THE EVENTS recounted in Counsel for the Deceived took place between 1969 and 1971. Those were very nearly the best of times. The War in Viet Nam continued, but the American commitment was already diminishing, and the country had for a decade been marching through a period of dramatic and rapid reform of its political life, its sexual mores, its immigration policies and particularly its race relations. President Lyndon B. Johnson had declared a war on poverty and had backed it up with such institutions as the Office of Economic Opportunity and with legislation creating the Medicare and Medicaid programs. The first two years of the Nixon presidency seemed to promise continued change on many fronts. The Model Cities program pumped federal funding into impoverished urban areas, and President Nixon created an Environmental Protection Agency, sent his Secretary of State to China to rekindle a U.S.-China relationship, and negotiated to establish new arms control agreements with the Soviet Union.

Consumer protection was not a main focus of the changes that swept the country, but it was one of the fields in which reform was taking place, on many levels. In the wake of the Watts riots in Los Angeles in 1965, the National Advisory Commission on Civil Disorders (the Kerner Commission) had studied the causes of civil unrest and had identified abuses of low-income consumers as a significant factor. State attorneys general made consumer protection a focus of their law enforcement efforts and discovered that it was good politics to do so. The Federal Trade Commission initiated reform on a national scale, notably abolishing the “holder in due course” rule for consumer installment contracts. That reform enabled consumers who purchased merchandise through such contracts to have recourse against their creditors for fraud in the sales of the goods or services. A few courts took seriously the new doctrine of “unconscionability” that had been embedded in the Uniform Commercial Code and voided contracts of sale to low-income consumers that were extremely unfair. A new National Consumer Law Center, created through the legal services program of the Office of Economic Opportunity, helped to coordinate test litigation to challenge archaic legal doctrines that allowed the exploitation of consumers.

What happened in the City of New York was a reflection of these national patterns. Late in his first term, Mayor John V. Lindsay made consumer protection part of his reformist program, appointed the celebrity Bess Myerson as the city’s Commissioner of Consumer Affairs (thereby giving the agency instant and continuing press attention), endorsed and signed what even forty years later is probably the strongest municipal consumer protection law in the country, and allowed a very young group of lawyers to determine and administer the city’s consumer law enforcement priorities. This book is the story of those early years in which the City of New York began seriously and systematically to prevent and punish consumer fraud. I understand that for years afterward, the book was required reading for new lawyers at the Bureau of Consumer Protection of the Federal Trade Commission—perhaps to acquaint them with the limits as well as the possibilities of effective consumer law enforcement.

In retrospect, Counsel for the Deceived was not only a book about consumer fraud. It also connected with bodies of literature that had little to do with consumers. The idea of narrative scholarship was beginning to take hold, and this book, along with its prequel, “Bleak House 1968,”^¹ were early examples of bringing understanding about legal systems to public attention through the telling of stories. In addition, the concept of the “public interest lawyer” was just taking shape, and this emerging field of legal practice required models of roles that such lawyers—those who worked full time on behalf of people too poor to afford paid counsel, or for governments, or to advance certain ideals—could play. The book provided a glimpse into the daily work life of public interest lawyers serving in local government, a type of job that is overlooked or occasionally even disparaged by some of today’s graduates who are interested in public service.

I left the New York City Department of Consumer Affairs in the summer of 1971, with much regret, to accept a job that I couldn’t refuse. Columbia University offered me the opportunity to become one of the pioneers in a new form of legal education—clinical teaching, in which students learn by working on actual legal cases or other projects under the supervision of experienced lawyers. I have now been a law professor for more than forty years, and half of my work load for that long has been clinical teaching (along with the work of many colleagues defying the prediction that clinical professors would “burn out” after just a few years because the work was so difficult compared with traditional classroom teaching). I joined the faculty at Georgetown Law in 1981, after a stint in federal government service during the Carter Administration; and from 1981 through 1995, my students represented consumers in litigation with merchants in the Washington, D.C., area. Unfortunately, by the mid-1990s, consumer protection, while still important, was not as fashionable as it had been in the early 1970s, and students, at least those at Georgetown, demanded clinical experience that touched on international human rights issues. I too was ready for a change, and so my Georgetown clinic became one in which students represented victims of persecution who were seeking asylum in the United States and who had been turned down by (what became) the Department of Homeland Security. For the last sixteen years, my students have worked with those clients to prove their eligibility for asylum through litigation in federal immigration court. I am happy to report that they have had remarkable success.

I have continued to be engaged in public interest projects and to write about the adventures of public interest advocates, sometimes autobiographically as in Counsel for the Deceived, and sometimes as a chronicler of the work of others.^² These writings now fit into a substantial body of literature examining the roles that these advocates play in processes such as litigation, lobbying, negotiation, and public administration.^³

Consumer protection, meanwhile, is enjoying something of a comeback, thanks in part to the backlash to the financial collapse of 2008. Today’s issues are less about fraud in the sales of goods than about dubious financial services such as the overextension of mortgage credit (before the collapse) to consumers who could not afford the property they were buying; similar lending to students who are unlikely to be able to repay large student loans; discriminatory and predatory lending; overdraft charges by banks; and high fees charged to merchants for credit card use. Some of these issues are being addressed through the Dodd–Frank Wall Street Reform and Consumer Protection Act, but much work remains before the marketplace can be considered fair, especially in the way it affects those with low incomes or inadequate education.

