LegalMatch: Business Law

Should Not Believing in Global Warming Be Illegal?

In a time where Americans don’t seem to agree about anything, it is no surprise that some people do not believe in global warming. Some argue that publicly questioning the severity or even existence of global warming is dangerous—that such behavior influences those who might not know any better. But should questioning climate change be illegal?  

A bill introduced by California Senator Ben Allen, D-Santa Monica, called for the prosecution of climate change dissenters, making global warming denial a business fraud. Although the bill ultimately did not pass, its introduction drew outrage from some who called it an overreach of government control as well as an attack on First Amendment rights to free speech and free press.

What Did Senate Bill 1161 Cover?

Senate Bill 1161, also known as the California Climate Science Truth and Accountability Act of 2016, would have allowed prosecutors to sue fossil fuel companies, think tanks and others who have questioned global warming under the principle that information disseminated by these groups has “led to confusion, disagreement, and unnecessary controversy over the causes of climate change.”

According to the bill, there is no room for disagreement on the global warming issue as: “There is broad scientific consensus that anthropogenic global warming is occurring and changing the world’s climate patterns, and that the primary cause is the emission of greenhouse gases from the production and combustion of fossil fuels, such as coal, oil, and natural gas.”

Furthermore, Senate Bill 1161 positions itself as necessary for the public good, declares that misinformation about climate change has “confused and polarized the public on the need to aggressively reduce emissions to limit risks from climate change.”

How Can Climate Denial Be Considered Fraud?

California’s Senate Rules Committee noted that Senate Bill 1161 allows district attorneys and the Attorney General to use California’s unfair competition law to allege that a “business has directly or indirectly engaged in unfair competition with respect to scientific evidence regarding the existence, extent or current or future impact of anthropogenic induced climate change.”

The unfair competition law referenced in the Senate Rules Committee’s analysis is a reference to legislation (in particular, the Unfair Competition Act section 17200) that makes it illegal for a California business to engage in any “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” In other words, a corporation or person alleged to have spread misinformation about climate change could be charged under the principle that they were engaging in unfair business practices.

Interestingly, while the statute of limitations under the Unfair Competition Law is now four years, climate “fraud” lawsuits pursued under Senate Bill 1161 would have no statute of limitations. In other words, if Senate Bill 1161 had passed, there would have been no limit on how far back people or corporations could be sued on climate “fraud” claims.

Senate Bill 1161 and the First Amendment

In a June 6th letter to California Attorney General Kamala Harris (a Senate Bill 1161 supporter), nineteen California lawmakers wrote that, in their view, freedom of speech “is not designed to protect fraud and deceit” of those (such as oil company ExxonMobil) who have doubted climate change. In contrast, Stephen Frank, editor of the California Political Review, called Senate Bill 1161 a “totalitarian statement by Democrats that the First Amendment is now dead.”

So would Senate Bill 1161 have violated the First Amendment? The Supreme Court has held that restrictions on speech based on its content usually violate the First Amendment. However, the Court has ruled that certain types of speech are of “low” First Amendment value, including: defamation (false statements that damage a person’s reputation), threats to commit a crime, “fighting words” (face-to-face personal insults), obscenity (like hard-core pornography), child pornography, and commercial advertising (speech advertising a product or service is constitutionally protected, but not as much as other speech). It is unclear how opinions about global warming fits into these “low” First Amendment value categories.

When you consider that the right to freedom of speech guaranteed by the First Amendment allows people to express themselves without interference from the government, Senate Bill 1161 starts to sound less like a measure to help the environment, and more like a way for those with dissenting opinions to be silenced.

As Texas Attorney General Ken Paxton said of the controversy, “They have every right to have their opinions on climate change. In my opinion, you cross the line when you start prosecuting individuals for disagreeing with you.”

Authored by Andrea Babinec, LegalMatch Legal Writer

Parents Rejoice: FTC Sues Amazon for In-App Charges Made by Children

If you ever glanced at your credit card statement and see a dozen $0.99 purchases from Apple, Google, or Amazon, then you are familiar with “in-app” purchases. For a responsible adult, in-app purchases are a nuisance if they forget to keep track. But for a child, an in-app purchase is a harmless, $0.99 purchase that they just make one time. Until the next purchase, which may be $1.99 or $2.99.

