|Oregon State Bar Bulletin APRIL 2011|
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From food safety to foreclosures, the federal government recently has enacted stricter laws designed to better protect consumers. Among them, the FDA Food Safety Modernization Act, signed by President Barack Obama on Jan. 4, requires all food companies to develop a food safety plan, incorporate a risk-based approached to inspections, and improve the safety of imported foods and ingredients.
Additional new federal protections include the Wall Street Reform and Consumer Protection Act of 2010, designed to protect consumers from “abusive” lending practices and guard taxpayers and investors from paying for additional bailouts for the financial services industry. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (aka Credit CARD) is intended to put an end to unfair interest rate hikes and hidden fees for credit card holders. And the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 requires all mortgage lenders and loan originators to be licensed through a national system and meet more stringent requirements.
Also in 2008, Congress passed the Consumer Product Safety Improvement Act in response to growing concern about the levels of hazardous substances in children’s toys, clothing, bedding, school supplies and other products. It set new levels for potentially dangerous substances that can be used to manufacture an array of goods — from personal care products and jewelry to video games and electronics — and strengthened the testing and documentation requirements for those products. The act also provides increased funding for the U.S. Consumer Protection Safety Commission.
Oregon lawmakers have been focused on improving consumer protections as well. During its 2009 session, the Legislature passed a bill that implemented the new federal SAFE Act requirements on mortgage lending at the state level. Also passed in 2009, a bill that requires lenders to provide good faith evaluations on loan modifications and to discuss a full range of options with borrowers.
During the 2010 special session, the Legislature included home loans and credit cards in changes to the Unlawful Trade Practices Act, allowing Oregon’s justice department as well as private consumers to legally go after banks and lenders who engage in predatory lending. Home loan providers and credit card services previously were exempt under the act. Also during the special section, lawmakers passed a bill requiring payday lenders to be licensed to do business in the state.
Several Oregon attorneys who specialize in consumer law say it’s a dynamic time for the sector on several levels. And, while Oregon is ahead of the curve in many respects, there are a few areas where the state may not be doing all it can to adequately protect its citizens.
Product, Food Safety Come Under Scrutiny
Despite decades of consumer protections already enacted at the federal and state levels, in many ways consumers are more vulnerable than ever, according to Inez M. Tenenbaum, chair of the U.S. Consumer Product Safety Commission.
In the agency’s 2011-2016 Strategic Plan, she notes that the CPSC’s efforts to ensure the safety of toys, cribs, power tools, household chemicals and other products has led to a 30 percent drop in deaths and injuries caused by consumer goods over the last three decades. Still, globalization and technological advances have not only resulted in more products becoming available to consumers, but have made it increasingly more difficult for the CPSC to monitor and regulate them.
With greater authority granted by the Consumer Product Safety Improvement Act, the CPSC now is able to more effectively monitor the products that come through U.S. ports and, coinciding with stricter regulation of the substances used in children’s toys produced overseas, the agency recently opened its first foreign office in Beijing. In addition, the CPSC will launch a website next year at http://www.SaferProducts.gov">/a> that will allow consumers and manufacturers greater access to information about consumer product hazards, thus ushering in an era of “consumer-driven hazard monitoring,” according to Tenenbaum.
The CPSC’s enhanced outreach efforts also include a campaign directly specifically at minorities. According to the agency, a significant disparity in deaths and injuries related to consumer products exists within the Hispanic, African-American, Native American and Asian populations. The CPSC hopes that by working with media outlets that target those populations, it will be able to better inform minority groups about hazardous products.
Congress also gave the U.S. Food and Drug Administration greater authority to police food safety across the nation after recent outbreaks of food-borne illnesses such as salmonella caused by tainted peanuts, eggs, spinach, lettuce, sprouts and other products.
The Centers for Disease Control and Prevention estimates food-borne diseases cause as many as 81 million illnesses and 9,000 deaths each year in the United States. In Oregon, 3-year-old Jacob Hurley and 8-year-old Gavin Salitore were among the 700 people sickened by tainted peanut butter crackers in 2009. That salmonella outbreak killed nearly a dozen people. The Hurley family traveled to Washington, D.C., several times to testify before Congress about the need for stricter food safety laws before the bill co-authored by Oregon Sen. Jeff Merkley eventually was signed into law.
