The 12th International Consumer Law Conference Blog

Organised by NALSAR and the International Association for Consumer Law

26th, Consumer Arbitration and ADR

Richard Alderman; Associate Dean; University of Houston Law Center 

The speaker started out by expressing that consumer rights without redress are of no use. He went on to say that it is essential that consumer have rights that can be enforced and there is need of an effecient and effective means of enforcement. The true measure of the success of these rights is when there is correct implementation of rules and regulations. Enforcement of these rights can be executed in two ways: Private and Public. In the Private method or procedure, the parties bear all the costs, the decision to enforce is upon the consumer and enforcement is through money damages. On the other hand, in the Public procedure, the government bears all the expenses and also makes all the decisions. Also, enforcement is through civil and criminal sanctions. The speaker then went on to talk about how to balance enforcement mechanisms. A typical case in the US would be of defective bycycles. In the case of defective bycycles, the consumer would normally approach the courts by filing a law suit and if the courts see fit, they would award punitive damages. The american civil justice system consists of a judge and a jury. The amercian civil justice system was very rigid and formal not to mention costly and slow. Arbitration on the other hand is faster, cheaper and also less formal. It is also less divisive. Next, the speaker explained how the system of arbitration really works. The organisation that will conduct arbitration is determined by terms of contract. The Organization gives each side a list of arbitrators and each side may “strike,” or eliminate, some or all of the Arbitrators are chosen from names remaining on the list. The Arbitrator(s) render a decision that generally is finally and may not be appealed. Consumer arbitration faces a lot of problems such as the Consumer is forced into arbitration. 
(2) Arbitration is expensive.
(3) No jury. 
(4) No chance of an Appeal. 
(5) No possibility of class actions. 
(6) Not bound by general rules of procedure and law.
The speaker then went on about the dangers of Arbitration. The danger arises for example if, Arbitration is completely controlled by business companies. Auto and home industries have effectively divorced themselves from the civil justice system. Another problem arises due the fact that Arbitration is secret. Consumers need open, public courts and juries. Also, Arbitration is not binding on anyone else whereas consumers need opinions that will be consistent and binding in other cases. In relation to US, the solution is The Arbitration Fairness. 
Speaker 2: [Alternative Dispute Resolution in the UK] Peter Burbidge

Senior Lecturer University of Westminster

The speaker started off by speaking about the alternatives to consumer cases being decided in courts. Forms of ADR are: consensual/ imposed solutions. Conciliation/mediation/ arbitration/ ombudsman. Now, various questions arise such as should ADR exclude the court?,  Who pays – firms, consumers or Government?, Role of consumers associations? The speaker went on about the advantages and disadvantages of the Small Claims Jurisdictions, Trade associations, and the Financial Ombudsman Service. 

Speaker 3: Johanes Widijantoro

The speaker initially spoke about the the transformation of the authoritarian rule to a system of democratic government in Indonesia. He spoke about how local governments, after decentralisation had the power to improve the quality of public services and such. At the same time, the public awareness also spread across indonesia. Ombudsman has been introduced in Indonesia as a part of improving government performance in providing better public services. On other side, business actors were also urged to implement good corporate governance principles to meet consumer rights. Thus, PSO in Yogyakarta has been established and it focuses on public services provided by one business actor or one group of business actors. The speaker went on to enumerate the various motives of PSO and the problems arising from it and the solutions to it. 
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26th February: Financial Services

Chair: Prof. Christopher Peterson, S.J. Quinney College of LAw, University of Utah, (USA), Transnational Consumer Debt Collection

Prof. Christopher Peterson, S.J. Quinney College of Law, University of Utah, USA: Transnational Consumer Debt Collection:-

The speaker started by quoting from Adam Smith’s book, The Wealth of Nations; It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The taylor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a taylor…What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the product of our own industry, employed in a way in which we have some advantage. So, if a foreign country can collect our debts better than we ourselves can, better to outsource them with some part of the product of our own industry, employed in a way in which we have some advantage. The basic premise of his paper was therefore to see how this was true or wasn’t and why.
The speaker spoke of how debt collection practices have great potential for consumer abuse such as harassment and the psychology of failure, over-charging, reputational captivity, identity theft, “Zombie” debts which keep coming back like zombies and issues of suicide.
He gave the example of how with millions of people fluent with English in India, in particular, has lead to providing product support, reservations and marketing for companies in the US, Canada, Australia, Ireland and UK. Indian companies are also providing consumer debt collection services for creditors in post-industrial countries.
He concluded by recommending that policy makers should anticipate that financial predators from both developed and developing countries are likely to attempt to exploit the various regulatory weaknesses that exist.