Counsel for the Deceived is an amusing series of consumer detective stories, but at its heart is a serious message that remains valid forty years later. As Time Magazine observed in its discussion of the book in 1972,^⁴ the book portrays a group of idealistic lawyers who became discouraged with the slow pace and sometimes unjust results of traditional legal processes and gradually adopted more inventive tactics, employing undercover methods that they had condemned when observing their use by the police in criminal investigations. A robust, efficient, and just judicial system—one that has the trust of government officials and the public—is as essential now as when this book was written. Yet in the present period of concern about public spending and governmental deficits, politicians are sometimes tempted to short-change the judiciary, resulting in curtailed adjudication, long backlogs of cases awaiting hearings or decisions, cynicism about the judicial process, and efforts to circumvent it.^⁵

Despite the frustrations revealed in Counsel for the Deceived, my fifteen months in New York City government was one of the best professional experiences of my life. To this day, I recommend that my students consider spending time, early in their careers, in state or local government agencies. These entities are often so underfinanced and understaffed that people who have very recently emerged from graduate or professional schools—or even from undergraduate colleges—may very soon be given significant responsibility. The opportunities to learn rapidly and to participate in the making of public policy are almost unparalleled. And because so much less is written or understood about local government than about federal agencies, there remain many more opportunities for young people to increase public understanding by observing these agencies first hand and then writing their own versions of Counsel for the Deceived.

Philip G. Schrag

Delaney Family Professor of Public Interest Law

Georgetown University

Washington, D.C.

August, 2011

Introduction (1972)

IN THEIR STUDIES of simpler societies around the world, anthropologists have told us of the functions of myth and abstraction in sustaining popular and uncritical faith in social systems. Our legal system could have benefited considerably if some of these anthropologists had stayed home and studied it. For precisely the same phenomena of myth and abstraction have persisted to make the legal system appear to be what it is not. Accordingly, lawyers and judges can maximize their parochial interests undeterred by external scrutiny, challenge, and reform.

The easy abstraction, for example, that if people have legal rights, they have justice, or the myth that citizens have access to and can use the legal system, were repeated so often and so authoritatively by the legal establishments that they became, until the early sixties, articles of faith to be intoned rather than propositions to be examined. Law students were told that this is a government of law, not of men, without the qualification that the thought is far more an ideal than a reality. Such a qualification might have focused the students’ attention on ugly data and dismaying empirical studies. It might have taken them away from the preferred law school pattern of abstract digressions or “bread and butter” study by rote. The process of student acculturation to myth and abstraction was rigorous indeed in this shaping period of their careers.

The sixties was the decade when the law was forced to come down to earth. Laymen, particularly the poor and the young, forced the legal system to reveal its discriminatory, dilatory, costly, and often corrupt impact. That the challenges had to be as direct as the “sit-in” pointed to the level of stimulus required to change the law, although the majesty of the law is supposedly illuminated by less behavioral prods —such as principles of equity and justice. Certainly the handful of lawyers who took up cases in consumer, environment, housing, military, and other areas of primal legal challenge have strong grounds for repudiating the myths surrounding the legal system and documenting the raw realities about how it works and how it is being used.

Different questions need to be given prominence in an effort to genuinely appraise the faults which impede the administration of justice, and to propose needed remedies and reforms. A few suggestions: (1) To what extent does the monopoly of representation accorded lawyers contribute to or sustain arcane practices, costly hurdles, and biases which severely reduce the responsiveness of courts and regulatory agencies? (2) Why are most Americans effectively shut out of the formal legal system in resolving disputes with firms, institutions, and governments? (3) What outside forces cause the aggrieved to feel intimidated by the legal system—even when the law is “on their side”? (4) Just what do legal rights mean without the easy availability of legal representation and remedies? (5) What defense mechanisms (such as the corporate shell) does the law support which eliminate the value of any judgment or decision beyond technical recognition of rights? (6) How is the law itself being used as an instrument for oppression or retardation? (7) Who defines what is violent or fraudulent as far as the practical attention given to these activities by law enforcement? (8) What determines the deployment of the legal profession so that the respective needs for justice and foresight by various segments of our society become the least relevant consideration? (9) Can the legal system as presently defined be expanded into less formal and more accessible institutions to permit conflict resolution without requiring the aggrieved to lose more than is gained in time, money, and other attendant risks? (10) How can accountability be built into large commercial and governmental institutions and backed up by the law?

Many of these questions are stimulated most concretely by Philip G. Schrag as he describes the consumer abuse cases he handled as a young lawyer with the NAACP Legal Defense Fund and the New York City Department of Consumer Affairs led by Bess Myerson. Several lawyer-writers before Schrag have documented the abuses in the law writ large; very few, however, have engaged in the meticulous firsthand description of cases as they happened—beginning with the interaction between commerce and consumer then winding down the tortuous path of the law and the courts. In some ways, this book is an autobiography of Schrag’s career over the past four years since his graduation from Yale Law School. It is a rare combination of observation, reflection, and confession—the kind of narrative-analysis which compels one to recommend it highly to all first-year law students. They will come of age rapidly after reading this compressed record of disillusionment with the wretched practices of much of the judicial system. Perhaps most important, they will learn a new way of thinking—starting from empirical observation and recorded data about problems affecting millions of people and then moving on to levels of legal abstraction meaningfully rooted in reality.

