NCLC REPORTS
Deceptive Practices and Warranties Edition
Developments and Ideas For the Practice of Consumer Law
In This Issue
• More courts throw out arbitration clauses that name
NAF as the sole forum
• Impressive new reach of state AG enforcement authority
• Advantages of AG enforcement over individual suits or
consumer class actions
• Supreme Court: no preemption in auto defect case
• CFPB launches new web tools
More Courts Throw Out Arbitration Clauses
That Name NAF As the Sole Forum
In 2009, the National Arbitration Forum (NAF), respond
ing to a law enforcement action, agreed to cease all consumer
arbitrations, effectiveJuly 24, 2009.' This means that millions
of consumer arbitration agreements that designate NAF as
the sole arbitration forum cannot be carried out according to
their terms. This in turn raises the question whether such
arbitration requirements are unenforceable or whether the
J^
court should instead appoint an alternative arbitrator.
Case law on this question is collected at NCLC's Consumer
Arbitration Agreements § 6.6a (2010 Supp.). This article exam
ines two recent state appellate decisions that follow the grow
ing trend to find arbitration agreements unenforceable where
they name the NAF as the sole forum. As a result, the best
way to defeat an arbitration agreement is to raise the problem
of the NAF being designated as the sole arbitration forum.
Illinois Supreme Court Throws Out NAF Arbitration
Agreement
The Illinois Supreme Court, in ruling on February 3 that
an arbitration clause was unenforceable, focused on language
in the clause and the NAF Code of Procedure.2 NAF Code
Rule 1(C) states that the arbitration is to be conducted in ac
cordance with the NAF Code, and Code Rule 1(A) states that
the "Code shall be administered only by the [NAF]...."
The court also pointed to language in the arbitration
clause itself that awards a party attorney fees where the other
party sought to bring the arbitration before a forum other
than the NAF. Since the corporation drafted this agreement,
ambiguity is to be interpreted as favoring the consumer.
The court thus found that the language of the arbitration
agreement and the NAF Code to which it referred clearly
specified that the NAF designation is integral to the agree
ment. Where the NAF is integral to the agreement, the arbi
tration requirement cannot be enforced where the NAF is
unavailable to administer the arbitration.
! JVfStatc v. National Arbitration Forum (Minn. Dist. Ct.July 17,2009), re-
printedat NCLC's Consumer Arbitration Agreements Appx. 0.2 (2010 Supp.).
2Carrv. Gateway, Inc.,2011 WL329115 (III. Feb. 3, 2011).
NCLC REPORTS DECEPTIVE PRACTICES AND WARRANTIES EDITION 2011
Volume 29
January/February 2011
Pennsylvania Appellate Court Reaches the Same Result
Pennsylvania's middle-level appellate court, in a case of
first impression for that state, has held that the unavailability
of the NAF, the sole designated arbitration forum, makes an
arbitration clause unenforceable.3 Like the Illinois Supreme
Court, it focused on the plain language of the arbitration
agreement and the NAF Code of Procedure. The NAF Code
requires the arbitration to be conducted under the NAF
Code, and the Code specifies that the arbitration is to be held
only before the NAF.
The court found comfort in decisions from the Fifth Cir
cuit and federal courts in New Jersey and Washington State
that reached the same result using similar rationales.4 The
Fifth Circuit decision focused on the language of the arbitra
tion agreement itself, which stated that the arbitration "shall"
be by and under the NAF Code and that claims "shall" be
filed at an NAF office.5
Impressive New Reach of State AG
Enforcement Authority6
Not only state attorneys general, but also private practi
tioners must be aware of the greatly expanded reach of at
torney general enforcement authority, particularly when pro
visions of the Dodd-Frank Wall Street Reform, and
Consumer Protection Act of 2010 (hereinafter the Dodd-
FrankAct) take effect on July 21, 2011. Consumer attorneys
need to know how the attorney general can help their clients,
and need to be able to show the attorney general's office how
it can engage in needed enforcement.
The Dodd-Frank Act Provides AGs with New Authority to
Stop "UDAAP" Violations
The Dodd-Frank Act provides that, effective July 21,
2011, state attorneys general and state regulators can prose
cute in federal or state court any unfair, deceptive, or abusive
(UDAAP) conduct by a "covered person."7 A covered per
son is anyone that provides a consumer financial product or
service, and any person under the control of such a person if
it acts as a serviceprovider to the person.8
JStewart v. GGNSC-Canonsburg, L.P., 9 A.3d 215 (Pa. Super Ct.2010).