It is not uncommon for parents look at their bill and see that the child has made $300 worth of purchases for a one game that advertises as “free”. Now, most people are familiar with the concept of the “pay-to-play” game. Companies like Apple, Google, and Amazon allow parents to put a lock pay-to-play games to prevent in-app purchases.

But what about the thousands and millions of dollars already spent by children on in-app purchases? Can their parents get a refund? If so, why would they get a refund?

The Basics of FTC’s Lawsuit Against Amazon

The Federal Trade Commission (“FTC”) filed a lawsuit against Amazon, Inc. in July 2014. The lawsuit sought to give refunds to customers for unauthorized charges. It also sought to ban Amazon from billing parents (or anyone else) for in-app charges made without their consent.

The FTC found that the games encouraged children to buy virtual items in a way that made it unclear the purchase is made with actual money. The games title the purchases as “coins” or “acorns”, and they can cost up to $99.99 for a bulk purchase.

Amazon stated that they require a password for in-app purchases over $20. But, even if the parent authorizes a purchase, the authorization opens a 15 minute window where any person can make purchases of any value. Ultimately, parents were finding bills for over $300 worth of unauthorized charges. Even children who are unable to read but are able to click buttons at random have racked up a large bill.

Still, Amazon maintained the policy that all in-app charges are final and nonrefundable. Ultimately, the court decided that Amazon violated Section 5 of the FTC Act.

Section 5 and Unfair Practices

Section 5 of the FTC Act bans “unfair or deceptive acts or practices” that affect commerce, In this case, the unauthorized in-app purchases are the deceptive acts that affect commerce.

An act or practice is unfair if they:

• Cause or are likely to cause substantial injury to consumers;
• The injury is not reasonably avoidable by consumers; AND
• The injury is not outweighed by any benefits to consumers.

The court considered billing customers without permission as an injury under Section 5. The court also decided that it is not reasonable for customers to avoid injury because the app’s are “free.” Customers who download the app can believe that advertising the app as “free” means that they cannot make actual purchases within the game.

Finally, the court decided if there were any outweighing benefits from Amazon’s in-app purchase design. The court replied with a resounding “No.” Amazon argued that customers prefer a seamless experience. "Seamless," meaning that they can buy things without interrupting the game. But the court refused to believe that claim. They state that Amazon failed to give any evidence of customers being “upset or harmed” by the existence of a password request.

First Came Apple, then Google, and Now Amazon…. Will Companies Ever Learn?

In January 2014, the FTC settled with Apple, Inc. to refund consumers $32.5 million of in-app purchases. In September 2014, FTC settled with Google to refund consumers $19 million of in-app purchases. As of May 2016, it is unclear how much Amazon will need to return to consumers. But the FTC stated it is seeking full refunds for most of the affected consumers.

The trend is clear: the legal system is cracking down on companies that try to profit off of in-app purchases. In 2014, the popular game “Candy Crush Saga” raked in $1.3 billion from such purchases alone. Over time, consumers began to realize how much they spend on in-app purchases and fought back. However, many apps still require consumers to actively disable in-app purchases.

The courts have caught on to the fact that in-app purchases are deceptive and can amount to a significant purchase. We can only hope that companies like Amazon will realize they must change their practices or face the consequences.

Authored by Janice Lim, LegalMatch Legal Writer

False Advertising Laws

In advertising, many companies cross the line between telling the truth and making false claims. They may claim that a product is “scientifically proven” and “results are guaranteed,” but is this true?

Deceptive advertising is prevalent in the marketing world, and most of us have been the victims of false advertising. Is there anything that protects the consumer from these types of misleading advertisements?

Companies Sued for False Advertising

Jamie Lee Curtis used to be the main spokesperson for Activitia yogurt. Their advertisements claimed Activia had more health benefits than the average yogurt. In actuality, it pretty much has the same nutritional value as every other kind of yogurt. A class action settlement from 2010 forced Dannon, the makers of Activia, to pay up to $45 million in damages to the consumers that filed the lawsuit and others who said they were fooled by the advertisement.

In 2010, Kellogg’s Rice Krispies cereal was accused of misleading consumers about its immunity boosting capabilities. The FTC ordered Kellogg to halt all advertising that claimed that the cereal improved a child’s immunity with “25 percent Daily Value of Antioxidants and Nutrients – Vitamins A, B, C and E,” stating the claims were “dubious.”