Schrag kept voluminous records of his cases and later interviewed the Department’s lawyers at length. The details presented reflect the value of such sources over even the best of memories. He depicts the human consequences for consumers deceived by the “holder in due course” doctrine, “sewer service” practice, unconscionable procedural delays to erode the will and resources of the plaintiff, jockeying for the “right” judges by corporate defendants, the absence of effective sanctions in the pre-trial and post-judgment phases, the flexibility of corporate shells and their counsel to evade even being brought to the judicial forum and the insulation of “respectable” corporations, such as banks and finance companies, that support or supply the less savory operators, but escape accountability, liability, or exposure of their role. Regarding the latter situation, Schrag concludes one case description of an outrageously fraudulent sales scheme of burglar alarms this way:

But the Foolproof case illustrates another way in which major corporations help gyp the American public—not directly, not visibly, but from behind the scenes, by extending mutually profitable lifelines to companies whose business practices they do not wish to know very much about. Foolproof’s protectors included a major department store, five banks (including one enormous bank), a prestigious law firm, one of whose partners became a ... director [of its parent corporation], an underwriting company, and a public relations securities firm. The company also had a way to generate a telephone call from City Hall.

Schrag aptly underscores how frequently consumers don’t know they are being gypped or don’t know how to complain. Those that realize they have a complaint, particularly among the low income areas of New York City, despair from doing so because they believe no one in officialdom will listen and nothing will be done. He illustrates the enormous time and manpower which a single case can absorb and even after a successful adjudication, the deterrent effect on others never took hold. The reader may be sensitive, at the book’s end, to Schrag’s feeling of utter frustration with his four-year effort as counsel for the deceived. He did manage to produce a few ripples of justice in an ocean of fraud and commercial chicanery, but achieved little, if anything, he felt, of enduring significance and quantitative change for consumer justice. Even though the new New York City Consumer Protection Act, which he drafted and lobbied, provided for powers of injunction and mass restitutions of monies bilked from consumers, Schrag feared that the strategies, resources, and numbers of potential corporate defendants would be repeatedly decisive.

It is too early to despair. The cost-benefit of greatly increased enforcement resources, under effectively drafted consumer laws, has not been shown to be futile. Indeed, it has not been tried. We are a nation, after all, which in 1970 devoted more public funds to building one C-5-A cargo plane than to the budget ($125 million) of the entire federal court system. After decades of no enforcement, it will take more than a few months to build a momentum that communicates its determination to deter corporate or business crime—both blue-chip and what the author calls the harder core “commercial underworld.” In order to achieve this redirection away from fraudulent practices, the law must override the buffers of corporatism, so well recounted in this volume, and reach the individuals who direct these operations. Only a more refined and focused sense of outrage by larger numbers of consumers will create the democratic pressures which politicians, administrators, and judges cannot ignore. To give such widening and proper outrage over consumer exploitations a cutting edge is the mission of lawyers and other professionals who are staffing local, state, and federal consumer protection agencies and public interest law groups around the country. At the beginnings of any movement for greater justice, it is easy to generalize from the early stumblings that the crimes are substantially beyond the limits of effective legal action. To deny this conclusion is not to fail to recognize that much work needs to be done outside formal regulatory and adjudicatory institutions—in the media, in consumer organizations, in the electoral and legislative system, in the professions, in the ethical whistleblowing arena, and in the use of many other levers of change.

In his concluding chapter, Schrag discusses various enforcement models in terms of strengths and weaknesses. He describes the needed development of neighborhood consumer tribunals that would be “open during the evening, or on weekends, so that people who work need not have to choose between justice and their jobs.” It is clear from his words that Schrag is still searching for workable models. In his present position as Associate Professor of Law at Columbia University, he will have more time to reflect on his experience. Earlier than many of his contemporaries, Schrag saw the gravity of the epidemic of consumer injustice not only afflicting the poor with special viciousness, but also distorting the entire economic system.

The manipulation by corporations of what economists call the “consumption function” has attained an entrenchment which makes it a major allocator of resources and a major distributor of hazards to the consumer’s health and safety. During the past decade exposures in the auto, pharmaceutical, pesticide, food, and pollution industries have given the consumer movement dimensions of importance that go to the nucleus of the society’s power structure and its directions for the future. The direct and indirect quality and quantity of the consumption function is more the test of the society’s standard of living than the “production function” which has received historically far greater attention—particularly in an economy of wealth that has little difficulty anymore in merely producing. What is produced, to whom it is distributed, and at what cost inside and outside the market are consumption questions. Together with widespread price-fixing and administered pricing, a host of anti-competitive practices have helped block the timely feedback from the consumer pressure point on both economic and safety grounds. At stake are tens of billions of dollars in waste, fraud, excess profits, and by-product costs every year. The call one hears increasingly for a system to measure better the quality of the economy, not just the gross national product, mirrors a growing awareness that our trillion-dollar-plus annual economic output is failing to treat many pressing domestic deprivations—such as poverty, housing, public services—formerly thought to be responsive to economic growth. And it is also creating new problems—more pollution, more occupational diseases, more draining bureaucracies, more transportation and court congestion—without reallocating resources.

Mr. Schrag’s localized case studies are only among the more apparent symptoms of a malaise spreading itself on the consumer in an economy dominated by corporate giants which have perfected ways, often with the complicity of indentured government (such as the oil import quotas’ $6 billion annual consumer overcharge), to derivatively bilk consumers far removed from them in time and space. The consumer movement must grapple with this closed enterprise system and its controlled market if the fruits of labor are not to be dissipated by consumers spending for needlessly imposed costs or ingeniously contrived frauds.

RALPH NADER

Preface (1972)

FOR FIFTEEN MONTHS, between April 1970 and July 1971, I directed the newly created Law Enforcement Division of the New York City Department of Consumer Affairs. I had an opportunity to observe how companies of all types and sizes abuse their consumers, to compare the “reputable” supermarkets whose advertised specials are somehow never available with the fly-by-night con men whose deliberate swindles cause financially stable families to become impoverished in a matter of days. In hundreds of hours of conversation with businessmen and buyers, I came to appreciate the simple truth of Woody Guthrie’s line: “Well it’s through this world I’ve rambled/I’ve seen lots of funny men/Some rob you with a six-gun/Some with a fountain pen.”