*Ranzy v.Tijerina, 393 Fed. Appx. 174(5*Cir. 2010); Khanv. Dell, Inc.,
2010 WL 3283529 (D.NJ.2010); Carideo v.Dell,Inc.,2009WL3485933
(W.D. Wash. 2009).
5Ranzy v. Tijerina, 393 Fed. Appx. 174(5,h Cir. 2010).
6Muchof this articleis derived from LaurenSaunders, The Role of the
States Under the Dodd-Frank Wall Street Reform and Consumer Protection
Actof 2010 (Dec. 2010), available atwu-w.nclc.org.
7See 12 US.C. §§ 5536(a)(1)(B), 5552(a)(1), as added by Dodd-Frank §§
1036(a)(1)(B), 1042(a)(1).
«12 U.S.C. §§ 5481(1), 5481(6), as added by Dodd-Frank § 1002(1), (6).
17
 Exempted are certain (primarily small) merchants, retail
ers, and sellers that directly offer credit for their own nonfi
nancial goods and services and do not assign this credit to
others.9 Under the Dodd-Frank Act, the Consumer Financial
Protection Bureau (CFPB) also does not have enforcement
or rulemaking authority as to vehicle dealers that assign the
credit contracts to others, but nothing in the Dodd-Frank
Act prevents attorneys generals from enforcing the general
UDAAP ban against such vehicle dealers (unless they are
small businesses). Similarly, even though the CFPB cannot
bring enforcement actions against banks, thrifts, and credit
unions with under S10 billion in assets, nothing in the Dodd-
Frank Act prevents state attorneys general from bringing en
forcement actions against these entities.10
While the meanings of "unfair" and "deceptive" should
have the same meaning as under the FTC Act, "abusive" is a
new term. The Dodd-Frank Act defines it as materially in
terfering with a consumer's ability to understand credit's
terms or conditions or taking unreasonable advantage of a
consumer's lack of understanding or inability to protect his
or her own interests, or reliance on the creditor."
The Dodd-Frank Act provides that state attorneys general
can "secure remedies under provisions of this title,"12 and
Dodd-Frank § 1055 specifies the relief available for violation
of federal consumer financial law.13 Federal consumer finan
cial law includes violations of Dodd-Frank title X,14 includ
ing UDAAP violations.
Thus, state attorney general UDAAP remedies arc as
specified in Dodd-Frank § 1055, which include, in addition to
"any appropriate legal or equitable relief," rescission or ref
ormation of contracts, refund of moneys or return of real
property, restitution, disgorgement of unjust enrichment,
damages and other monetary relief, public notification of the
violation, limits on the activities or functions of the person,
civil penalties, and recovery of the state's costs in prosecuting
the action.l3 Civil penalties are up to $5000 a day, but up to
S25,000 a day if the violation is reckless, and $1 million a day
for a knowing violation. There is a three-year statute of limi
tations running from discovery of the violation.16
UDAAP Is Major Improvement on UDAP Authority
In every state, the attorney general and state regulators
should consider UDAAP authority when bringing actions
against creditors and servicers. (Private litigants cannot.
There is no private right of action under the Dodd-Frank
Act for UDAAP violations.)
The Dodd-Frank Act UDAAP authority has many advan
tages over existing authority under state unfair and deceptive
acts and practices (UDAP) statutes:
• In many states, credit or certain regulated lenders are
outside the scope of the state UDAP statute, while fed
eral UDAAP authority applies with only certain excep
tions.
" 12 U.S.C. § 5517(a)(2)(E),asadded byDodd-Frank § 1027(a)(2)(E).
;" Limits on state attorney general enforcement of national banks and fed
eral savings associations arcdescribed infra.
:' Id. § 1031(d).
- 12 L'.S.C. § 5552(a)(1), as added byDodd-Frank § 1042(a)(1).
M2 L'.S.C § 5565.
:4 12 U.S.C. § 5481(14), as added by Dodd-Frank § 1002(14).
:? 12 U.S.C. § 5565, as added by Dodd-Frank § 1055.
:' 12 U.S.C. § 5564(g)(1), asadded by Dodd-Frank § 1054(g)(1).
18
• UDAAP enforcement can be brought in either federal or
state court, unlike a UDAP claim that must be brought
in state court. It is possible that the defendant in a state
court UDAAP case will try to remove the action to fed
eral court.
