CONSUMER PROTECTION ACT:

STATUTORY CONSTRUCTION OF EXEMPTIONS

House Bill 4915 with House committee amendment

Sponsor:  Rep. Robert Jones

Committee:  Judiciary

Complete to 12-11-09

A SUMMARY OF HOUSE BILL 4915 AS REPORTED FROM COMMITTEE 11-4-09

The bill would amend the Michigan Consumer Protection Act, which prohibits certain business practices that deceive or mislead consumers.   The act currently says it does not apply to a transaction or conduct specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of Michigan or the United States.

 

House Bill 4915 would specify, however, that the existence of a rule or statute or the grant of a license that regulates or authorizes a general transaction of a person engaged in trade or commerce does not exempt that person from the act.  In addition, the bill specifies that the general exemption cited above does not exempt a person engaged in trade or commerce from the requirements of the act on the basis that the general conduct of the business of that person is regulated by law.

[Under the act, a consumer can bring an action to stop a business from using an illegal practice (injunctive relief), sue to recover actual damages or $250 (whichever is greater) as well as reasonable attorneys' fees, or file a class action lawsuit.  The state attorney general and county prosecutors can also initiate actions against businesses.

The Michigan Consumer Protection Act also specifies that, except for certain actions by a private party, the act also does not apply to or create a cause of action for an unfair, unconscionable, or deceptive method, act, or practice that is made unlawful by the Banking Code, Motor Carrier Act, Savings Bank Act, Credit Union Act, the Public Commission Service Act, or Chapter 20 of the Insurance Code.   The act also exempts acts done by owners, publishers, agents, or employees of communication media (newspapers, television stations, etc.) in the publication or dissemination of advertisements unless the advertisements were known to the media personnel to be false, misleading, or deceptive or the media personnel had a direct financial interest in the sale or distribution of the advertised goods, service, or products.  The bill would not amend these provisions.]

BACKGROUND INFORMATION:

The bill seeks to address concerns raised by consumer advocates, who believe that a 1999 Michigan Supreme Court decision in essence gutted the state’s primary consumer protection law, leaving consumers who feel they were harmed by a business’s deceptive or unfair business practices without recourse.  Smith v Globe, 460 Mich 446, (1999).  The Michigan Consumer Protection Act (MCPA), which prohibits certain business practices that deceive or mislead consumers, exempts a transaction or conduct specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of Michigan or the United States.  Prior to Smith, the exemption was interpreted as not automatically excluding from action under the MCPA the conduct of an individual just because the individual was licensed by a state agency, as discussed in Attorney General v Diamond Mortgage Co, 141 Mich 603, 617 (1982).  In Diamond Mortgage Co., the legal question was raised as to whether the defendants were exempt under the Michigan Consumers Protection Act (MCPA).  The case, which included other legal questions as well, was dismissed by both the trial and appellate courts.  In the action, the attorney general contended that Diamond Mortgage’s business practices violated the MCPA and the state’s usury statutes.

As to the question of exemption under the MCPA, the court agreed with the attorney general "that Diamond’s real estate broker’s license does not exempt it from the Michigan Consumer Protection Act.  While the license generally authorizes Diamond to engage in the activities of a real estate broker, it does not specifically authorize the conduct that plaintiff alleges is violative of the Michigan Consumer Protection Act, nor transactions that result from that conduct."  The court also wrote that for that case, they needed to "only decide that real estate broker’s license is not specific authority for all the conduct and transactions of the licensee’s business."

According to a report issued by the Consumer Law Section of the Michigan State Bar entitled, Who’s In and Who’s Out?  The MCPA Loophole Created by the Michigan Supreme Court, the Smith decision interpreted the statute differently.  Smith centered on the sale of credit insurance by a licensed insurance company.  The court ruled in favor of the insurance company, in effect making entire businesses exempt from the MCPA “as long as the general transactions of that business were specifically authorized by statute.”  In a 2007 case, the supreme court confirmed that interpretation “by ruling that residential builders and home improvement contractors, and all other business licensed under the Michigan Occupational Code, are exempt from the MCPA.”  Liss v Lewiston-Richards, Inc. 