But consumer fraud is only the subsidiary theme of this volume. Primarily, this is a book about government, about the experiences of young lawyers who had enough faith in the administrative process to become part of it. They found that despite their pioneering spirit and their readiness to make new precedents, despite their willingness to work whatever hours were required, despite even new legislation to arm them with the tools they needed, their trust in the effectiveness of government was diffused by contact with a legal system capable of exhausting the most dedicated advocates by permitting endless delay. Nor could they substantially help consumers even when they were able to overcome systemic delay and obtain decisions from courts, for the judges they encountered were anything but friendly to their position.

Agencies have been known to react to similar sets of affairs by going to sleep. Perhaps the same fate will eventually befall the Department of Consumer Affairs. But in the short run, at least, the lawyers’ reaction was to fight back by inventing new modes of official behavior which did not depend upon use of the legal and judicial systems. This pattern may become increasingly prevalent now that activists—both lawyers and laymen—are rediscovering the importance of state and local government and are competing for work in their agencies.

This book documents some of the frauds we encountered, the procedural system we were expected to use to fight those frauds, and the devices we adopted when we saw that the normal processes were not adequate. It is a history of what happens at the usually invisible lowest layer of government, for it reveals the types of activity and decision-making by agency staff that ultimately determine many apparently top-level administrative actions. What really happened is rarely told by the innocuous press release or newspaper story, and even the memoirs of government officials are generally biased by the fact that the officials who write memoirs have usually occupied positions at the highest rungs of government; they themselves have not known how their administrations functioned, at their lowest level, day by day.

Although the events here reported could not have taken place without Commissioner Bess Myerson, this is not a book about Bess Myerson. It is instead a study of the hundreds of minute decisions that in the aggregate determine the course and test the effectiveness of a government agency.

— P.G.S.

Counsel for the

Deceived

1 · How Laws Are Passed

WHEN I GRADUATED from law school in 1967, I went to work for the NAACP Legal Defense and Educational Fund. My first client was the victim of a classic consumer fraud, and he epitomized the problem of consumer protection in the late 1960’s: although the rights of consumers were being rapidly expanded, enforcement of those rights was almost non-existent.

Frank Allen was a Negro in his twenties. He had a tenth-grade education, lived in a New York City housing project, and earned about $5,000 a year. His wife also worked; she earned a little less than that. In March 1966, at the suggestion of a friend of the Allens, a door-to-door salesman named Richard had visited the Allens in their apartment, and had made an offer that seemed appealing. Richard represented Super Fine Furniture, a large Harlem store, in business for 133 years. For less than $20 a week, he would provide them with all the food they and their four-year-old daughter needed, so they would not have to whittle away their budget at grocery stores or supermarkets. He showed them a long list of the meats that he would supply, and, “just to see how this would work to save money for you,” he made up a list of the groceries they usually bought, which he would also supply. “This is a budget savings plan,” he said. “We buy in bulk, and so we can pass the savings on to you. You will find this plan much cheaper than buying food in the stores. And all our food is the highest quality, Grade A.” He noted that the Allens would still have to buy milk and fresh vegetables in the store, but that his plan would supply everything else they needed. “This food will be delivered monthly,” he said, “and you will need some place to store it, so I will also provide you with a fine freezer, which will be less than $8 a week, but the savings on the food will be so great that the freezer pays for itself and is essentially free.”

Mr. and Mrs. Allen always had trouble with their budget and were constantly in debt, so they were inclined to accept. Richard assured them that they could cancel the whole deal after four months, simply by not reordering food at that time. So Mr. and Mrs. Allen signed the contract. They did not read it first because they could see that it was written in legalistic language they could not understand; and in any event, Richard seemed like an honest fellow, represented one of the largest Harlem stores, and had come recommended by their friend. (Mr. Allen later found out that his friend had signed up for a food plan a few days before, and Richard had given him a $25 discount for recommending a friend who would also sign a contract.)

A week later, a great volume of food arrived, along with a freezer. The food was not the high quality Mr. Allen expected, but it was tolerable. The quantity, however, was so small that the food ran out long before the four months ended; the Allens had to buy as much from stores in the final weeks of the period as they did before they started the plan.

A week after the food and freezer came, Mr. Allen received two coupon books—one for the food and one for the freezer—from Regal Finance Co. One set of coupons required him to pay $30.22 a month; the other required him to pay $74.83 per month. Mr. Allen looked at the books, saw that he did not have to make his first payment for about four weeks, and threw the books—along with the accompanying forms—into a drawer until the first payments were due. (At this point, he wasn’t sure whether the food supply would last or not.)

After grumbling for four months, but making all payments on time, Mr. Allen called Richard at a number the salesman had left and told him that he was not reordering because he was dissatisfied with the inadequate quantity of food supplied. “You can pick up the freezer any time,” he said. “Oh no,” said Richard, “you can cancel the food, but you may not cancel payments on the freezer. Sorry, you’ve signed a written contract to buy it by paying $30.22 a month for three years. Look at your copy of the contract.”

Mr. Allen looked at the contract and saw for the first time that he had agreed in writing, not to rent a freezer, but to buy one at a price of $1,087 over three years. He was shocked by the price because he had never heard of a freezer costing more than three or four hundred dollars. “I’m going to talk to a lawyer,” he told Richard. “Don’t do that,” said Richard. “I’ll straighten this out and call you back.” He never did.

