Meet Virginia's consumer cop

RICHMOND

At Oceana Naval Air Station four months ago, Attorney General Bob McDonnell told an audience of military members and their families that they needed to watch out for computer criminals looking to steal their information.

After his talk in Virginia Beach, one listener asked about the need for a law that would require companies to notify consumers when their personal data had fallen into the wrong hands.

"We've been hesitant to do that in Virginia," McDonnell responded, explaining that he and other state leaders dislike telling private industry what to do. "Businesses have been governed, essentially, by the threat of civil liability."

As the state's top cop on consumer issues, McDonnell has something of a bully pulpit when it comes to the well-being of Virginia's residents. When businesses mislead, deceive or otherwise do wrong by consumers, the Virginia attorney general is responsible for making them stop and, if necessary, pay for their actions.

In other states, attorneys general have made themselves household names by going after bad business practices.

When Gov. Eliot Spitzer was New York's attorney general, he sued Wall Street firms for securities fraud. Former Mississippi Attorney General Michael Moore took on the tobacco industry to recoup Medicaid costs related to sick smokers. Amid foreclosure problems in Ohio, Attorney General Marc Dann has charged mortgage companies and appraisers with fraud.

In Virginia, McDonnell has carved out his niche with little mention of consumer concerns. Since taking office in early 2006, he has highlighted a slew of public health and safety issues - domestic violence, a sex-offender registry, protections for young Internet users.

Last year, he formed a task force to help reduce regulatory burdens on businesses. This month, he touted a food bank fundraiser among the state's lawyers and filed a legal brief in support of the Second Amendment right to bear arms.

McDonnell, in a recent interview, said he considers himself a strong consumer advocate with two primary functions: enforcement of consumer-protection laws, and consumer education, which he disseminates through presentations, regional outreach and written information in brochures and on his Web site. He sees his consumer-protection role to be in perfect harmony with the state's business-friendly tradition.

"I'm a real strong supporter of free enterprise and generally believe that the less regulation and litigation that we impose on business, the stronger our private sector will be," said McDonnell, a Republican and former Virginia Beach state delegate elected to his current post in November 2005. "And that's been a great formula for prosperity in Virginia.

"But I don't see the consumer protection duty being at odds with that, because if people are intentionally misrepresenting their goods or service or otherwise undermining confidence in the free enterprise system by fraud, then it's a real problem that needs to be addressed."

Like other attorneys general before him who have launched campaigns for governor from the office, McDonnell is a likely GOP candidate for the state's chief seat. Observers said he, like most his recent predecessors, could fight harder for the interests of Virginia consumers.

"You will see that many, many other attorneys general in other states really see this as an important part of their jobs," said Claire Guthrie Gasta?aga, who was chief deputy attorney general when Democrat Mary Sue Terry held the office from 1986 to 1993.

Virginia attorneys general "haven't chosen to make consumers a priority," said Gasta?aga, now a lobbyist for nonprofit groups and women- and minority-owned businesses.

In other states, attorneys general have become activists against payday lending, credit abuses and dangerous products. Advocates suggested McDonnell could put more funds and staff toward consumer cases, direct agencies to take more action on bad businesses, and push for state laws that provide better consumer protections.

"The attorney general is the top law enforcement in the state," said Gail Hillebrand, a senior attorney for Consumers Union, the advocacy organization that publishes Consumer Reports magazine. "We need to be protected against violent crime, but we also need to be protected against corporate crime."

The Virginia attorney general's Antitrust and Consumer Litigation Section enforces the state's consumer protection laws. The division now employs the equivalent of four lawyers - three full time and two part time.

One of those attorneys handles antitrust, determining whether mergers and other corporate activity stifles competition. The others pursue violations of laws governing auto repair, health spas, payday and other small loans, telemarketing and almost every type of personal transaction. They also have to ensure that charities in Virginia use their money and solicit donations properly.

Similar duties fall to 11 attorneys in North Carolina, a state with 16 percent more residents than Virginia, according to the most recent estimates from the U.S. Census Bureau.

