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The Beginning of a Return to Consumer Protection?

posted by Henry Sommer

Many years ago, in the mid 1970's, when I began my career as a legal services lawyer practicing consumer law, it seemed that we were on a roll. Congress and state legislatures were passing a bevy of laws to protect consumers (including the Bankruptcy Reform Act of 1978.)  The FTC was passing regulations and taking action against consumer scams. Innovative lawyers, often in legal services programs, were bringing class actions against a wide variety of illegal and unfair practices. These cases were received sympathetically by courts that, from a common sense perspective, could see that those practices took advantage of consumer ignorance or confusion.  Little did we know that we were at the peak of the consumer protection movement and it would be almost all downhill from there.

Over the next thirty years, we’ve gone backwards in ways that were literally inconceivable in the 1970's.  Usury limits were, for all practical purposes, eliminated. A generation of conservative judges, appointed by the Reagan and Bush administrations, began taking legally formalistic approaches that sanctified the fiction of the rational and informed consumer who made all decisions according to her real economic interests. They enforced small print contracts devised by battalions of credit industry attorneys and placed numerous obstacles in the path of class relief (indeed, any relief) in the courts, foremost among them being the mandatory arbitration clauses that became ubiquitous.  Consumer protection agencies and legal services programs lost most of their funding and were subject to severe restrictions on the cases they could bring. Some federal agencies, notably some of the banking regulators and the United States Trustee program that administers U.S. bankruptcy cases, actually became, for all intents and purposes, advocates for the consumer credit industry.

Over this period, we witnessed abuses that we could never have imagined being permitted, much less going on for years without regulatory action. These included the epidemic of predatory mortgage lending that, despite well over a decade of screaming and largely ineffectual lawsuits by consumer advocates, has devastated low income and minority communities and, ultimately, our entire economy. The continued existence of the debt settlement industry over the last few years, despite widespread recognition that it is a fraud, is a testament to the toothlessness of current consumer protection agencies.

But there are hopeful signs on the horizon that the tide may be turning. Congress has passed new laws limiting some of the worst credit card abuses. The new financial regulation bill includes some limits on predatory mortgage lending and, of course, the new consumer financial protection bureau. But we have a long way to go. The financial services industry remains an incredibly powerful force in Washington, still able to block real bankruptcy relief for the millions of homeowners facing foreclosure.  Bills that would limit interest rates can scarcely get a hearing in Congress. And most consumer protection agencies remain starved for funds.

In my next post, I will discuss one recent development in this trend and what it may, or may not, portend for the future.


You know in my job I see a ton of impossible cases and I have to deal one on one with those individuals / families. It gets to you after a while, kind of like PTSD. Even though I am nothing more than a foot soldier/an assistant. It comes home with me....

Your post really pumped me up this morning! It's like I'm actually fighting for something bigger than just a paycheck and that there are others who are doing the same.


I don't think that you can limit the blame for conservative judges at the federal level. The legal profession as a whole--at least the high-paid part of the profession--has swallowed the lawneconomics bait, hook, line, and sinker. Also true for the press, the universities, and most other opinion leaders. Of course it is economic nonsense--Adam Smith supported usury limits, for gawdsake! But it is very influential nonsense.

A lot of them try to compensate with social liberalism. It's sad.

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