Prof. Jenny Hamilton, University of Strathclyde: Choice, information and education–the illusion of consumer empowerment in financial services:-

Talking about the explosion of the number of retail financial products designed by the industry for the mass retail market in the UK, it is not co-incidental but in response to the government desire to structure its public finances so as to reduce or withdraw from communitarian welfare provision. At the same time, social and familial structures mean that citizens are expected to make individual and private provision for their retirement and elderly care through market mechanism. The citizen has now become the consumer of financial services.
Various regulations have embarked on campaigns to improve the financial literacy and education of consumers in relation to savings, investment and debt. Here, the speaker posed the question of- Why, in the retail financial sector, information disclosure and financial education and capability regimes have not produced the anticipated benefits for consumers and why, despite continued consumer detriment, is there continued support for unfettered consumer choice?
The speaker suggests that the reason that information disclosure and financial literacy and education campaigns have produced only limited benefits for individual consumers of financial products and services, and in some cases the effects have been detrimental, while research into the effect of choice suggests that too much choice can be debilitating rather than liberating.
She concludes by laying emphasis on membership of a community rather than freedom of the individual, that doesn’t necessarily centre on choice as expressed through markets, and where outcomes don’t depend on possessing the ‘calculating framework’ of the ‘rational consumer’.
Rapporteur: Disket Angmo
IInd Year
NALSAR University of Law
Hyderabad, India.

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In a presentation entitled “Agriculturist Debtors – A Vulnerable Consumer Group”, Namrata Sharma and Priya Sharma of HNLU, Raipur brought out the plight of Indian farmers, caught up in the vicious cycle of debt compounding debt. Typically, the process starts with the deadly trio of the WTO, IMF and the WB laying down the guidelines for developing countries which are, more often than not, agro-based. The villainous trio of IMF, World Bank and WTO are in connivance with each other. With institutional credit also falling short of requirements, the recourse to unofficial sources – the village moneylender and mahajan – had increased enormously. Working in a completely unregulated environment, these agents often felt at liberty to charge extortionate rates of interest. In conclusion, various measures taken by the government were enumerated and suggestions given for further improvement. Avni Chari of NALSAR spoke about the ascendancy of MNCs over the seed industry, particularly in India. Talking about India’s first bout of farmers’ suicides in 1997, she pointed out that the cardinal reason for the suicides is the abysmal arrears the cultivators find themselves in. Moving on to the specific issue of commercialization of seeds, the researcher revealed that over the last few decades, scientists developed the ability to modify the blueprint of life i.e. DNA and it is in response to this novel scientific venture that intellectual property laws were adapted to encompass living organisms. Furthermore, India announced its globalization policy during the Narsimha Rao tenure in the early 1990’s. This prompted an effusion of MNC involvement (such as the agro-MNC of Monsanto) with India. Prior to its grand commercialization, seeds were under the ambit of the public domain. Now, seeds are owned by those patent a particular variety. The introduction and failure of Bt Cotton in India was thus discussed followed by the reasons for failure of compensation schemes for affected farmers. For instance a new survey in India has found genetically engineered cotton (Bt Cotton) is causing negative health effects among farm workers. In conclusion it was pointed out that it is government policy that needs to be cajoled out of its present position before any amount of consumer protection can be afforded. The team from RMLNLU and GNLU presented their perspective on “Multinational Companies: Consumer Protection Laws in India.” A brief introduction on multinational companies was first given wherein it was pointed out that Section 591 the Companies Act, 1956 defines “Foreign Company” as a Multinational Company having its head offfice outside India is a foreign Company. While talking about consumer protection at the international level, the role of United Nations Draft Code of Conduct on Transnational Corporations, 1977 and other declarations was also discussed. In addition, the role of consumer protection in India was discussed through a cursory presentation on the Competition Act, 2002 and the Foreign Exchange Management Act, 1999 among others. The drawbacks at the international and national level were discussed and recommendations were given. In conclusion it was said that the final hypothesis that is drawn in the paper is that though there are provisions in various enactments dealing with consumer protection as far as offences by companies are concerned, stronger laws both at national as well international level are required to protect the vulnerable consumers of developing country like India.

Rapporteured by

Arushi Garg, 1st Year

Gautam Swarup, 1st Year

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The first presenter for the stream “The Rights and Responsibilities of Service Providers in a Global Economy” on the third day of the conference was Mr. Alan M. White from Valparaiso University School of Law.