Penzoil was ordered to pull ads that claimed their oil performed better than their competitors. A New Jersey judge called these claims “false and misleading” and “repugnant,” because, in actuality, their oil performs no better than others.

Eclipse gum claimed that its new ingredient, magnolia bar extract, had germ-killing properties. In fact, it did not. As part of the settlement, its maker paid $6 to $7 million to a fund that will reimburse consumers up to $10 each for the product and cover other costs of the settlement.

Truth in Advertising

When consumers see or hear an advertisement, federal law dictates that the ad must be truthful. In other words, it must not be misleading and, when appropriate, must be backed by scientific evidence. The Federal Trade Commission (FTC) enforces these truth-in-advertising laws. The laws apply the same standards no matter what the medium, whether it’s a newspaper, magazine, online, in the mail, on billboards or on buses.

The FTC particularly scrutinizes advertising claims that impact consumers’ health or pocketbooks, such as claims about food, dietary supplements, over-the-counter drugs, tobacco, alcohol, or information related to high-tech products and the Internet. The FTC also monitors and writes reports about ad industry practices regarding the marketing of alcohol and tobacco.

How Do Consumers Prove False Advertising?

Once a consumer believes he has been duped by false advertisement and files suit, he must prove five things. First, a false “statement of fact” has been made about the advertiser’s own or another person’s goods, services, or commercial activity. Second, the statement deceives or has the potential to deceive a substantial portion of its target audience. Third, the deception is likely to affect the audience’s purchasing decisions. Fourth, the advertising involves good or services in interstate commerce. Finally, the deception has either resulted in, or is likely to result in, injury to the plaintiff. The fact weighed most heavily is the advertisement’s potential to injure the customer.

Types of False Advertising

There are three main acts that constitute false advertising: failure to disclose, flawed and insignificant research, and product disparagement.

With failure to disclose, a court of law can find a company guilty of false advertising if the company makes statements which are misleading because they do not disclose something that the consumer should know. For example, a drug company can be liable for false advertising if it fails to disclose certain side effects to taking the drug.

Flawed and insignificant research occurs when research is unsupported by accepted authority or which is contradicted by prevailing authority. Product disparagement involves discrediting a competitor’s product.

Authored by Erin Chan-Adams, Legal Match Legal Writer and Attorney at Law

Your Retirement Investments Just Got $17B Safer

Planning for retirement can be a daunting task—regardless of your occupation or where you are in your career. In order to ensure a secure financial future, it is common to seek professional advice to advise you on retirement plans and investments.  Considering the impact that a retirement plan has on your life, one would hope that the professional giving advice is putting your best interests first.  However, until a recent change in law from the Department of Labor, this has not always been the case.

A fiduciary duty is a legal duty to put the interests of a person or party above all else; violating this duty leads to legal repercussions. Somebody who has a fiduciary duty is called a fiduciary. In 1974, the Employee Retirement Income Security Act (ERISA) was passed to help create standards and practices for retirement and health plans. The original act applied a broad rule, assigning fiduciary duty to those rendering investment advice regarding a retirement plan for compensation. However, one year after ERISA was passed, the act was amended so that the application of fiduciary duty to retirement advisors was substantially limited. 

The new rule applied a five-part test before a retirement advisor owed a fiduciary duty to the person they are advising. Under the 1975 rule, employers still owed a fiduciary duty to employees taking advantage of retirement plans offered by that employer. However, many private retirement advisors didn’t carry such a duty. Instead, advisors were only required to make recommendations that they themselves reasonably believe were suitable for clients.

How Good is “Suitable” Advice?

So just how much damage can entrusting your retirement to an advisor who is held to less than a fiduciary standard do? While there are certainly advisors who will provide non-conflicting advice regardless of the standard they are held to, the damage caused by conflicted advisors is substantial. The Obama administration recently issued a study estimating that conflicts of interest cost retirement plans about $17 billion a year. The Department of Labor estimates that conflicted investment advice “could cost IRA investors between $95 billion and $189 billion over the next 10 years and between $202 billion and $404 billion over the next 20 years.”

These conflicts generally occur where financial advisors, not subject to a fiduciary standard and not required to act exclusively in your best interest, suggest investment opportunities that provide them better commissions instead of providing you better returns. It is very common for companies to offer percentage commissions or rewards to advisors on certain investments or types of investments.  For example, the company Table Bay offered “a Maserati to advisers who sell at least $7.5 million in annuities in 2014 and a BMW, Range Rover, or Porsche to those with at least $6 million in sales.” These sort of deals can lead a retirement advisor to recommend investments with the best commissions as opposed to investments that are best for your retirement portfolio—leading to the costs described above.