Mr. Allen went to see his union’s lawyer, who told him that contracts were binding and that once he signed, there was nothing he could do. “Besides,” said the lawyer, “it appears that a credit company bought your contract; and if you don’t keep up your payments, they’ll garnishee your wages and you may be fired.”

Mr. Allen kept up his payments for fourteen months, becoming angrier with each payment. Finally he went to the Legal Aid Society, which referred him to me.

Mr. Allen was one of millions of people bilked every year by false advertising or fast-talking salesmen. Although estimates of the dollar volume of consumer fraud are risky, home improvement swindles alone are said to cost Americans over a billion dollars a year, counterfeit branding of merchandise two billion, and medical quackery another billion.¹ The New York City Department of Consumer Affairs receives 20,000 complaints a year, almost all of them justified; at that rate, there would be half a million complaints nationwide. But it is obvious that that figure grossly understates the volume of abuse, because only a very small minority—I would guess fewer than 1%—of the victims of consumer fraud complain to a government agency. The most frequent and serious complaints of fraud usually involve mail orders, furniture, appliances, health and reducing products, correspondence courses, money-making schemes or door-to-door sales of a variety of products, from encyclopedias and magazine subscriptions to pots and pans.

From one perspective, Mr. Allen and the thousands like him were fortunate: the law theoretically offered them redress. If the legal system worked as intended, Mr. Allen could have a court declare the contract invalid because of the salesman’s false promise about the sufficiency of the food, either in a suit brought by Mr. Allen against the store and finance company, or in a suit by the finance company against him, provoked by his failure to send it any more payments.

In such a suit, it was true, Mr. Allen would have had to overcome a serious obstacle: the finance company would claim to be a “holder in due course.”² Regal Finance had printed the contract form, which it had supplied to Super Fine Furniture. Because every year it bought from Super Fine (and from other slum furniture stores) the right to collect monthly payments from thousands of consumers who signed such forms, it had included in the form a crucial fine-print clause. That clause—one of several under which Mr. Allen had signed his name—said that the buyer of the merchandise agreed to waive all his rights in the event that the seller (Super Fine) sold the contract to a finance company. In other words, although the law gave Mr. Allen the right not to pay the store if it cheated him, it permitted him to sign away that right as against a finance company which bought contracts from the store. Under the principle of the holder in due course, Mr. Allen would have to pay the finance company even if the freezer had arrived ruined, or even if the store had never delivered it.

However, the use of this device to undermine consumer rights was coming under sharp attack. Two or three state legislatures forbade it during the late 1960’s, and occasionally a court would find an excuse not to apply the doctrine. Mr. Allen, therefore, had at least a fighting chance—in theory.

But as a practical matter, consumers such as Mr. Allen had almost no protection, for two reasons. First, more important than the consumer’s right to get his money back is his right not to be cheated in the first place, and neither the public agencies charged with guarding this right nor the remedies administered by courts in consumer litigation were effective in deterring the practice of consumer fraud. Mr. Allen might win his own case, return his freezer, and get his money back, but that would hardly stop Super Fine and its salesmen from making similar misrepresentations to dozens of other consumers who would grudgingly pay an unjust debt rather than fight an exhausting court battle. Second, the law would at best return to Mr. Allen the money he had paid; it would not compensate him for the time he had to invest in interviews with his lawyer, required pre-trial appearances in the offices of the store’s or finance company’s attorneys, or court appearances. Nor would it pay his attorney for the time spent locating, interviewing, and preparing witnesses, or preparing hundreds of pages of affidavits and briefs which might be necessary to win the case.

The Federal Trade Commission (FTC) is the government agency primarily entrusted with the task of preventing consumer fraud. But some time during the 1960’s, the FTC virtually ground to a halt as a result of inadequate funding, understaffing, conservative interpretations of its power, lack of public support, overbureaucratization, and the absence of any real sense of mission.

For example, in 1968 the FTC, with jurisdiction over consumer fraud in interstate commerce anywhere in the nation, issued only 45 complaints against deceptive practices, of which all but 16 were consented to.³ It referred only 3 such cases to the Department of Justice for enforcement proceedings.⁴ Only one out of 125 avowed applications for a complaint—pre-screened for apparent relevance and appropriate jurisdiction—resulted in formal FTC action.⁵ Furthermore, when the commission did act, it did so at an impossibly slow pace. The average case took 4.37 years from the “investigation” phase (which might follow a complaint by several months) to the issuance of a cease and desist order,⁶ and since that order can be appealed, cases have been known to take twenty years or more.⁷ Meanwhile, the company did not have to change its practices, and it was routine for firms to complete their advertising and promotional campaigns years before the FTC concluded that the practices were deceptive and should not be used in the future.

Even when the Commission acted promptly, it believed itself to lack legislative authority to get money back for defrauded consumers, so its strongest penalty was merely an order to a company to refrain from future fraud, a gentle pat on the wrist.

