Wednesday, December 16, 2009

Are state consumer protection laws working?

This information was posted at CL&P Blog

A comprehensive new study of state consumer protection statutes was just published. The background for the study is described as follows:

During the 1960s there appeared to be increasing demand from the American public and elected officials for consumer protection laws. State legislatures responded by enacting a diverse collection of legislation commonly called Consumer Protection Acts (CPAs). Most CPAs were originally designed to supplement the Federal Trade Commission’s (FTC’s) role in protecting consumers from “unfair or deceptive acts or practices.” Yet there is growing concern that CPA enforcement and litigation are qualitatively different than FTC enforcement and potentially counterproductive for consumers. Critics argue that CPAs generate a set of incentives that encourages plaintiffs and their attorneys to file claims of dubious merit. Proponents counter that CPAs are necessary to supplement FTC enforcement and provide incentives for individuals to bring suit to deter harmful conduct. While both critics and proponents of CPA enforcement make claims about the nature and quality of state consumer protection litigation, the academic and policy debates surrounding CPAs suffer from a remarkable void of empirical data.

The Searle Civil Justice Institute study attempts to provide this empirical data, but also makes several conclusions based on the data, which it asserts suggest that state consumer protection statutes are not working as they should. In my opinion, the data may also be viewed as supporting the conclusion that the Federal Trade Commission is not charged with protecting individual consumers, and state statutes are successfully meeting their goal of providing protection for individual consumers.

Here are the Key Findings of the study:

1. Litigation under CPAs has increased dramatically since 2000. Between 2000 and 2007 the number of CPA decisions reported in federal district and state appellate courts increased by 119%. This large increase in CPA litigation far exceeds increases in tort litigation as well as overall litigation during the same period.

2. Vague statutory definitions of prohibited conduct are a major driver of CPA litigation. Whether a CPA statute has vague language prohibiting some general type of conduct rather than a specific list of illegal actions is an important potential contributor to the level of CPA litigation in the state. States with vague definitions of prohibited conduct have more CPA litigation.

3. CPAs are becoming more favorable and generous to consumer litigants. Between 1995 and 2007, the expected value of recovery for potential plaintiffs increased dramatically as measured by CPA requirements to bring a cause of action and available remedies. In 2004, the state CPAs that were the most favorable to plaintiffs were New Hampshire, Massachusetts, and Connecticut. The states with CPAs that were the least favorable to plaintiffs were Colorado, Maryland, and Georgia.

4. States with CPAs that are more favorable to consumers have more CPA litigation. The expected value of recovery under a given state’s CPA appears to contribute to the amount of litigation that makes use of the act. States that allow more generous remedies and make it easier for consumers to win in court see more CPA litigation.

5. Most CPA claims would not constitute illegal conduct under FTC consumer protection standards. The Searle Shadow FTC found that 78% of a sample of CPA claims would not constitute legally unfair or deceptive conduct under FTC policy statements. While relatively few CPA claims would constitute illegal conduct under the FTC standard (22%), even fewer (12%) would result in FTC enforcement.

6. Almost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC consumer protection standards.

7. In a sample of CPA claims where the consumer plaintiff prevailed in court, the Searle Shadow FTC found that 38% of these successful claims would not constitute illegal conduct under the FTC standard. Although most of these successful cases would meet the FTC illegality standards, only 23% would likely be enforced by the FTC.

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