The Department of Labor Has Changed Who Owes You a Fiduciary Duty

With the landscape of retirement planning changing, and the potential for so much damage to investors before them, the Department of Labor has taken action to change the 1975 test. They first introduced a proposal to update the rule for who owes a fiduciary duty in 2010.  Since then, they have introduced an updated proposal in 2015 and released a final rule which will take effect in June 7, 2016 and will be applicable to financial advisors beginning on April 10, 2017.

The new rule substantially expands who has a fiduciary duty in regards to your retirement account.  In addition to explicitly including advice regarding private plans like IRAs, the Department of Labor has done away with the 1975 five-part test entirely—replacing it with a broader standard.

The new rule assigns fiduciary duty to advisors providing recommendations regarding the investment of retirement plan or IRA assets, including recommendations regarding the investment of assets that are being rolled over or otherwise distributed from plans to IRAs. It also requires that advisors making recommendations regarding investment management of plan or IRA assets hold a fiduciary duty to their client.

Tempered Expectations

These new changes substantially expand the situations where a retirement advisor will be treated as a fiduciary. However, not every advisor will be a fiduciary. The new rule has a specific definition for what constitutes a “recommendation” and what constitutes “financial advice.” 

While critics argue that holding advisors to a higher standard may push some advisors out of the market—or lead them to stop offering services to moderate income individuals—it seems unlikely that the changes will lead financial advisors to abandon such a huge market.  The increased protection to retirement investors far outweighs the loss of advisors who don’t feel they can sustain a business while maintaining a fiduciary relationship.  If advisors feel they need to offer recommendations that are not in your best interest, is that really advice or is it a sales pitch?

Authored by Jonathan Lurie, LegalMatch Legal Writer and Attorney at Law

Rapper’s Bankruptcy Turns Into Publicity

50 Cent, a rapper who filed bankruptcy last year, is making a series of headlines after he posted pictures in his social media exhibiting stacks of cash. His inflammatory pictures and messages attracted his creditors’ attention and raised the court’s concern about his honesty in disclosure of assets. The court then ordered 50 Cent to explain the whole thing. 

50 Cent used stacks of $100 bill to fill his refrigerator and spell out the word “B-R-O-K-E” in online pictures bragging about his wealth. The cash in his Instagram photos, he says, was fake.

He thrived as a rapper and subsequently achieved success in the business world expanding his net worth to $150 million. He made a fortune by selling more than 25 million copies of his albums between 2003 and 2009. He invested early in Vitaminwater, then made a reported $60 million to $100 million after the company was sold to Coca-Cola in 2007. Last year, however, 50 Cent declared a $32 million debt and filed for bankruptcy. People wondered what happened to the star rapper and his accumulated wealth. The skepticism increased as he has posted shots of himself flashing $100 bills. 

The story goes on. He explained that the money was “prop money” and through his attorney, he claimed that the pictures meant to promote his new song, “Too Rich.”

The related reports and articles focus on 50 Cent’s continuous posts of comments and images along with his responses towards the court’s proceeding. So far, no interviews or comments from his creditors have been reported, at least on some of the major media outlets that covered his story. The biggest controversy is the rapper’s apparent intent to use the bankruptcy proceeding as a marketing tool and in the midst of pursuing his intent, some important underlying issues of legal proceeding have been forgotten and undermined.

Following his court appearance, he complained about the way his case is being handled. He wrote in his Instagram, “I have millions of dollar in my company’s, the court knows this. I was accused of committing fraud with nothing but a IG photo. I can care less what these people think of me, but it’s not right.”

Debtors Have a Duty To Be Honest During Bankruptcy

The rapper seems to ignore or dismiss the core of the bankruptcy process. He may be a star celebrity, but during bankruptcy he is a mere petitioner who is asking the court for protection because he cannot pay back his creditors. 50 Cent filed for chapter 11 bankruptcy. Unlike chapter 7 bankruptcy, liquidation bankruptcy, under which the assets are sold to pay the creditors, chapter 11 bankruptcy is “reorganization” bankruptcy.

