State Consumer Protection Acts:An Empirical Investigation of Private

LitigationPreliminary Report

The Army and Navy ClubWashington, DCDecember 2009

SCJI Task Force on State Consumer Protection Acts

Large-scale study of CPAs

Preliminary Report directed at two topics:

Trends and potential drivers of CPA litigation

Nature of CPA actions compared to FTC standards

Data and Methodology

Trends and potential drivers of CPA litigation

Key characteristics of CPA statutes from all 50 states and DC

17,000 reported CPA decisions in federal district and state appellate courts from 2000 – 2007

Additional examination of 500 reported CPA decisions

Nature of CPA actions compared to FTC standards

CPA case scenarios given to 5 consumer protection experts (Searle Shadow FTC)

Shadow FTC was asked whether the cases involved illegal conduct and/or would likely be enforced under FTC standards

Key Findings – CPA Litigation Activity

Litigation under CPAs has increased dramatically since 2000

0

500

1000

1500

2000

2500

3000

3500

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orte

d CP

A D

ecis

ions

Reported CPA Decisions by Court by Year(N = 17,061)

Key Findings – Effects of Vague Definitions

Vague statutory definitions of prohibited conduct are a major driver of CPA litigation

States with vague definitions of prohibited conduct have more CPA litigation

This relationship is statistically significant

This result holds even after controlling for time trends and differences across states in population and wealth

Key Findings – Changes in CPAs

CPAs are becoming more favorable and generous to consumer litigants

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Expe

cted

Val

ue In

dex

Scor

e

Expected Value Index Score by State 1995-2007(N = 663)

Key Findings – Effects of CPA Changes

States with CPAs that are more favorable to consumers have more CPA litigation

y = 0.072x + 1.591R² = 0.048

0

1

2

3

4

5

6

7

0 5 10 15 20 25 30

Log

of To

tal R

epor

ted

CPA

Dec

isio

ns

Expected Value Index Score (t-5)

Log of Total Reported CPA Decisionsby Expected Value Index Score with 5-Year-Lag by State by Year

Cases Without Illegal Conduct

39

Total Cases 50

Percent of Total 78.0%

Proportion of CPA Case Sample Not Constituting Illegal Conduct

Under FTC Standards

Key Findings – FTC Standards, Random SampleMost CPA claims (78%) would not constitute illegal conduct under FTC standards

While relatively few CPA claims in a random sample would constitute illegal conduct under the FTC standard, even fewer (12%) would result in FTC enforcement

Cases Resulting in Enforcement

6

Total Cases 50

Percent of Total 12.0%

Proportion of CPA Case Sample Resulting in Enforcement

Under FTC Standards

Cases Resulting in Enforcement

10

Total Cases 43

Percent of Total 23.3%

Proportion of CPA Trial WinsResulting in Enforcement

Under FTC Standards

Cases Without Illegal Conduct

19

Total Cases 50

Percent of Total 38.0%

Proportion of CPA Trial Wins Not Constituting Illegal Conduct

Under FTC Standards

Key Findings – FTC Standards, Trial WinsAlmost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC standards

Although most of these successful cases would meet FTC illegality standards, only 23% would be enforced by the FTC

Potential Policy Implications

If CPAs are envisioned as complements to FTC consumer protection, they appear to overshoot the mark.

Vague definitions in CPAs, while legislatively expeditious, create costly uncertainty and unpredictability in the law.

The statutory language of CPAs matters.

It may be useful to investigate whether other causes of action are usurped by increasingly expansive CPAs.

If the FTC standard does optimally balance the public interest and protection of individuals, it is uncertain that the broader coverage of CPAs benefits consumers.

State Consumer Protection Acts:An Empirical Investigation of Private

LitigationPreliminary Report

The Army and Navy ClubWashington, DCDecember 2009