Along with requiring food processors to implement safety plans, the modernization act gives the FDA stronger enforcement tools to monitor those plans, inspect risky production operations and issue recalls to get contaminated food off store shelves. Harvest and production practices for fruits and vegetables are expected to improve under the act, and the FDA also will set standards for the safe transportation of food.
With an estimated 15 percent of America’s food supply coming from overseas — including 60 percent of fresh fruits and vegetables and 80 percent of seafood — the modernization act gives the FDA broader authority to oversee the food products that come into the U.S. each year.
In addition, the act directs the Secretary of Health and Human Services to improve training for state, local, territorial and tribal food safety officials. Grants will be made available for conducting inspections and building capacity at labs and food safety programs, among other measures, according to the FDA.
The Peanut Corporation of America, which produced the tainted peanut butter that caused the salmonella outbreak, has now become a case study for the Grocery Manufacturers Association. The GMA, which hosts annual conferences centered around food claims, product liability and litigation, recently showcased the PCA case as one of the largest recalls in U.S. history, with nearly 4,000 products impacted, and examined how the litigation that followed the outbreak and PCA’s subsequent filing for bankruptcy impact supply-chain management for the food industry.
“As liability claims escalate in volume and potential exposure, manufacturers have no room for error in their defense strategies,” said the GMA in promoting its Food Claims and Litigation Conference last January.
Among the food safety clashes of late is whether the U.S. Department of Agriculture should approve genetically produced alfalfa. The USDA regulates all organic certification under the Organic Foods Production Act of 1990, and its National Organic Program oversees regulation of farms, wild crop harvesting and handling operations that sell agricultural products as organic.
Organizations such as Food and Water Watch claim the production of “GE” alfalfa could contaminate organic alfalfa, and the U.S. Supreme Court already has mandated that the USDA re-assess the impact GE alfalfa would have on the environment.
“Organic dairies need organic alfalfa as feed for their cows, and organic standards don’t allow the use of GE crops. Contamination of organic crops from GE crops can destroy markets for organic farmers,” according to Food and Water Watch.
Creditors, Lenders Face New Mandates
Along with product and food safety, the most prevalent consumer protection enhancements over the last couple of years revolve around financial services and lending. As the new federal Consumer Financial Protection Bureau launches this July, a result of the Wall Street Reform and Consumer Protection Act, many Oregon consumer law attorneys are helping clients cope with bankruptcies, foreclosures, debt collections and other financial issues.
Legal Aid Services of Oregon is especially busy with these types of cases. David Koen, an attorney in LASO’s Portland office, began dealing with predatory lending cases while providing free legal aid with Southeast Louisiana Legal Services. He joined LASO just over a year ago and his legal services now are primarily devoted to foreclosure prevention.
“There are a whole range of issues that people are dealing with when it comes to potential foreclosure on their homes, and those range from the basics to legal issues,” says Koen, who also serves as chair-elect of the Oregon State Bar Consumer Law Section.
Among the legal concerns, courts are taking greater notice of MERS (Mortgage Electronic Registration Systems Inc.), which tracks the transfer of home loans. “Many consumer activists believe that MERS’ activities are illegal and that MERS has played a significant role in exacerbating the lending crisis,” he says.
Another trouble spot, according to Koen, is the Home Affordable Loan Modification (HAMP) program, a federal program designed to help struggling homeowners revamp their loans to avoid foreclosure. However, the program is plagued by significant noncompliance, and an estimated 50 to 75 percent of HAMP participants will default on their loans again, he says.
In Oregon, one of the biggest problems is that the majority of foreclosures are done outside of the court system, Koen notes.
“When there are predatory practices with respect to loans that may make them illegal or unenforceable, or there is a violation of state laws that may prevent the lender from foreclosing, it makes it very difficult for the homeowner to stop them,” he says.
Recent changes in state law do attempt to offer some consumer protection, though. For example, lenders now are required to give homeowners 120 days notice of foreclosure. With another two million foreclosures expected this year, however, it is essential that more be done to protect consumers, Koen says.
“What laws there are are often violated by entities in the lending and foreclosure industry,” he says.
