About Remington A. Gregg

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Happy 10th Birthday CPSIA

CPSIA at 10: Using Civil Penalties to Deter Wrongdoing

During the month of August, Public Citizen and our partners are celebrating the tenth anniversary of passage of the Consumer Product Safety Improvement Act (CPSIA), a law that has made products, especially children’s toys, safer.

When Congress passed the original Consumer Product Safety Act in 1972, it not only created the Consumer Product Safety Commission (CPSC or Commission), but gave it the Commission the authority to impose monetary penalties against product manufacturers for placing unsafe products into the marketplace. Civil penalties serve as an important tool to discourage companies from cutting corners when manufacturing products that could result in injury or death, and they also create an incentive to ensure that manufacturers quickly report product defects.

The CPSIA amended the Consumer Product Safety Act in several important ways, including by increasing the cap on penalties from $8,000 to $100,000 per violation, and from $1.825 million to $15 million for a series of related violations.

Over the last ten years, the CPSC has used its broadened authority wisely and has increased the amount that it imposes on companies. Earlier this year, for example, the CPSC imposed a record fine against Polaris, a recreational off-road vehicle (ROV) manufacturer for multiple product safety violations including, among other things, failing to notify the CPSC about defects in some of their ROVs. By the time Polaris notified the Commission, the company had received 150 complaints about ROVs catching fire, including a fire that resulted in the death of a 15 year old passenger. The fine against Polaris was the largest ever civil penalty imposed by the CPSC.

While CPSIA gave commissioners discretion to used increased penalties in the judgements imposed on companies, and they had been making use of the higher penalty possibilities, that trend has slowed since the Trump administration came into power. According to a recent Public Citizen report, in Trump’s first year in office, the CPSC [i]mposed about $21.4 million in penalties with an average penalty of $5.3 million. That was down from $37.3 million a year earlier…”—Barack Obama’s last year in office. In addition, according to our research, the Trump administration-run CPSC has “completed no enforcement actions in the fourth quarter of 2017 or the first quarter of 2018.”

 

Despite the anomaly of the Polaris fine, which was imposed by the CPSC in the second quarter of 2018, the overall dip in enforcement actions is likely due to new leadership at the agency. CPSC Acting Chair Ann Marie Buerkle has consistently voted against imposing civil penalties on companies. In fact, our report noted that during her tenure (both as acting chair and a commissioner), Buerkle voted against imposing penalties “in 16 out of 21 instances for companies that failed to report problems with their products.” Buerkle’s seeming aversion to using civil penalties is one of the reasons why Public Citizen spoke out in October 2017 in opposition to her nomination to be the permanent head of the CPSC.

Congress empowered the CPSC with the responsibility of imposing penalties on companies when they place dangerous products into the marketplace and fail to report or otherwise open consumers up to injury or death. Civil penalties are a tool that should be used robustly, both to protect consumers against harm and to carry out Congress’s intent when it increased the CPSC’s civil penalty authority a decade ago. We hope that the agency reverses the current trend under Buerkle and instead goes back toward imposing meaningful civil penalties on corporate wrongdoers in furtherance of its important mission to ensure that only safe products make into the marketplace.

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The Growing Rise of Megacompanies Hurts Consumers and Damages Our Democracy

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This month, Apple became the first publicly-traded American company to reach $1 trillion in market value. It is now one of the most powerful companies in the world both in revenue and in the share of the market that it holds. In 2017, Apple took home 79% of the global profit share for smartphones. What does this milestone mean for American consumers?

Megacompany monopolization is not unique to Apple, or even the tech industry. Five banks control half of all assets in the American financial system. Thirty publicly traded companies collect half of the profits produced by all publicly traded companies in the market. According to Business Insider, the difference between how much it costs American companies to make products and how much they make selling products—a mechanism that experts use to measure how much power companies have in the marketplace—is at the highest level since 1950.

When companies consolidate, it makes it harder for plucky startups to gain a foothold as a competitor. As a result, consumers have fewer options, which can drive prices up and innovation down.