 

The subject of his paper was “Regulating Credit for the Poor: Lessons from Micro-lending in Developing Nations.” He began with a discussion on the access to capital available to the poverty-stricken people of the world, juxtaposing their low capital access with their exploited status.

 

            He mentioned the usury driven credit structures that have typically been employed by low-income groups. The fact that this section of the financial services industry has typically been deregulated has lead to exploitation of people procuring small amounts of money, leading to over-indebtedness of consumers.

 

            He discussed Welfare Economics, the utility as well as the disutility. The utility comes from income-producing investments while disutility results from such factors as overconfidence bias leading to negative returns.

 

            The substance of his discussion came with discussions of such microfinance organisations as the successful Grameen Bank of Bangladesh.  Delineating the successful model employed by them, he mentioned their high level of controls leading to comparatively excellent rates of repayment. The welfare impact of such organisations has been tremendous.

 

            Contrasting this to the debt cycle and over-indebtedness created by small-consumer loans in the U.S., he discussed the paternalism of such microcredit organisations. He also discussed similar situations in Bolivia and South Africa and how their debt-remedy measures may be applied to the U.S. small-consumer loan systems.

 

 The second presenter of the day was Ms. Wenette Jacobs, from the University of South Africa, presenting a paper on “The Liability Insurer’s Right to Defend and Settle Claims against the Insured by Third Parties and Legal Protection Insurance in the Context of Liability Insurance.”

            The researcher presented the participants with keen and penetrating insights into the liability insurer’s right to defend and settle claims against the insured by third parties and legal protection insurance in the context of liability insurance. The presentation dealt with liability insurer’s right to defend and settle claims and the scope of  legal protection insurance in liability policies. The pros and cons of a separate legal protection insurance were gone into.

           

Regarding the liability insurer’s right to defend and settle, it was said that the Insurer may take over and conduct the defence and settlement of any claim and have the right to use the insured’s name for this purpose. Therefore it becomes imperative to compare the right to subrogation with the right to conduct the insured’s defence and settlement. The liability insurer’s duty to defend was contrasted with its right to defend. The conflicts of interest between the liability insurer and the insured and the conduct of the proceedings by the liability insurer were then discussed.

 

After a riveting discussion on legal protection insurance it was concluded that there remain limitations in a defence by the liability insurer and the provision of legal protection insurance in a liability policy. Perhaps the time has come to seriously start considering a separate legal protection insurance.

 

The third presenter for the day was Ms. Surabhi Singh presenting a paper by herself and Ms. Renu Arora.

 

Professor Surabhi Singh sought to present before the august gathering the pros and cons of banking institutions. These were classified these into public, private and foreign banks.

            Starting off with the definition of banks as community based and business organizations, the researcher pointed out that banks play a role of considerable economic significance. It has been observed that in India the bank system is facing stiff competition and advancement of technology. Banking in India is considered as fairly mature in terms of supply, product range and reach but well computerized foreign banks are beginning to compete seriously with the nationalized banks.

The services provided by banks have become more easy and convenient. The Indian banking industry is passing through a phase of customer market. A few of the electronic banking services are offered viz. ATM, ECS, EFT, tele-banking, internet banking and so on. To provide continual customer satisfaction, banks are now required to continually improve the quality of services.

            Primarily three research questions were identified.

l      What are the major factors affecting customers’ satisfaction with the quality of services?

 

l      What is the level of customers satisfaction with the quality of services provided by public sector, private sector and foreign banks?

 

l      Do customers switch over to the IT adoption in public sector banks and to which extent?

 

A survey of 60 people was undertaken and their relationship with banking systems was studied and it was confirmed that the younger generation is starting to switch over on private and foreign banks. Reasons for selection of nationalized banks include faith, old bank and near the residence. Good services and more facilities were  the primary reasons for choosing private and foreign banks. Respondents of nationalized banks were not satisfied with employee behavior and infrastructure. Respondents of private and foreign banks were not satisfied with high charges, accessibility and communication.

                           

Session rapporteured by

Shuchita Thapar, 1st year

Arushi Garg, 1st year

 

 Note: The previous session was rapporteured by

Shuchita Thapar, 1st year.

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The second day began with two presentations from two South African delegates, both dealing with two facets of the South African National Credit Act.