What this means is that the firm will contact its creditors in an attempt to change the terms on loans such as the interest rate and dollar value of payments. The common objective of all bankruptcy proceedings is to give the debtor an opportunity to start fresh. To receive a bankruptcy discharge, debtors must disclose all of its assets to the bankruptcy court. The debtor’s affirmative duty is part of the price that debtors must pay for receiving a bankruptcy discharge.

If the rapper needs a fresh start through bankruptcy proceeding, he should better comply with his obligations as a debtor. A debtor has an absolute duty to disclose all assets, or potential assets, to the bankruptcy court and such duty continues through the bankruptcy. As such, the debtor must amend his financial statements if circumstances change. It is fair, therefore, that the creditors or the trustees have the right to challenge the discharge of debts if the debtor lied to the bankruptcy court.

Bankruptcy is also often a refuge for individuals or businesses whose assets are threatened by pending litigation or judgments. 50 Cent filed bankruptcy shortly after he was found order to pay $5 million to a woman for posting a sex tape of her online without her permission.

A Full Accounting

As a debtor to the bankruptcy proceeding, 50 Cent should realize it is his absolute duty to give a full and honest disclosure of assets. The level of scrutiny he received from the court is a necessary oversight of the court. His photos are not only offensive, but also sufficient to create doubts whether he is really broke. Had the court not ordered him to explain his photos questioning whether he fulfilled his obligation as a debtor, it would not have been fair to the creditors.

In fact, the rapper may be quite aware of his obligation. That’s why he continued his provocative social media publicity that would raise the court’s concern. He also understands the nature of media so well that if he posts pictures and comments that are provocative in his social media, the major media outlets will pick up the story because it makes great “newsworthy” materials.

He calls the court’s scrutiny as, “it’s not right,” implying that he is being treated unfairly. But to excuse him from scrutiny by asking the court to consider the context of where he is from and what kind of music he does would be exactly the opposite of fair treatment. And yet, his attorneys still asked for special treatment from the court.

The rapper’s attorneys explained to the judge, “I’m not going to ask you whether you listen to his music or have seen his videos or anything like that, but if you look at Mr. Jackson or other Hip Hop artists,” … “They come from poverty. Many of their fans are poor. They want their favorite rapper to be rich. Money is important to them. You look at his pre-bankruptcy persona, look at some of the videos, money is important.”

In the end, while he may not have committed fraud by hiding assets or intended to disrespect the court, he surely is using his bankruptcy procedure as a stage using “prop money” to promote his new song and make profits out of it. How would his creditors feel about this whole thing?  50 Cent’s attorney admits and quickly discredits the level of distress his creditors might go through. “I could understand why it would inflame creditors of the estate, but I think they’re sophisticated.” Maybe it’s time to hear from his creditors.

Authored by Kyounghwa "Khloe" Lee, LegalMatch Legal Writer and Attorney at Law

ExxonMobil: Deception on Climate Issues May Lead to Litigation

In the recent months, the public has learned more about ExxonMobil’s attempt to bury its own early corporate research on climate change. In July, the media exposed email from one of ExxonMobil’s in-house scientists. This email led to investigations that showed corporate knowledge of climate change issues going back to the late ‘70s, and research going back to the early ‘80s. The investigations also indicated that after revelations about climate damage, ExxonMobil funded anti-climate change research and political activity for decades. While the company began to mend its ways in late 2000’s, there are still questions of liability for the initial cover-up.

Many have likened ExxonMobil’s actions to the actions of tobacco companies many years ago. For years, the tobacco industry manipulated data about the risks of its products as sold in the United States. As the New York Times recently mentioned, actions taken by attorney generals were the first steps in bringing the tobacco industry to account for its past deceptions.

New York’s Attorney General is investigating ExxonMobil, potentially bringing more accountability to a new industry. It’s possible that the public was misinformed by ExxonMobil about the risks associated with climate change, and this may bring about unforeseen consequences. The main focus of the New York investigation, however, is whether or not ExxonMobil investors specifically were properly informed of the risks that climate change could present to a company that deals in fossil fuels.

What Shareholder Actions Will ExxonMobil Face?

Civil environmental lawsuits may arise now that states and classes of plaintiffs have ammunition to take to court. However, this kind of lawsuit has rarely succeeded, and the Supreme Court has already ruled that states cannot sue companies that produce greenhouse gas emissions for creating a public nuisance. The Alaskan village of Kivalina also recently failed to sue major emitters for a public nuisance due to sea level increases, and in 2013, the Supreme Court chose not to hear that case. That said, it is not completely impossible that ExxonMobil may face a novel and successful civil lawsuit based on these new facts.