Apple has spent decades fostering a consumer-invested ecosystem where users become so familiar and comfortable with its products that it’s difficult to switch another company. This ecosystem is so strong that other companies struggle to create similar systems, effectively allowing Apple to monopolize the market. However, Apple is not the only tech titan set to monopolize the market. Only about 1% of smartphone consumers use an operating system that is not made by Apple or Google.

In industries where corporate consolidation is rampant, such as the tech field, workers’ share of the overall pie is shrinking because these merged companies are focused on efficiency and need fewer workers to perform the necessary jobs, which means fewer people employed in quality, high paying jobs. This leads to an overall decline of the share of the nation’s wealth that goes to workers. In addition, while Apple’s valuation soared to new heights this week, it is aggressively outsourcing its workforce out of the country, taking advantage of poorly-paid workers in other countries and robbing Americans of good jobs.

U.S. Supreme Court Justice Louis Brandeis long ago warned against the “curse of bigness” in corporate power. During the Progressive Era of the 1910s and 1920s, American trustbusters sought to rein-in excessive corporate power by enacting bold laws such as the Clayton and Sherman Act, and the Federal Trade Commission Act, which created the Federal Trade Commission (FTC), to protect competition. However federal antitrust enforcement, the Department of Justice and the FTC, have not used their enforcement powers robustly to curb excessive concentration. Market commentators may argue that stopping companies like Apple, Google, and Amazon from driving out their competitors from the marketplace is impossible. But they are wrong. Congress can fix our antitrust laws to stop companies from growing so big that they stamp out all competition, and Public Citizen will continue to advocate for strong antitrust laws and enforcement that protects consumers against corporate monopolies.

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Historic FTC Charge Against Four Auto Dealerships with Deceptive Business Practices

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The Federal Trade Commission (FTC) has the authority to file complaints against individuals when the law is being violated and when it believes doing so would be in the public interest.  This month, the FTC flexed that power by bringing strong enforcement actions against several auto dealerships that allegedly ripped off consumers.

In court filings, the FTC alleged that Tate Auto, a collection of auto dealerships—Tate’s Auto Center of Winslow, Tate’s Automotive, Tate Ford-Lincoln-Mercury, and Tate’s Auto Center of Gallup—engaged in illegal business practices since 2014. Tate apparently doctored financial information after consumers signed documents by inflating income information consumers provided during the sales process in order to be more likely to be accepted for third-party financing companies. In one example cited in the complaint, a consumer reported his monthly income as $1,000, but the application stated income to be $4,896. As a result, consumers were approved for financing based on false information—that they had adequate income to pay back the loans—but then ended up defaulting on their loans at higher rates than qualified buyers. Many of the impacted consumers came from a nearby Navajo reservation, from which Tate’s would solicit customers.

In addition to falsifying consumer finance information, the complaint alleged that Tate engaged in deceptive advertisement offers by, for example, failing to disclose thousands of dollars in upfront fees for purchasing or leasing vehicles and did not disclose the conditions needed to meet discount offers on certain vehicles.

In these overly partisan times, it was striking that all five FTC commissioners voted unanimously to bring this action against Tate’s. Also, it was an historic action since, as the Commission noted, this is the first action that it has taken alleging income falsification by auto dealers. Notably, the FTC worked closely with the Navajo Nation Human Rights Commission to investigate the claim.

This investigation proved that the FTC can be a strong bipartisan enforcer against unfair and deceptive practices, and we hope that the agency will continue to take bold enforcement action like this on behalf of consumers.

SEC commissioner wrong to support blocking courthouse doors to harmed investors

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In an interview with Politico, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce offered her support to allow companies the ability to prevent investors from banding together in class actions against them if they are victims of securities fraud or abuse. That would mean that investors who were cheated by companies such as Enron and Bank of America would be barred from pressing their claims together, which is a massive deterrence for corporate malfeasance. Public Citizen continues to advocate alone and with coalition partners against actions to force arbitration onto investors.