• UDAP statutes often provide for restitution and equita
ble relief, but the UDAAP remedy of "damages and
other monetary relief" is found in no state UDAP stat
ute. This allows for recoveryof consequential and other
damages exceeding the amount paid for the product or
service.
• UDAAP civil penalties are far greater than those found
in UDAP statutes.
• Some state UDAP statutes lack explicit authority for
other remedies that attorneys general can invoke under
the Dodd-Frank Act, such as disgorgement and rescis
sion or reformation of contracts.
• The three-year UDAAP statute of limitations (from dis
covery) may be longer than a UDAP limitation period—
but may be shorter than periods found in some states.
• Several UDAP statutes do not have a general prohibition
on deception, but only enumerate certain prohibited de
ceptive practices. Other UDAP statutes do not prohibit
unfair practices. UDAAP authority broadly prohibits
both deception and unfairness.
• Authority to prosecute "abusive" praedces is only found
in the UDAAP provision, not in UDAP statutes.
The Dodd-Frank Act Provides AGs with New Authority to
Enforce Federal Consumer Credit Statutes
The Dodd-Frank Act appears to provide attorneys gen
eral, effective July 21, 2011, the authority to enforce most
federal consumer credit legislation—even when the other leg
islation does not grant the attorneys general this authority.
This result is consistent with the intent of the Dodd-Frank
Act to "put more cops on the beat" by empowering state at
torneys general to police the market. Its acceptance by the
courts will have to be determined by future litigation, but the
result follows precisely from the explicit language of Dodd-
Frank Title X.
The Dodd-Frank Act provides state attorneys general
with authority "to enforce provisions of this tide"—"title"
being Dodd-Frank Tide X.'7 Dodd-Frank Title X, at § 1036,
Prohibited Acts, states that it is unlawful to offer credit not in
conformity with "Federal consumer financial law, or other
wise commit any act or omission in violation of Federal con
sumer financial law."18
"Federal consumer financial law" in turn is defined as in
cluding, among other statutes:
• Truth in Lending, HOEPA, Fair Credit Billing, and Con
sumer Leasing Acts;
• Fair Debt Collection Practices Act;
• Fair Credit Reporting Act;
• Equal Credit Opportunity Act;
• Real Estate Settlement Procedures Act;
• Electronic Funds Transfer Act;
• Telemarketing and Consumer Fraud and Abuse Preven
tion Act;
• Gramm-Leaeh-Bliley Act;
12 U.S.C. § 5552(a)(1),as added by Dodd-Frank § 1042(a)(1).
12 U.S.C. § 5536(a)(1)(A), asadded by Dodd-Frank § 1036(a)(1)(A).
NCLC REPORTS DECEPTIVE PRACTICES AND WARRANTIES EDITION 2011
 • The SAFE Mortgage Licensing Act;
• The Interstate Land Sales Full Disclosure Act.
Many of these statutes do not already authorize attorney gen
eral enforcement. This list includes most of the key con
sumer finance laws that are likely to arise in attorney genera!
cases. However, prominent federal statutes affecting credit
not found in this list include the Fair Housing Act, Credit Re
pair Organizations Act, the federal garnishment protections,
the Servicemembers Civil Relief Act, and RICO.
AGs Have Expanded Abilityto Enforce State Statutes
Against Federally Chartered Lenders
The Dodd-Frank Act also removes obstacles to attorney
general enforcement of state statutes against federally char
tered banks, by codifying the Supreme Court's 2009 decision
in Cuomo v. Clearing House Association, 7^.7^.C.19 State attorneys
general and agencies can thus enforce against national banks
and federal savings associations non-preempted state statutes
and federal statutes (if the state attorney general has author
ity to enforce the federal statute).20 Conversely,state agencies
have no visitorial powers concerning federally regulated insti
tutions. States can sue federally chartered lenders and seek
discovery as part of the enforcement action. But the state
cannot conduct an administrative investigation of these lend
ers outside of an enforcement action.
Federal Law Now Limits National Bank Act Preemption of
State Credit Law21
State attorneys general can thus enforce state law against
federally chartered lenders—as long as that state law is not
preempted by federal banking laws. The Dodd-Frank Act ad
dresses this second issue by limiting the extent to which the
federal bankinglaws preempt state consumer financial laws.
Effective July 21, 2011, for contracts entered into after
July 21, 2010,22 the Dodd-Frank Act defines a new standard
for this determination.23 It rejects expansive field preemption
rule espoused in 1996 by the Office of Thrift Supervision
and 2004 regulations by the Office of the Comptroller of the
Currency that have nearly the same effect.