The FTC’s low level of activity was explained by observers to result in good measure from its recruitment and personnel practices, and the attitudes of the lawyers it hired. Influential Congressmen, particularly Southern Democrats, determined many staff appointments and promotions; “the atmosphere of the agency was like a Southern county court-house.”⁸ Many young applicants were accepted by the commission not because of their grades or extracurricular activities, but because of “old school ties, regional background, or a political endorsement,”⁹ or because of selection by one of the Bureau Chiefs who preferred “attorneys who will not underscore their mediocrity or disturb the work patterns of the bureau.”¹⁰ One senior staff member of the FTC admitted that “he preferred to hire older men—who had been out in the world for ten years or so and had come to appreciate that they were not going to make much of a mark—because they tended to be loyal and remain with the FTC.”¹¹

Mr. Allen and other consumers could expect little more protection from state consumer protection agencies. In fact, Mr. Allen had gone to the Office of the New York State Attorney General before he came to me; an Assistant Attorney General had called Regal Finance on his behalf, but when Regal refused to refund any money, he told Mr. Allen there was nothing he could do. Across the country, state consumer agencies and bureaus were havens for political hacks. They had few powers and requested no more; they saw themselves as mediation services for those few who complained, rather than law enforcement agencies established to stop the exploitation of buyers.¹²

In the absence of a government agency willing to be the consumer’s advocate, there was little hope of frightening a company into adopting honest selling techniques. Consumers had great difficulty finding legal counsel of any sort. Mr. Allen’s union lawyer had turned him down because without substantial compensation—which Mr. Allen was unable to pay—he could not afford to spend a large amount of time fighting the case. The Legal Aid Society had turned him down because his total family income was in the range of $10,000, above the society’s eligibility limits.¹³ I could accept his case only because the NAACP Legal Defense Fund was supported by private contributions to enable it to participate in selected “test” litigation, but few other lawyers were so fortunate, and I couldn’t accept more than about half a dozen cases a year.

Even when a consumer could obtain an attorney, the attorney could do little about the deceptive practice involved. The law did not authorize lawsuits (except by the government agencies, which rarely used the power) to enjoin consumer frauds. Suits for treble or punitive damages against companies engaging in deception might, if successful, have a deterrent effect, but scant precedent existed for that course of action either.

Finally, consumers who did not consult attorneys were as good as lost. Thousands of them were cheated every year. Those who had bought for cash had no recourse at all. Those who purchased on credit usually stopped paying in protest. The store or finance company in question would send them a series of increasingly nasty dunning letters, telephone their employers to increase the pressure, and then bring suits for collection. In many cases, the consumers who were sued never learned of that fact until they lost the cases and their wages were garnisheed. Although the law requires that people be notified at the outset of suits against them, process servers charged with the job of providing notice frequently found it more convenient to tear up the summonses and file perjured affidavits that they had given them to the defendants.¹⁴ Those defendants, particularly poor defendants, who actually received notice of a lawsuit usually did not appear in court to defend the cases. Inability to obtain time off from work, distance from the courthouse, the requirement of multiple appearances, the incomprehensibility of the summons forms, complex procedure, and fear of “the law” combined to make the rate of judgments by default in consumer credit cases awesomely high—perhaps 90% nationally and over 96% in some metropolitan areas, such as New York. One study of over a thousand consumer cases in Detroit, Chicago, and New York revealed that trials had occurred in only seven of them.¹⁵

Since test litigation was my job, Mr. Allen’s case became a challenge to what seemed the most serious problem of consumer protection—the lack of remedies that would deter. We asked $50,000 in punitive damages against the store and the finance company for misleading dozens of freezer purchasers pursuant to a vicious pattern of conduct aimed at the buying public. I have elsewhere recounted at some length a month-by-month history of the lawsuit.¹⁶ In brief, hundreds of man-hours were expended on both sides. Over the course of months, Regal’s attorneys exercised their right to pre-trial cross-examination of the Allens for several days, then rigidly resisted our attempts to obtain corresponding investigation of the companies’ practices. Motions and counter-motions proliferated; delays built on delays; pounds of paper were filed with the court; affidavits and briefs pertaining to the most trivial points of procedure flew back and forth among the lawyers working on the case. The months became years; the likelihood that the court would ever consider the substance of the case (whether the Allens were cheated and whether, if so, they could collect punitive damages) became ever dimmer.

Meanwhile Ralph Nader persuaded politicians that consumer protection could be a popular issue. Legislation was written, and much of it was passed. The newspapers talked of the age of the consumer. But the reforms were incomplete, and most of the new laws struck off in tangential directions. Legislators gave little attention to strengthening enforcement of existing prohibitions against deception in the sale of goods or services.

For most of the decade, for example, the members of Congress who were concerned with consumer protection pressed single-mindedly for enactment of the Truth-in-Lending law, which they achieved in the middle of 1968. The new law required contract forms to state the true annual interest rate which the buyer would be charged. It therefore added to preprinted forms yet another standard item which few consumers, particularly poor consumers, would read, and which, even if read, would probably not affect the decision to buy. It did a man little good to know that he was being charged, say, 18% a year, the maximum interest permitted by his state’s law, if all other stores that would give him credit also charged 18% a year. Also, many stores and door-to-door salesmen catering to low-income buyers found an easy way to understate the true interest rate. Since state laws set ceilings on interest rates but did not regulate cash prices, and since these stores sold only for credit and never for cash, the stores assigned their wares artificial cash prices which were lower than the cost to the consumer by exactly the maximum lawful interest rate. Finally, the Truth-in-Lending law left merchants free to offer descriptions of the qualities of goods and services that were as false as they had been in the past.

Congress also held hearings on—but never passed—a proposed federal law to give door-to-door buyers the right to cancel their contracts within two days after signing them.¹⁷ While this law would have helped some victims of high-pressure sales talk, it would not have been of much assistance to deceived consumers, who generally do not discover the deception at least until the goods are delivered, and usually not until weeks or months later. The Allens, for example, could not have known that the food delivered to their house would not last four months until the first two of those months had passed. Several states did pass “cooling-off period” laws, but as usual, insufficient attention was paid to enforcement procedures. Merchants routinely claimed that they had not received the notices of cancellation which the consumers mailed, and door-to-door salesmen back-dated contract forms so that it would appear, to a person looking at the contracts and at cancellation notices mailed on the actual day of signing, that the two or three days allowed by law for cancellation had run by the time the consumers’ regrets matured.