ExxonMobil executives may also face derivative shareholder suits, in which shareholders sue officers and directors on behalf of the company. Most executives’ actions are protected by the business judgment rule, which is a rule that states judges should not second guess the business decisions of corporate executives.

However, actions taken in bad faith, without due care, or against the best interest of the corporation, are not protected by the business judgment rule. ExxonMobil’s stock have lost some value since these investigations have brought past actions to light. Shareholders may question whether ExxonMobil deceived them about climate change in order to make their investment seem wiser, or whether the company has truly reversed course now. A shareholder that has already made a written demand that ExxonMobil accept more past responsibility, disclose more information, or take other corrective actions to avoid harm may now file suit if the company does not comply.

What Government Actions Will ExxonMobil Face?

Like the tobacco companies, ExxonMobil may be prosecuted under the Racketeer Influenced and Corrupt Organization Act (RICO). RICO requires a pattern of racketeering (in other words, illegal business) and, thus, would require proof of an ExxonMobil conspiracy involving securities fraud and other crimes. In the case of the tobacco company Phillip Morris, for example, the Department of Justice was able to establish a scheme in which the public was misled in multiple ways and deceptive marketing practices were used. It remains to be seen whether such a strong organized crime case could be pursued against ExxonMobil.

One final (and possibly best) option is for Attorney General Schneiderman to employ the Martin Act, which is a very powerful New York-specific law that allows his office to prosecute securities fraud. The Attorney General’s Office is the only agency that can enforce the civil portion of the Act. It can also work with the District Attorney to press criminal charges.  The Martin Act allows for both confidential and public investigations into corporate actions, and its definition of securities fraud is broader than under federal law. This Act has been used to pursue action against investment banks and other major corporations in the past. 

While it’s likely that some of these legal strategies will not work, ExxonMobil will have to face the music somehow in the coming year. This may also send a warning signal to other corporations relying on carbon emissions to turn a profit.

Authored by Alexis Watts, LegalMatch Legal Writer

Use of Defeat Device by Volkswagen Prompts Recall

Volkswagen was directed by the Environmental Protection Agency (EPA) to issue a recall of almost 500,000 of its vehicles. The EPA alleges they were programmed with a “defeat device” that caused full emissions controls to be turned on only when tests were being performed on the car. According to the EPA, during normal driving, when the full controls are turned off, the Volkswagen vehicles pollute more intensely than the automaker says they do, and can emit up to 40 times the permitted amount of pollutants under the Clean Air Act.

Cynthia Giles, the assistant administrator for the Office of Enforcement and Compliance for the EPA, described the automaker’s actions as a “threat to public health.” Officials from the EPA issued Volkswagen a notice of violation, and stated that the company acknowledged that it had used a defeat device. The recall applies to 4-cylinder Volkswagen and Audis, from model years 2009 to 2015.

The software was created with the intention of hiding the car’s emission of the pollutant, nitrogen oxide, which is partly responsible for the production of ozone and smog. The pollutants are associated with a number of health issues, such as asthma attacks, other respiratory illnesses, and premature death.

Specialists in automotive technology stated that turning off the pollution controls on a car fueled by diesel can result in improved performance, including better torque and acceleration. But when the pollution controls are operating, there’s a concession between performance and emissions, according to Drew Kodjak, executive director of the International Council on Clean Transportation. Kodjak described this behavior as “cutting corners.”

The difference between Volkswagen’s emissions during normal driving and testing in laboratories was first discovered by Kodjak’s group when it was performing research on diesel vehicles. They informed the EPA, which performed additional tests on the cars, and eventually detected the defeat device software.

Criminal Sanctions Are Ahead

California has given Volkswagen a separate notice of violation, and an investigation into the accusations is being conducted by officials in California, the Justice Department, and the EPA. EPA representatives said that throughout next year, owners of vehicles to which the recall applies, will receive recall notices from Volkswagen as well as advice regarding ways to have the vehicles repaired free of charge. Approximately 482,000 diesel passenger cars that were sold in the U.S. since 2009 have been affected by the recall, and they include the Volkswagen Jetta from model years 2009-2015, the Beetle from model years 2009-2015, the Golf from model years 2009-2015, the Passat from model years 2009-2015, and the Audi A3 from model years 2009-2015.