The Dodd-Frank Act calls for the preemption standard
enunciated by the Supreme Court in the 1996 Barnett deci
sion.24 Under Barnett decision, which was summarizing the
lawat a time before the preemption regulations were adopted,
state law is not preempted unless it prevents or substantially
interferes with the exercise of powers granted banks under
federal law. The Dodd-Frank Act also requires that federal
banking agencies determine state law preemption on a case-
by-case basis and prohibits determinations that a whole cate
gory of state laws is preempted. Federal banking agencies
must have substantial evidence for their conclusion, and
courts need not show great deference when reviewing the
agency ruling.25 How courts interpret the Barnett provision,
and how much new latitude states will have, remain to be seen.
'" 129 S. Ct. 2710,174 L. Ed. 2d 464 (2009).
2,1 12 U.S.C. § 25b, asadded by Dodd-Frank § 1047.
21 Forbrevity's sake, this article will often focus on National Bank Act regu
lationof national banks, but the same principlesalso apply to Home Own
ers' Loan Act regulation of federal savings associations.
22 12 U.S.C. § 5553, added by Dodd-Frank § 1043.
-M 12 U.S.C. §§ 25b, 1465,added ly Dodd-Frank §§ 1044,1046.
24 Barnett Bank of Marion Count)', N.A. v. Nelson, Florida Insurance Com
missioner, 517 U.S. 25 (1996).
2512 U.S.C § 25b,added by Dodd-Frank § 1044.
NCLC REPORTS DECEPTIVE PRACTICES AND WARRANTIES EDITION 2011
More Limited National BankAct Preemption of UDAP Claims
The Dodd-Frank Act does not deal direcdy with National
Bank Act preemption of UDAP statutes; these are not "state
consumer financial laws" governed by the new preemption
standard. The federal banking agencies have, however, issued
opinion letters that state UDAP statutes are not generally
preempted when they seek to enforce general standards of
deception and unfairness, as opposed to placing state law
limits on the substantive terms of a transaction, and many
courts have agreed with this view.26 The new the Dodd-Frank
Act preemption standard only applies to laws that directly
and specifically regulate a financial transaction, not UDAP
laws. But given the congressional intent behind the Dodd-
Frank Act preemption changes, courts and the OCC should
be even less willing to find the NBA preempts a UDAP claim
against a national bank.
AGs Are Limited in Their Dodd-Frank Act Enforcement
Against National Banks
The Dodd-Frank Act limits the abilityof attorneys general
to enforce Dodd-Frank provisions against national banks and
federal savings associations, although not as againstcredit un
ions and other banks. The state attorney general can only en
force against national banks and federal savings associations
specific UDAAP rules issued by the CFPB, and cannot en
force the general UDAAP prohibition against deceptive, un
fair or abusive conduct.27 This limitation does not apply to
state attorney general actions against national banks for viola
tion of state laws or of federal laws where the attorney gen
eral's enforcement authority is found outside of the Dodd-
Frank Act. For example, HOEPA, the FCRA, and the Tele
marketing and Consumer Fraud and Abuse Prevention Act
all make explicit provision for state attorney general en
forcement that will continue to exist independently of the
Dodd-Frank Act's enforcement authority.
Advantages of AG Enforcement Over
Individual Suits or Consumer Class Actions
Individual suits and consumer class actions are key to en
forcing consumer laws and ensuring consumer justice. State
attorneys general have limited budgets, and their priorities
can change from election to election. Even the most active
attorney general consumer protection unit is rarely able to
invoke consumer laws on behalf of individual consumers.
Further, only in an individual action is the consumer likely to
be able to present a claim for individualized damages. This
article, though presents two advantages that attorney general
enforcement has over private litigation.
AGsAre Not Limited by Consumers' Arbitration Clauses
Attorneys general are not subject tc arbitration require
ments found in contracts involving the consumers who are
being protected by the attorney general's action. The Supreme
Court has held that the Equal Employment Opportunity
Commission is not bound by arbitration clauses involving
employees on whose behalf the EEOC is bringing an ac.
26 NCLC, Unfair and Deceptive Acts and Practices § 2.5.3 (7th ed. 2008and
Supp.).
