in a speech at the U.S. Chamber of Commerce's Capital Markets Summit of earlier this week.

While in the "lions' den," as it were, Ms. Warren even went so far as to suggest that the Consumer Financial Protection Bureau would help the financial industry by easing some unnecessary regulations. For instance, as Mr. Protess reported, she said: “'The lesson seems clear: Rules should be focused, and those that are not useful should be revised or eliminated,” she said, adding that the bureau would not primarily focus on writing new regulations. Ms. Warren said she even agreed with the chamber’s recent proclamation that the bureau should work to “prevent duplicative and inconsistent regulation of Main Street business.” That is why, she said, the bureau’s top priority is to “consolidate the duplicative and burdensome” mortgage closing documents."

Really? The bureau will not primarily focus on writing new regulations? That doesn't sound particularly similar to what she has said in other venues and before different audiences. Now, BB&R has never been a vocal critic of Ms. Warren. In fact, she is quite capable, and her combined expertise with respect to consumer finance issues and uncanny ability to refine those issues and present them in a manner that lay people can understand are impressive. And, so far, the people that she is choosing to populate the new Bureau are not altogether objectionable. However, make no mistake, the Bureau is not being set up to protect any aspect of the industry. Its constinuancy is the consumer...period. To think otherwise is to be naieve and, therefore, transparency is important. While we are not suggesting that she go looking for a fight, being straight with the industry and dealing with whatever consequences may arise is one measure of determining whether and to what extent we, all of us, can rely upon what she says.

To the extent that is a litmus test (for anything), and it is not at all clear that it is, she may not be passing at the moment.

Breaking news from the world of consumer finance regulation

In an unusual announcement issued today by the Consumer Financial Protection Bureau, the powerful new regulator of all things consumer finance has communicated an intent to withhold any rule-making or new regulatory announcements, investigations and administrative action until a Director is formally nominated and confirmed by Congress. Due to the divisiveness of the issues related to the very existence of this new Bureau much less who should run it, prognosticators are expecting the a nomination fight to last months and possibly stretch into late 2012.

In a demonstration of solidarity with the announcement and the Bureau, the 50 State Attorneys General have all signed a document pronouncing their intent to put a stay in place relative to new consumer finance related regulation until such time as the first Bureau Director is finally approved by Congress. And, a Republican Member of the House of Representatives has introduced a bill that would protect (through civil immunity) credit card companies, banks, pay day lenders and even credit unions from civil actions by consumers (whether organized by class or individually) for regulatory transgressions during this interim period when there sort of is, but really isn't, a new regulator in place. And, in yet another demonstration of the power of the automobile lobby, Congress has exempted car dealers from regulation by and under the Dodd-Frank Act, which may well mean that the proverbial "used car salesman" will be the one "outlaw" that will be beyond the control of D.C.'s newest consumer sheriff.

Oh, and April Fools!

Of course the CFPB is not going to wait for Congress to approve a nominated director. The rulemaking is going to start even before the Designated Transfer Date. The State Attorneys General cannot even get together on how to deal with the robo-signing foreclosure-related issues. They won't be agreeing to any stay of investigation or enforcement. And, no, there will be no immunity for the industry. The depth and breadth of the lawsuit related fallout from the mortgage/foreclosure crisis and related financial meltdown has yet to be determined with any certainty. In fact, ironically, the only true statement above in this post is the part about car dealers being exepted from Dodd-Frank. As capable of evading rational explanation as that may be....its actually true.

Enjoy your April. As we get closer to May, the CFPB Designated Transfer Date of July 21 is going to come into focus, and the craziness will begin.

A Missed Opportunity?

So, three weeks have passed since our last entry here at BB&R. We were off the rails for a bit, but are firmly back on them now, and there are things happening that may interest you.

For instance, the White House has announced that its Chief of Staff, William Daley (yes, of the Chicago Daleys) will not participate in the search to identify a nominee as the first Director of the Consumer Financial Protection Bureau. According to this Bloomberg report, the decision was made largely because Mr. Daley is a former J.P. Morgan Chase executive committee member, which makes him too friendly with the bankers. While this appears to be a good decision (albeit because Mr. Daley already has a reasonably demanding job, rising gas prices, a sluggish economy, an Executive Administration, and somewhere between two and three wars currently on his plate--and not because of his perceived bias), it seems like a missed opportunity for the White House.

So far, the President has done little to disabuse anyone in the industry of the idea that the CFPB will be a powerful protector of consumers at the expense of the industry, or that those who run the bureau will lean decidedly more to the left on consumer issues than center or right. Would Daly's involvement have helped to placate some in the industry and bring more legitimacy to the process? Perhaps. Our bet is that it was Daly himself who chose to stay out of the ring on this one. It's going to be a bruising battle.