Sharp criticism of the holder in due course doctrine led a few states to enact reforms to preserve buyers’ rights against banks and finance companies, but except in Massachusetts, these new laws left enormous loopholes. They prohibited fine-print waiver clauses in installment contracts, but said nothing about such clauses in revolving charge account agreements. Soon, merchants began discarding their contract forms and signing their customers up for revolving charges. More important, the banks distributed millions of Master Charge and BankAmericard credit cards, many of them unsolicited, to consumers in all economic brackets, and authorized thousands of stores, including ghetto stores and even door-to-door salesmen, to accept them. The fine-print agreements mailed to buyers with the cards provided that the buyers waived against the banks their right to withhold payment because of a dispute with a seller. To agree to this condition, the buyers did not even have to sign the agreement; they merely had to use the card to make a purchase.

Finally, there occurred during this period the first stirrings of judicial concern over the fairness of the price in installment contracts. In a handful of cases, where sellers had marked goods up by more than 200%, courts refused to permit creditors to collect all the money that the contracts provided for, even though the buyers did not claim to have been lied to or misled.¹⁸ But this newly developing doctrine of “the unconscionability of the price” only deepened the irony of the consumer’s plight. It doubled or tripled the number of persons who had legal rights on paper, but practically no way to enforce them. Those few cases in which trials occurred were tributes to the patient efforts of a few dedicated legal aid or private attorneys who had taken special interest in particular clients or issues, and were willing to subsidize a consumer-litigant by devoting thousands of dollars worth of legal time to the defense of a three-hundred-dollar claim.

Those few trials also represented the unusual case in which the adversary system somehow failed to operate; for some reason, the sellers’ attorneys did not manage to obscure the issues or indefinitely postpone resolution of the conflict. Mr. Allen’s case, on the other hand, was interminable. At every stage, the lawyers for Super Fine Furniture and Regal Finance employed obstructive tactics to derail the case. Telephone calls were not returned. Witnesses failed to appear for scheduled examinations. Finally, for reasons unassociated with the Allen case, Super Fine went bankrupt, which prevented any resolution of the essential issue—a consumer’s right to punitive damages; no store existed to defend the claim or pay any damages that might be awarded. Four years after the hike, the Allen case was settled at the line of scrimmage. Mr. Allen got no money back, but didn’t have to make any more payments.

The Allen lawsuit was typical of my efforts to entice courts, through test litigation, to provide consumers with strengthened remedies; the strategy miscarried because few cases ever reached the “test” stage. As I became ever more entangled in the obstacles which could be erected within the system, I began to wonder whether it wouldn’t make more sense to approach consumer law enforcement from an entirely different direction, by building a powerful and aggressive administrative agency, one that was capable even of overkill in the consumer’s behalf, in order to redress the balance between the deceiving seller and the deceived buyer. Meanwhile, late in 1968, the New York City Council reacted to the popular wave of consumerism by creating a city Department of Consumer Affairs,¹⁹ and a series of events began to occur which would give me the opportunity to test in practice whether, under the best of circumstances, government could really protect consumers from fraud and deception.

My brief career in government began because a law school classmate, a former fellow editor of the Yale Law Journal, was at that time working as a Special Assistant to Mayor John Lindsay, and consumer affairs happened to be among his areas of responsibility. Since he knew that I was active in the field, he called me to ask what the newly created agency should do. I told him that although I had some ideas about the matter, they would take a great deal of time and energy to implement. I then offered to devote that time and energy, provided that he arranged to have me appointed either Commissioner of Consumer Affairs or Chairman of the Department’s statutorily established Advisory Council.

He explained that the administration really didn’t approve of Commissioners under the age of thirty, but he did arrange the Chairmanship for me. I then began to build the kind of agency that I thought could make a difference.

All the City Council had done was to amalgamate the city’s Department of Markets (Weights and Measures) with its Department of Licenses (which authorized fee-paying non-felons to operate cabarets, sidewalk cafes, miniature golf courses, and 102 other such sensitive industries). Although the Department’s licensing jurisdiction did cover a few occupations in which licensing might actually be a useful tool of consumer protection—home improvement contractors, used car dealers, and employment agencies—the staffing and jurisdiction of the Department were not well geared to deterring and punishing consumer fraud generally. The City Council had merely given old agencies a new name, an advisory council, and, importantly, subpoena power.

It appeared to me that the agency needed a new law, a vigorous staff, and a tough image. I started with the law; the Advisory Council stole from other states and laws the best provisions we could find, added a few ideas of our own, and ended up with the toughest consumer protection bill we could imagine.

The bill we drafted forbade all deception whatsoever in the sale of consumer goods or services, in the extension of consumer credit, or the collection of consumer debts. We excluded all references to the seller’s intent; a merchant would violate the law if his statement or advertisement had the “capacity, tendency or effect” of misleading consumers. Furthermore, we specifically provided that it would not be necessary to show that consumers were actually injured. We included a prohibition on the deceptive use of “exaggeration, innuendo or ambiguity as to a material fact or failure to state a material fact.”

Taking our cue from the court cases that had reviewed the price of merchandise, we outlawed any “unconscionable” practices as well, and we gave the Commissioner of Consumer Affairs the power to issue regulations, without prior public hearing, defining types of practices as deceptive or unconscionable and therefore prohibited by the statute.