2712 U.S.C. § 5552(a)(2), asadded by Dodd-Frank § 1042(a)(2).
19

NCLC REPORTS
Developments and Ideas for the Practice of Consumer Law
The National Consumer Law Center, Inc. (NCLC), a non-profit legal organi
zation which represents the interests of low-income consumers, publishes
NCLC REPORTS 24 times a year. NCLC REPORTS consists of four sepa
rate editions: Bankruptcy & Foreclosures (ISSN 1054-3775); Consumer Credit &
Usury (ISSN 0890-2615), Debt Collection & Repossessions (ISSN 0890-2607);and
Deceptive Practices & Warranties (ISSN 0890-0973). Each edition is published six
times a year.
NCLC REPORTS is sent free to every neighborhood legal services office
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Phone: 617-542-9595, Fax: 617-542-8028
E-Mail: publications@ndc.org
Visit our website: www.consumcrlaw.org
Copyright©2011 by the National Consumer Law Center, Inc.
tion.28 New York's highest court has found that this principle
applies to state attorney general actions as well, even those
seeking rescission and restitution for consumers who are
themselves bound by an arbitration agreement.29
AGs Can Enforce UDAP Statutes Even Where Practice Is
Outside Scope of Private UDAP Claims
Although there are enormous variations from state to
state, UDAP statutes often provide authority for state attor
neys general to challenge practices where the statutes do not
provide the same authority for individual litigants. Consumer
attorneys thus should never assume that the attorney generalis
operating under the same limitations with which the con
sumer attorney is familiar.
For example, the Iowa Attorney General can bring UDAP
actions against banks while individuals cannot. In a number
of states,limitations on UDAP scope are found in the private
remedy section and thus do not apply to attorney general ac
tions at all.
Mississippi and Texas allow the attorney general to chal
lenge any type of deception, but private litigants can only sue
for a number of specific, enumerated violations. In New
York and Mississippi, only the attorney general can sue for
unfair practices—individuals in those states cannot.
Attorneys general can obtain injunctive relief more easily
than an individual, particularly where the consumer cannot
show a likelihood of injury from the same practice in the fu
ture. UDAP injury preconditions will typically not apply to
attorney general actions. Attorneys general also can sue on
behalf of a large number of consumers, even where state law
limits UDAP class actions.
-'* See Equal Employment Opportunity Comm'n v. Waffle House, Inc., 534
US. 279 (2002).
-•' People v.Coventry First L.L.C., 2009 WL 1851007 {N.Y.June 30, 2009);see
also State ex ret. Hatch v. Cross Country Bank, Inc. 703 N.W.2d 562 (Minn.
Ct. App. 2005).
20 NCLC REPORTS DECEPTIVE PRACTICES AND WARRANTIES EDITION 2011
NCLC REPORTS NONPROFIT ORG.
National Consumer Law Center, Inc. US. POSTAGE
7 Winthrop Sq., 4,h Floor PAID
Boston, MA 02110-1245 BOSTON, MA /<^lv
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Supreme Court Finds No Preemption in
Automobile Defect Case
Automobile and other product tort and warranty cases of
ten come up against federal preemption defenses, often citing
Geier v. American Honda Motor Co.30 Now, in Williamson v.
Ma^da Motors?1 the Supreme Court has sharply limited Geier.
Like Geier, Williamson holds that there can be no claim of
express preemption in light of the federal law's savings clause,
which states that compliance with the federal statute does not
exempt a person from liability under other law. On the other
hand, the savings clause still leaves open the question of con
flict preemption—whether a state law claim conflicts with the
federal regulation. Geier found conflict preemption based on
the precise terms of a former federal motor vehicle safety
standard that deliberately promoted the introduction of a mix
of different vehicle safety devices over time. In Williamson
the question was whether federal law preempted a claim that
a middle automobile seat with just a lap belt rather than a
waist-and-shoulder belt was unsafe. Even though a regulation
allowed manufacturers to install either of these alternatives,
the Court held that its purpose was not to maintain manufac
turer choice, so there was no conflict with the tort claim.
Consumer Financial Protection Bureau
Launches New Web Tools
The Consumer Financial Protection Bureau (CFPB) has
already launched a website with several useful tools for con
sumers and attorneys, at www.consumerfinance.gov:
• Sign up for email updates from the CFPB or follow de
velopments on Twitter, Facebook, Flickr and YouTube.
• Check out the CFPB's blog and post suggestions.
• Find out about employment opportunities at the CFPB.
• Determine where consumers should send complaints.
• Later this year, the site will allow consumers to file com
plaints directly with the CFPB.
Vl 529 U.S. 861 (2000).
J1 2011 WL 611628 (Feb. 23, 2011).