According to the Consumer Law Section, the rulings in these two cases, Smith and Liss, basically say that “whenever a business engages in a general type of transaction that it is allowed to do by a state or federal law administered by a board or officer, it is exempt from the MCPA, no matter what unfair or deceptive conduct it may have used during the transaction.  As such, consumers are left with “few if any effective remedies to redress unfair or deceptive practices they may have been subjected to by such regulated businesses.”  In fact, of the 13,122 complaints received by the attorney general in 2008, at least 72 percent were against businesses likely to be exempt under the MCPA under the Smith interpretation.

Supporters of the legislation say that the bill will restore the MCPA to its original intent and grant consumers an efficient and low-cost option to recoup losses for damages from unfair or deceptive business practices.  They say that courts have sufficient authority to identify and toss out frivolous lawsuits, and so the legislation should not significantly increase litigation. 

Opponents of the legislation maintain that existing regulatory statutes provide sufficient penalties and remedies for a broad range of conduct by licensed or registered individuals.  They say that the focus of Michigan businesses and employers should be on building and rebuilding Michigan’s economy, not on defending themselves against litigation that would impose a second, and potentially inconsistent, layer of regulation.

FISCAL IMPACT:

House Bill 4915 would have an indeterminate fiscal impact on the Department of Attorney General and on the Judiciary.  Increased costs would depend on the number and nature of additional cases brought by the Attorney General and/or consumers given the change in provisions of the Michigan Consumer Protection Act.

POSITIONS:

The following organizations indicated support for, or testified in support of, the bill:

Michigan Advocacy Project

Michigan Association for Justice

Negligence Law Section – State Bar of Michigan

Michigan Citizen Action

AARP/Michigan

United Auto Workers (UAW)

AFL-CIO

Consumer Law Section – Michigan State Bar

The following organizations indicated opposition to, or testified in opposition to, the bill:

Life Insurance Association of Michigan

Michigan Lawsuit Abuse Watch

Michigan Chamber of Commerce

Michigan Insurance Coalition

National Federation of Independent Business/Michigan (NFIB)

Michigan Health & Hospital Association (MHA)

American Council of Life Insurers (ACLI)

Michigan Association of Insurance Agents

Michigan Grocers Association

Michigan Bankers Association

AT&T

Johnson & Johnson

Michigan Association of Home Builders

Michigan Association of CPAs

Michigan Retailers Association

Michigan Veterinary Medical Association

Small Business Association of Michigan

Property Casualty Insurance Association of America

Securities Industry Financial Markets Association

Michigan Association of Health Plans

Grand Rapids Area Chamber of Commerce

Insurance Institute of Michigan

Detroit Regional Chamber

Auto Dealers of Michigan, LLC

Michigan Association of Realtors

Michigan Business & Professional Association

Jackson National Life Insurance Company

Michigan Credit Union League

Farm Bureau Insurance

Michigan Cable Telecommunications Association

American Insurance Association

Michigan Academy of Family Physicians

American Tort Reform Association

GlaxoSmithKline

MichBio

Michigan Concrete Association

Michigan Financial Services Association

Michigan Food and Beverage Association

Michigan Infrastructure and Transportation Association

Michigan Licensed Beverage Association

Michigan Lumber and Building Materials Association

Michigan Mortgage Lenders Association

Michigan Osteopathic Association

Michigan Restaurant Association

Michigan State Medical Society

National Association of Insurance and Financial Advisors

National Association of Mutual Insurance Companies

Pfizer

PhRMA

Telecommunications Association of Michigan

                                                                                           Legislative Analyst:   Susan Stutzky

                                                                                                  Fiscal Analyst:   Robin Risko

■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.