Of course, the section I cared most about concerned enforcement powers. We gave the Commissioner the power to seek a choice of four penalties in the courts—a civil fine of $50 to $350 for “accidental” violations;²⁰ $500 or $1,000 fines for “knowing” violations; injunctions (court orders to stop a particular practice), including preliminary injunctions and temporary restraining orders; and what we informally dubbed, for lack of a better term, “mass restitution.” Under the mass restitution provision, the Commissioner could, where he found “multiple” violations, apply for a court order creating an escrow account of all the money “received as a result of such violations,” which would be paid over by the Department “to any and all persons who purchased the goods or services during the period of violation ... in a transaction involving the prohibited acts or practices.” The escrow account would be enlarged to include also “any costs incurred by such claimants in making and pursuing their complaints,” so that consumers would be made whole, if at all possible. Finally, the Department of Consumer Affairs, in such an action, would recover its costs of investigation from the defendant and also keep all the money in the escrow accounts which was unclaimed by consumers within one year after the Department publicized the accounts’ existence in a manner approved by the court. The theory was that both consumers and the Department would never lose by investigating and suing a guilty company—both would recover their gross expenditures.

We deliberately required the agency to go to court to obtain penalties or remedies, rather than authorizing it to issue administrative penalties subject to court review. Legally, to enable it to issue cease and desist orders, we would have had to create not only a new investigative staff, but a separate, neutral staff of hearing officers as well. Furthermore, although an administrative procedure would seem to expedite cases compared to the slow pace of most litigation, stays pending appeal of administrative orders are granted by courts almost routinely, so that the two-step procedure—administrative hearing and judicial review—was likely, in important cases, to take longer than litigation. Finally, we had some doubt as to whether the City Council would pass a bill authorizing the agency itself to order remedies, particularly the important, drastic remedy of mass restitution.

Just as we finished drafting, the first Commissioner of Consumer Affairs, Gerard Weisberg, was appointed to the bench, and the Mayor chose Bess Myerson to succeed him. It is generally supposed that his motives were primarily political; he was up for re-election in a matter of months, and many of the city’s Jews had defected from his camp during the school decentralization controversy. The appointment of a female Jewish television celebrity—a former Miss America—was a brilliant political move;²¹ by accident or design it was also the best merit appointment he could have made. Not only was Commissioner Myerson quick to learn the field (including the legal aspects of consumer protection) and receptive to virtually all staff proposals, but her fame and charisma enabled her to win crucial battles with heads of other city agencies and to get almost any story about consumer fraud into the newspapers.

The Advisory Council presented its draft bill to Commissioner Myerson the day she was sworn in, early in March 1969, and she made its passage the primary goal of her first year in office. She immediately changed its name from the Unfair Trade Practices Act to the Consumer Protection Law, on the undoubtedly correct theory that a sexier title would aid enactment.

To a student for whom Congress is a model legislature, the New York City Council is a strange body. Relative to the Mayor, in theory, the council is very powerful; it can even, by simple majority vote, amend the City Charter. But by tradition, most of the thirty-seven part-time City Councilmen spend a majority of their spare hours performing services for individual constituents rather than working on legislation. They have never voted to give themselves staffs or private offices, and, except for one or two occasions a year when, on major issues, the council leadership drafts its own proposals, they are content to let the Mayor run the city and draft the legislation they enact. Such legislative power as the council chooses to exercise is delegated to one man—the majority leader. He has a staff assistant²² and a City Hall office; he determines when and if committees will hold hearings and recommend legislation; he decides what will pass and what will not. Generally, if he permits a hearing on a bill, it will be brought to the floor and will pass with few dissenting votes; it would not be economical to take up the time of Councilmen holding hearings on bills not destined to pass. He works closely with the Mayor’s staff; amendments to bills are negotiated between him and the Mayor’s people, rather than debated and contested in committee or on the floor of the council. Naturally, when we had drafted our bill and cleared it through the city’s Law Department, Commissioner Myerson and I went to see the majority leader.

In a meeting in his office, he took the bill, heard our explanation, and promised to call us. We didn’t hear from him for some time, so we feared the bill was dead. Commissioner Myerson then began a long campaign of becoming the squeaking wheel. For months, she wrote to him, she called him, she visited him. Finally, he told her that bills only passed the council when there was public pressure for them, so the department’s staff and the Advisory Council began to manufacture some pressure—the usual letters, telegrams, phone calls—all to the majority leader, who wanted to see pressure, none to the other thirty-six Councilmen. At every speaking engagement, Commissioner Myerson circulated a petition for the bill among her audience, so that we were able to present the majority leader with several thousand signatures urging passage of the bill. Finally, after this game continued for several more months, the majority leader informed us that one of the committees would hold a hearing on the bill.

Two days before the hearing, the serious opposition materialized. Arthur Byers, a partner in a prestigious law firm representing the trade association of major New York department stores, came to see me to express the association’s opposition to the uncompromising text of the bill. He implied that he would have the bill killed or amended if we did not agree to certain amendments on which he insisted.

“Under this bill,” said Byers, “there would be serious penalties for violations of the Commissioner’s regulations, but it’s impossible to comply with regulations.”

“Why is it impossible?” I asked.

“For example,” he said, “the Federal Trade Commission says an advertisement for television sets which lists only the diagonal screen measurement must identify the measurement as being diagonal. There are dozens of regulations like that. The girls who write advertising copy can’t possibly remember all those regulations. Every now and then, they forget, but the omission doesn’t hurt anyone. It’s just a technical thing. We shouldn’t be punished for it.”

“Why can’t they remember all the regulations?”

“That’s the kind of help you get nowadays.”

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Preface (2011)

Introduction (1972)

Preface (1972)

1 · How Laws Are Passed