Among LASO’s services, the organization offers a pro bono bankruptcy clinic for low-income people filing for Chapter 7 bankruptcy, and provides assistance for people involved in unlawful debt collection from creditors.
Brenda Bradley, chair of the bar’s Consumer Law section, provides consumer law guidance for migrant farm workers at LASO’s Hillsboro office and deals primarily with mortgage and foreclosure cases.
“We’ve also had people contact us who have been taken advantage of by loan modification companies,” she says. “Many of our clients don’t speak English very well, and because of that they are often susceptible to scams.”
Debt collection is another major issue. In one recent case, a LASO client couldn’t pay hospital bills and was turned over to a collection agency that filed suit to obtain the money. Through LASO, the client learned they were eligible for the hospital’s charity care program, which provided 100 percent coverage, Bradley says.
Koen and Bradley both say the bar’s Consumer Law Section is striving to help educate attorneys how to help the public with such issues, and is organizing continuing legal education courses on Oregon’s recent changes to foreclosure laws. The section also encourages consumer law attorneys to provide pro bono services for people who cannot afford to hire a lawyer.
Koen notes that the Oregon Legislature may very well pass consumer protection laws that follow recent federal mandates, and the Consumer Law Section will monitor those developments closely.
Pilar French, a shareholder at Portland’s Lane Powell, also has her eye on any changes that may occur at the state level. She previously enforced the Unlawful Trade Practices Act for the Oregon Department of Justice, and now has a view from the other side of the fence as a consumer protection defense attorney.
French is particularly interested in changes to the UTPA after specializing in it for so many years. As of March 2010, the act includes credit card companies, banks and other suppliers of credit that previously were not included.
“We’re seeing a number of lawsuits come in alleging violations of the UTPA against various lenders,” she says. “It’s a significant change in Oregon law because borrowers, if they can establish that there’s been an unlawful trade practice, can recover punitive damages and attorneys fees as well as any financial loss they suffered.”
In addition, the courts now must decide whether lenders are liable for home loans signed before the new protection laws were enacted.
“There is a lot of litigation about that and it really hasn’t even gotten up to the appellate court yet,” according to French.
She adds that while the state has made some progressive changes to deal with the mortgage crisis, most change tends to ignite litigation and claims are now emerging about whether lenders are complying with new requirements regarding loan modifications.
Professor Richard Slottee, director of the Lewis & Clark Legal Clinic, has specialized in consumer law for 25 years, teaching courses on the topic at Lewis & Clark Law School and contributing to the bar’s continuing education curriculum on consumer law. He says that enhancements to the UTPA are among the most significant changes to consumer law that he has seen during his career.
“The legislature has certainly increased the number and types of prohibited practices, although the damages available have not increased significantly,” Slottee notes.
Oregon Laws Lead in Some Respects, Lag in Others
French, Bradley and Koen agree that Oregon has taken substantial steps to better protect consumers from predatory lending, and that the state’s UTPA makes Oregon a frontrunner when it comes to combating a variety of shady business practices.
However, Oregon still is a year or two behind California when it comes to reconciling state and federal consumer protection laws, particularly related to the financial crisis. For example, Oregon does not have many district court decisions regarding the federal Truth in Lending Act, so Oregon attorneys must look to what has happened in other states such as California, Nevada, Utah and Washington for guidance, French says.
“I think our real estate bubble took longer to burst than other states, so we’re behind the curve, and our courts are inundated with those kinds of lawsuits,” she says. “It seems like the attorneys and judges I work with want to come up with creative ways of addressing the problem. District judges are encouraging a pre-litigation mediation program to help avoid litigation.”
Where Oregon does fall short is in bankruptcy law, according to some. Hillsboro solo practitioner Bret Knewtson and Kirsten Baxter, a bankruptcy attorney with Baxter & Baxter in Hillsboro, both say the federal bankruptcy laws are much more consumer friendly than state laws. While many states adhere to the federal laws, Oregon opted out of the federal exemptions that allow debtors to exempt certain property from creditors when filing for bankruptcy.
ABOUT THE AUTHOR
Melody Finnemore is a Portland-area freelance writer and a frequent contributor to the Bulletin.
© 2011 Melody Finnemore