As a result of the probe by the Department of Justice, Volkswagen could face fines or penalties under the provisions of the Clean Air Act. The company could be fined up to $37,500 for each vehicle that is recalled for a total penalty of $18 billion.

The extent of the violations committed in this case may be far worse than those of other automakers because the company seems to have designed a system that had as its objective the deception of consumers and government. And if that is determined to be true, then there will be criminal charges.

If Volkswagen did set out to mislead consumers and the government by creating the defeat device software that permitted its vehicles to produce extremely unhealthy amounts of pollutants, then criminal charges should be brought against the company. Recalls and fines can only serve as mild deterrents, and will not have the same effect as criminal prosecution. Prosecution will strike fear into the minds of other automakers, who will be less likely to engage in similar deceptive and illegal behavior.

Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law

Abusive Conduct by PayPal Leads to $25M Settlement

PayPal Inc. is the defendant in a case in which it is alleged that the company engaged in abusive practices against its customers by illegally signing them up for credit that they did not request. In response to allegations that PayPal violated the Dodd-Frank Act, it has entered into a settlement to pay $25M to affected consumers.

The lawsuit and proposed consent decree against PayPal were filed by the Consumer Financial Protection Bureau (CFPB) earlier this year in Maryland’s federal district court. The bureau claimed that  PayPal participated in deceptive advertising of a product called PayPal Credit, signed up customers without their approval, compelled them to use PayPal Credit to pay for goods and services instead of their preferred method of payment, and mismanaged billing disagreements.

Six charges have been alleged against PayPal, including one that the bureau said was abusive. The bureau did not provide a definition of abusive conduct, which is far more damaging than the usual consumer protection language of “unfair” and “deceptive.”

In 2013, the CFPB filed its first abusive conduct action against American Debt Settlement Solutions. The bureau has since filed another six lawsuits. The settlement entered into by PayPal represents the largest civil penalty in a case concerning abusive conduct. The settlement consists of a fine of $10 million in addition to refunds in the amount of $15 million to consumers. 

According to CFPB Deputy Enforcement Director Jeffrey Ehrlich, the abusive nature of PayPal’s conduct involves customer application of payments. The bureau determined that PayPal had taken unreasonable advantage of the inability of consumers to shield themselves from harm. The bureau alleges that customers of PayPal Credit were unable to comprehend how payments were applied toward charges that were marked by deferred interest.

There were times when PayPal and retailers made offers to customers consisting of no interest on certain purchases for six or twelve months. However, PayPal also allegedly created accounts with interest charges and then signed up those same customers on those accounts. The trouble began when customers wished to apply their payments to the charges that included interest, and not to those that were interest-free.

Although PayPal stated that this was possible, customers who asked for this option were unable to get in touch with a customer service representative. In addition, customers were frequently misinformed about the amount they were required to pay in order to avoid interest charges, and payments were often applied to the wrong charges. Such behavior, in the opinion of the bureau, constitutes abusive conduct, rather than conduct that is unfair or deceptive.  Coupled with the monetary penalty, the proposed consent decree mandates that PayPal clarify the terms of all promotional offers and to make certain that the consumer gets the benefit of the offer expressed by the merchant.

Consumer protection laws are intended to safeguard the rights of consumers, and to prevent companies that participate in fraudulent behavior, from obtaining an unfair advantage over their competitors. If you think you have been the victim of abusive conduct on the part of a merchant, or deceptive advertising, you should consult a consumer protection attorney.

Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law

Possible Oversight of Auto Dealers

Automobile dealers may soon fall under the oversight of the Consumer Financial Protection Bureau (CFPB) if U.S. Senator Elizabeth Warren succeeds in finding a co-sponsor for just such a bill. This spring, Warren stated in speeches that the CFPB has supervision over mortgages, credit cards, and checking accounts, but it does not have complete management over the auto loan market. This is because the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is usually called Dodd-Frank, provided an exception for auto dealers.

Dodd-Frank

Dodd-Frank was enacted into federal law by President Obama in 2010 as a way of increasing accountability and transparency in the financial services industry. The law was passed in response to the Great Recession, and has implemented the most important changes to U.S. financial regulation since the reform that occurred after the Great Depression.