Forced arbitration is a privatized system of justice that would prevent investors who have been cheated from banding together to seek justice. Not only is forcing investors into arbitration a gross violation of their rights, it is an atrocious way to disempower them from recovering losses against corporate wrongdoers, and removes an important deterrent for corporate fraudsters.

As enforcement agencies under the Trump era continue to slow the pace of enforcement actions against bad actors, the private right of investors to band together is even more important. According to SEC Commissioner Robert Jackson, in the wake of several major securities fraud scandals such as Enron, private investors recovered $19.4 billion in private lawsuits. The SEC recovered just $1.75 billion.

And that’s why senior SEC officials, including Commissioner Jackson and SEC Investor Advocate Rick Fleming, have registered their concerns about any attempt to limit a person’s access to justice through forced arbitration. Even Republican-appointed SEC Chair Jay Clayton has been reticent about stating his support for forced arbitration.

The SEC’s mission is to protect investors. Nothing shows how disconnected Commissioner Peirce is from protecting Main Street than siding with Goliath over every day investors. Commissioner Peirce’s view is out of the mainstream. Public Citizen will continue to fight to protect investors’ access to justice.

 

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SEC Commissioner Says Agency Should Protect Investors Against Rip-Off Clauses

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Last week, U.S. Securities and Exchange Commission (SEC) Commissioner Robert Jackson cautioned the agency against taking any potential action that would handcuff investors from holding corporate bad actors accountable for wrongdoing. Public Citizen applauds Commissioner Jackson for standing up against corporate wrongdoers seeking to evade accountability if they cheat investors.

Forced arbitration clauses, also known as “rip-off clauses,” frequently are hidden in the fine print of take-it-or-leave-it agreements. These clauses deprive people of their day in court when they are harmed. Because they constitute a Get Out of Jail Free card for corporate wrongdoing, they have become ubiquitous in contracts governing bank accounts, student loans, cell phones, employment and even nursing home admissions. It turns out that rip-off clauses also can be used to deprive investors of their right to access the justice system if they are wronged.

Forcing investors into a secretive process away from public view weakens accountability when companies engage in wrongdoing, makes it more difficult for the SEC to conduct its oversight functions against bad actors and lessens the likelihood that wrongdoers will be deterred from committing fraudulent behavior in the future.

In 2012, the private equity firm Carlyle Group lobbied the SEC to allow it to sneak arbitration clauses into their initial public offering (IPO) documents. Public Citizen led the charge against this request and ultimately prevailed. Rather than admit defeat, large corporate entities and their lobbyists have been waiting for corporate friendly regulators to take control of the SEC for another bite at the apple to close the courthouse doors on investors.

And now, some SEC commissioners now seem eager to assist. In August 2017, Public Citizen wrote to SEC Chair Jay Clayton to express concern over comments by Commissioner Michael Piwowar who indicated his support for including forced arbitration clauses in IPO documents. Public Citizen argued that allowing forced arbitration and class-action prohibitions by issuers would be inconsistent not only with the SEC’s statutory investor-protection mandates but also with the commission’s past actions.

Then in February, U.S. Sen. Elizabeth Warren (D-Mass.) questioned Chairman Clayton on whether the SEC was prepared to allow companies to insert forced arbitration clauses into IPO documents. Clayton said that he “was not anxious” to take the step, but refused to answer the question. It’s a troubling sign that the SEC is turning against investors and against public opinion: There is overwhelming and bipartisan support for banning forced arbitration clauses.

Securities laws are complex to navigate, and it may be impossible to take on a behemoth investment company as a solo investor. That’s why it is so important that investors have the right to band together to bring a class action against unscrupulous corporate actors.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted after the Great Recession to protect consumers from the irresponsible actions of the financial industry, explicitly authorized the SEC to prohibit forced arbitration clauses related to brokers, dealers and investment advisors. If the Great Recession taught us anything, it should be that loosening rules designed to protect consumers is the last thing we should be doing.

Commissioner Jackson should be applauded for standing up for investors, and his fellow commissioners should follow his lead.

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