Point of View

Disrupting consumer protection

May 25, 2012 

There are a lot of absurd and disheartening proposals coming out of the Legislative Building in Raleigh these days – especially when it comes to dismantling the basic public structures that help bind our society together and make our economy work for everyone. Here’s an especially remarkable example:

State budget writers have advanced a proposal to end state funding for the Consumer Protection Section in the office of the state attorney general.

I am not making this up. The draft report from the House Justice and Public Safety Subcommittee released earlier this month at the General Assembly would eliminate the section’s current annual appropriation of just under $1.8 million. The proposal says that the consumer watchdog attorneys in the section would be funded in the future through something called “receipt support.”

Here’s what that means and why it’s a terrible idea:

“Receipt support” is a fancy and bureaucratic way of saying that the section would fend for itself. It means that rather than relying upon a consistent and predictable core of funding, the Consumer Protection Section would fund itself entirely with proceeds obtained through winning lawsuits and/or obtaining favorable settlements with bad corporate actors.

This may seem like a good idea at first blush – after all, the section already derives some of its current funding this way – but a closer look shows why such a wholesale change could be disastrous.

Under such a system, attorneys in the state Consumer Protection Section would have a huge, new incentive to decide which cases to take and which consumers to defend based upon the kind of attorney fees and other “receipts” they could hope to wring out of the case. Put bluntly, public watchdogs would face enormous pressure to behave more like ambulance-chasing lawyers than public servants.

If your job depended only on going after large profitable businesses, why would you ever be bothered to help out consumers ripped off by, say, a local slumlord or used car dealer who lacks deep pockets? The answer is that you probably wouldn’t.

Consider another example. Let’s say Consumer Protection Section lawyers are engaged in a large class action against some group of banks that have taken advantage of borrowers. The lawyers have “the goods” on the corporations in question and have uncovered a pattern of predatory behavior. One obvious remedy would be for the banks to be required to enter into an agreement in which they would comply with series of specific behavioral changes that would prevent similar consumer rip-offs in the future.

But what if another factor became a part of the negotiations – namely the amount of money the banks were willing to pay in fines, lawyer fees and the like? In a wholly “receipt supported” Consumer Protection Section, the incentive for the lawyers to compromise on demands to curb bad behavior in order to maximize their office “receipts” would be enormous.

This is not in any way to cast aspersions at the wonderful folks who staff the Consumer Protection Section. They do great work under huge demands and tough circumstances. But humans are humans. If the choice is between obtaining the best result for the largest number of consumers and securing enough funding to pay the bills in the office, at the very least we’ll be placing the people who run the section in an impossible position.

As a practical matter, such a change transforms what ought to be a public office – a program that belongs to and works exclusively for taxpayers – into a kind of state-chartered nonprofit law firm. And while nonprofit, public interest law firms are frequently great; they’re just not the same as fully public institutions.

What’s next? Should wealthy donors or corporations be able to “sponsor” a Consumer Protection Section attorney as they do in private nonprofits? Should Consumer Protection Section lawyers be encouraged to seek their own funding? Should the section seek to hire independently wealthy lawyers?

When state lawyers hired to serve the public interest are forced to behave like “entrepreneurs” just to keep their jobs, the table is set for all kinds of potential conflicts of interest.

None of this is to disparage the idea of providing public employees with incentives to perform at a high level. A job in the Consumer Protection Section is not a lifetime bureaucratic appointment. But ultimately these lawyers ought to work for all of us – not just themselves or victims of deep-pocketed corporations. Unfortunately, the budget cut in question helps take the state in this ill-conceived direction.

Rob Schofield is the director of research and policy development at N.C. Policy Watch.

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