The Auto-Dealer Industry

Despite Warren’s efforts at regulating the largest type of unregulated debt owed by consumers, she does not have the support of other senators. The bill lacks enthusiasm because of the status held by auto dealers, who are located in every district. Many auto dealers are owned locally by families and together they employ over a million employees. There are numerous lobbyists in the industry, who have succeeded in preventing auto dealer regulation. According to the National Auto Dealers Association, the matter was settled five years ago by members of both political parties and thus, there is no interest in reopening the issue. 

Even after the financial crisis of 2009, the auto dealer industry seems to be immune from regulation. Democrats and Republicans alike wish to maintain the unregulated condition of loans made at dealerships. Note that the CFPB can regulate car loans that are not made at dealerships.

During the 2014 election, car sellers contributed approximately $10 million to legislators who were running for the House or Senate. According to the Center for Responsive Politics, the majority of the contributions came from individuals associated with dealerships.

However, auto dealers are also trying to garner support from the same lawmakers in hopes that they will be in favor of laws that would make it challenging for the CFPB to admonish auto dealers to exercise caution when setting interest rates on auto loan packages. The CFPB issued such a warning in 2013.

The warning consisted of a statement to car sellers to be mindful of laws that make certain that consumers are treated in a just manner.  The CFPB also admonished them that the habit of reducing interest rates for some consumers can engender great risk that there will be pricing differences based on race, national origin, and other forbidden factors. However, a House bill would have the effect of repealing the agency’s 2013 warning, and compel the agency to gather opinions prior to issuing such a warning in the future.

If lack of oversight can really lead to pricing differences on the basis of factors that are prohibited, then perhaps more regulation of the auto industry is needed.

Should I Consult an Attorney?

If you think that you have been subjected to unfair lending practices regarding your auto loan, you should consult a consumer protection attorney who can determine whether your lender has violated consumer protection laws.

Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law

Don’t Rely on "Psychics" for Investment Advice

It’s happened before, and it will happen again: a bunch of people forego the sound advice of financial/medical/psychological/relationship experts, and follow the word of a “psychic” who tells them what they want to hear; never mind the fact that just about every scientific study done on the subject supports the conclusion that psychic powers simply do not exist.

That didn’t stop Sean David Morton from allegedly taking gullible investors to the cleaners. The Securities and Exchange Commission just filed suit against him for fraud. Morton called himself “America’s Prophet” and claimed to have predicted every major rise and fall of the stock market over the last 14 years.

He also claims to be capable of time travel and astral projection. This guy just drips with credibility.

The SEC alleges that Morton didn’t invest all of the money that his clients gave to him for that purpose; he took at least $240,000 from his clients and used it to fund his own religious organization. Apparently, he used the funds for other purposes, as well. According to the ABA Journal, he received about $6 million from clients, but only deposited around $3.2 million into trading accounts. Not all of this money can be accounted for.

Hopefully, Mr. Morton will be able to astrally project himself out of a jail cell.

This case really illustrates the need to think critically when it comes to legal and financial matters. In every industry, there are going to be a few bad apples who promise a product or service, only to take their customers’ money and run. With products that involve a lot of complex, behind-the-scenes machinations, such as financial and legal services, many clients, unfortunately, have to partly take on faith that the person they hired to solve a legal problem or invest their money knows what they’re doing (of course, the need for this can be minimized by researching various services before committing, taking into account their records of success, reputation among former clients, etc.).

Given this complexity, and how obtuse and impenetrable these industries seem, trusting a supposed “psychic” might not make any less sense to the average consumer than hiring a qualified professional – both will be doing things that the consumer doesn’t understand, and the consumer can do little but hope for a good result.

Of course, consumers should not be blind to the fact that some providers of legal and financial services know what they’re doing, and some don’t. Some of them are honest, and some of them are frauds. If one doesn’t understand all the details of what these professionals do, telling the difference can be difficult. For that reason, agencies such as the Securities and Exchange Commission and state Bar Associations need to vigorously enforce laws against fraud.

It might be easy to laugh at the people who bought Martin’s line that he was a psychic, and some of Martin’s claims on his website are so outlandish that they are pretty funny. But in cases like this, we should remember that the situation certainly isn’t funny to those who were bilked out of their fortunes. It’s also wise to remember that the easiest marks for scammers are people who think they’re too smart to be scammed.

By: Rusty Shackleford