The first, presented by Mr. Matome Melford Rabisa was a study of the role of the Act in preventing irresponsible borrowing and lending, viewed in context of the genesis of the global economic meltdown and how it might have been prevented by certain provisions of this Act.
The act aims “to promote responsible credit granting and use and to prohibit reckless credit granting.” Its implementation has received mixed reviews, but its worth can be seen in the light of the economic crisis which potentially may have been averted if the provisions of NCA were employed.
The presentation was divided into three portions, first being a discussion of the U.S. crisis and its beginnings followed by a brief discussion of the concept of securitisation, third coming a detailing of the provisions of the NCA culminating in an analysis of the concepts.
One of the major reasons said to be leading up to the global financial crisis was the crisis in housing that followed massive numbers of subprime loans given by banks to high-risk consumers. Eventually, the bubble burst when borrowers began to default en masse, which lead banks to foreclose on several loans leading to large scale failures of several financial institutions.
The concept of securitisation says “securitisation is a financial technique in terms of which pools of similar claims are grouped together to sell them to an entity established for the specific purpose of acquiring such claims.”
The NCA is aimed at preventing securitisation crises.
Some of the important provisions of this Act include prevention of over-indebtedness of borrowers and reckless lending of lenders at several transactional stages, and if such over-indebtedness is detected, debt restructuring comes into play. If reckless lending is detected then there are penalties imposed. Thus by forcing consumers to live within their means, no point of collapse would come about.
The major point emphasised was the need for regulation of lending practices to prevent situations like the one current from arising.

The second presentation of the day was by Prof. Michelle Kelly-Louw, dealing with the necessity of consumer protection against rapid and repeated hikes in interest rates. Again viewing the fallout of the NCA, she first delineated the objects of the act thus: “to encourage responsible borrowing, the avoidance of over-indebtedness and reckless lending, and to provide for a system of debt restructuring.”
Under this Act, to prevent over-indebtedness, a loan amount is adjudged based upon half a persons net income minus his value of necessities. The determination of loans allowed to be taken is based on data available at the time at which such a determination is made. Where a credit provider makes a proper assessment and finds that a consumer will be able to satisfy in a timely manner all the obligations under all his credit agreements, the credit provider will conclude the credit agreement, e.g., mortgage loan (home loan).
An ‘affordability assessment’ made will depend on the prevailing interest rates at the time. However, there has been a failure to consider what happens if the interest rate increases drastically after the agreement is concluded, causing the consumer to no longer be in a position where he can satisfy his obligations under his credit agreements? These agreements are often in the nature of housing loans, etc.
The increase in interest rates may also cause the consumer to become over-indebted and, in the end, he may even end up, e.g., losing his home. This phenomenon usually occurs in the low-income groups, since, the rich and middle income groups may always downgrade their accommodation but the poor have no choice to go lower from the homes they currently are attempting to buy.
There have been several interest rate hikes over the past few years, causing large practical impact upon low-income house owners.
The South African government provides free housing to certain members of the public, but the people whose homes have been foreclosed upon are not applicable for them since they are meant for those who have never previously owned homes. The NCA has failed to take into its purview cases such as these, and consequently there is no sort of consumer protection available for those who fall into over indebtedness thanks to constantly rising interest rates.
There is a necessity to redress this injustice, but the exact means are yet to be worked out.

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25th February, 2009: Rights and Responsibilities of Service Providers in a Global Economy

Dr. Dulio Álvarez Rubio University of Cantabria (Spain): Fight against poverty and climate change as advertising weapons and European Directive of Unfair Commercial Practices :-

The speaker firstly, brought forth the problem with classic dictionary definitions of advertising not always including indirect means of advertisement, which poses a problem when misleading commercial practices need to be checked. He then emphasized on the fact that advertising needed to be defined before you begin with any analysis of the concept. He used the definition given in Art. 2.1 Council Directive 84/450/EEC of 10 September 1984 -“making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations”.
Upon an anlysis of the new concept of advertising, which was implicit in the European Directive of unfair commercial practices (Art.2.d), he came up with the observation that the definition of commercial communication and advertising addresses commercial practices directly related to influencing consumers’ transactional decisions in relation to products. It does not address commercial practices carried out primarily for other purposes, including for example commercial communication aimed at investors, such as annual reports and corporate promotional literature. It could allow enterprises to use strategies of misleading in fileds as the ones we are talking about without any punishment, a fact that is particularly dangerous as these days, most of the companies use subtle, “indirect” tecniques.
According to him, companies use commitments against poverty, global warming, etc and other social problems. This according to him is also advertising as their main aim is to promote the brand image and name.
A question which he wanted to answer was whether the public showing of corporate responsibility plans be considered advertising?, or, by extension, the major question that was sought to be answered was – Can information in commercial practice that helps form a brand image be controlled? The question was answered eventually with the fact that even if it is not always, based on the changing nature of commercial practices, it should be.
There are five types of social marketing. The first three are covered by a controlling directive, whereas the last two have no controls upon them despite the fact that they also form consumer impressions.
1. Advertising with social commitments mixed with concrete commercial offers.
2. Advertising with concrete references to quality of goods produced.
3. Advertising with references to abstract commitment with rekation to goods promoted.
4. Advertising with reference to abstract commitments without any relation to goods promoted.
5. Advertisements with concrete references with no relation to goods promoted.
Since the last two forms have no controls placed upon them by the directive, they may very easily be used to mislead. They often are, as well.
He referred to the case of Nike v. Kasky, a US case to interpret with accuracy, what must be considered as advertising from a legal point of view in order to avoid misleading practices. The judgement recognised the varied nature of social advertising, and considering the importance of image and branding, agreed that socially targeted marketing also required controls upon it.

