"Unfair" consumer-oriented conduct under California law

Camacho v. Automobile Club of Southern California, --- Cal.Rptr.3d ----, 2006 WL 1163858 (Cal. App. 2 Dist.)

Camacho, an uninsured driver, rear-ended an insured driver. The insurer paid over $9000 to its insured, then sought to collect from Camacho, who paid $500, then filed a putative class action against the insurer and the entities to whom it assigned its claim. Camacho alleged that defendants’ collection practices were unfair because the collection letters misled recipients and did not conform to the Fair Debt Collection Practices Act.

The definition of unfairness under California law is somewhat murky. The California Supreme Court has concluded that, as applied to a competitor, any finding of unfairness has to be tethered to some impact on competition. Thus, “unfair” behavior towards a competitor is conduct that threatens an incipient antitrust violation or violates the policy or spirit of the law because its effects are like that of antitrust violations or otherwise significantly threaten or harm competition.

Obviously, the question is what this means for consumer actions. Though there’s a split in the lower courts, the Camacho court was of the opinion that the same defintion should apply to consumer claims. The problem with other definitions of “unfair” was that they were too amorphous, and that problem exists with both competitor and consumer suits. However, in a consumer case, a finding of unfairness need not be tethered to specific constitutional, statutory or regulatory provisions, as it must in a competitor case. Section 17200 is broad, and a practice can be unfair even if not unlawful, to compensate for the ingenuity of those who would exploit consumers. Further, anticompetitive conduct is best defined by reference to the policy and spirit of antitrust laws, but the universe of unfair or deceptive conduct towards consumers is larger and thus the field of relevant laws so large that it would be hard to figure out which ones were important.

Instead, the Camacho court turned to the FTC Act. Since 1980, the factors that define unfairness under section 5 of the FTC Act are: (1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. Under that test, Camacho could not plead facts showing defendants’ practices are unfair, especially since he didn’t dispute that he was at fault in the accident and that he was uninsured. Since he was liable for the accident, it doesn’t violate his rights to attempt to collect on that liability. There’s a public interest in collecting from uninsured drivers, and he could have avoided the problem by getting insurance, so he flunks the last two prongs of the test as well.

Defendants’ collection practices may or may not violate the FDCPA; if they did, Camacho has remedies under that law.

Tags:

• unfairness