Professor Madabhusi Sridhar Acharyulu, NALSAR University of Law, Hyderabad, India: Is the consumer consumed?:-

He began with an anecdote about the slick marketing strategies employed by hell, segueing into corporate commercial practices, which attempt to “sell you hell at an exorbitant price.” He talked about how marketing departments create and sell fake images of the brand and products. How the media was being used to propagate their schemes and reach people in a very impressive way while also increasing the price. Global market in cyber space through satellite media is now a very fertile premise for launching products simultaneously all over the world and enhances the scope for selling adopting manipulated truth.
The paper essentially dealt with three cases: that of tobacco companies, Amway and Securities scams while examining company liability in light of misleading commercial practices (advertising and otherwise), both in a present-day scenario as well as historically. A 2002 Philip Morris judgement gave large amounts of compensation to a woman who had been a lifelong smoker since she was convinced by tobacco advertising that lung cancer was not a reasonable danger. Indian courts are however, not up to the point where consumers can seek redressal for their troubles.
The main question to ponder over that who should be blamed for all this? The producer, or the manufacturer, or the advertiser?
There is, as pointed out, a great necessity for regulation of such unfair trade practices. The FTC Act in the US acts as a deterrent, but despite all the acts such as the CPA, MRTP and Competition Act, the Indian consumer cannot be said to be adequately protected.

Savita Hanspal, Reader in Commerce, Kamla Nehru College, India & Prof. Shri Ram Khanna: Regulating and Misleading Advertising: Role of ASCI:-

The speaker discussed the measurement and reporting of Television Rating Points (TRP), which are used to indicate the popularity of the channel or program. The system of measuring TRPs in India is heavily biased in favour of the rich and powerful with purchasing power. The broadcasters of all 400 TV channels in the country follow the skewed ratings calculated by one of two companies, which have a very limited and biased sample to judge from. This means the broadcasters tend to show only what the rich will want to watch, ignoring the entertainment requirements of the vast majority of the country.
The TRAI or Telecom Regulating Authority of India conducted a fact finding mission, which was intended finally to recommend regulations regarding the TRP ratings.
In May 2008, India had 78 million cable and satellite TV possessing homes. 1.2 million also have direct broadcast services to their homes. Two companies in India are in charge of gathering TRPs for the whole country, TAM and EMAN. They have unconscionably small sample sizes- 6000 and 7000 homes- to gather ratings for the entire country. However, their samples are skewed based on regions, age groups, societies, which in the end trickle down to the bias related to purchasing power. Despite the availability of technology to measure in real-time the television that is being watched, such mechanism is not employed, leading to suspicions of fiddling with data gathered.
The paper finally suggests that in order to maximise social welfare, government should by regulation mandate a reliable scientific, accurate and transparent measurement system and in doing so should not be involved in its management but should only ensure its independence, scientific basis and accuracy.
Rapporteurs: Disket Angmo, IInd Year
NALSAR University of Law
Shuchita Thapar, Ist Year
NALSAR University of Law.

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Consumer Law C.D.

Every participant is now getting a compact disc (CD) containing a digest of selected consumer law cases as decided by the Indian Supreme Court. We do thank the sponsor, Consumer Protection Judgments for the same.

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Session Podcasts

Session podcasts would be uploaded within an hour of the Session having concluded. We are trying to organize the streaming of the Plenary Sessions and are keeping our fingers crossed for the same. :)

Conference Book publisher

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