The West Virginia attorney general's office has six attorneys in its Consumer Protection and Antitrust Divisions - 50 percent more than Virginia, despite having less than a quarter of Virginia's population. Ohio, with 1-1/2 times the population of Virginia, has more than four times the number of consumer lawyers in its attorney general's office.

Some consumer action in McDonnell's office falls outside the consumer litigation section.

The Insurance and Utilities Regulatory Section represents consumers in rate and regulatory cases of electricity, natural gas and telephone companies. A division of 51 staffers in the office, including 10 attorneys, is devoted to Medicaid fraud. Another unit handles computer crimes such as phishing and identity theft, as well as safety concerns involving children online.

The Antitrust and Consumer Litigation Section receives $1.1 million of the attorney general's $33 million budget, or about 3.3 percent, said David Clementson, a spokesman for the office. Along with other consumer-oriented programs in the office, consumer activity accounts for about 7 percent of the office budget. By comparison, the Public Safety Section is the office's largest and receives $6.1 million, about 18.5 percent of the total budget.

"I think we've got adequate resources devoted to it throughout many divisions," McDonnell said of consumer protection. "I think we've taken a balanced approach between good consumer protection and protection of the free enterprise system."

In most states, the attorney general's staff includes those who take consumer complaints about bad business practices and investigate those complaints. Virginia is one of about 10 states with an Office of Consumer Affairs that handles complaints and investigations outside of the attorney general's office.

The job of consumer protection falls to other state agencies as well. The State Corporation Commission regulates utility companies, insurance companies, banks and other financial institutions, including securities dealers and mortgage brokers. For payday lenders, state law dictates that the attorney general's office only can take action on violations that the commission refers, explained David B. Irvin, chief of the Antitrust and Consumer Litigation Section.

The state Department of Professional and Occupational Regulation licenses more than 30 types of businesses - including contractors, beauty salons, interior designers and cemeteries - and can sanction those that fail to comply with standards of practice.

Irvin said he works closely with these agencies to share information and coordinate investigations. In 2006, the Department of Agriculture and Consumer Services investigated gasoline stations in Northern Virginia that had spiked their prices after Hurricane Katrina, leading to Irvin's division pursuing one of the first cases under Virginia's price-gouging law.

Irvin said the consumer section has had as many as seven attorneys in the past. Now one of its three full-timers, he has spent almost 19 years in the attorney general's office, coming from private practice where he did a "hodgepodge" of commercial litigation.

"We are very proud of what we get done with the resources that we have," Irvin said, acknowledging that his section does lack the time and staff to pursue some potential cases. "You have to pick and choose and make your priorities."

Under McDonnell, the consumer section last summer sued Chesapeake computer-finance company Financing Alternatives Inc., citing thousands of customers nationwide who paid for products but never received them as promised. While that case continues through the court system, the company has shut down and its founder has yet to face charges, leaving low-income customers across the country wondering whether they'll ever get their money back.

Irvin's attorneys also settled cases against five car-title lenders they accused of exceeding the state's legal limit on interest rates and breaking other consumer credit laws. The companies, including two based in Virginia Beach, refunded $420,000 to 2,522 borrowers and had to let more than 12,000 out of the interest they owed.

After the attorney general's agreement, however, the lenders could continue to write loans in a way that avoids the interest-rate limits, said James Speer, executive director of the Virginia Poverty Law Center, which brought the violations to Irvin's attention.

"I'm concerned that the car-title lenders were penalized in such a way that allowed them to keep doing business the way they'd been doing it," Speer said, adding that the state's attorneys "should have punched harder."

Virginia also has joined many so-called "multi state" actions against a variety of companies, including pharmaceutical manufacturers to Internet service provider AOL, typically riding along with other states that lead an action. McDonnell was among seven attorneys general that initiated the 26-state civil case against misleading marketing practices by the manufacturer of painkiller OxyContin, which resulted in a $19.5 million nationwide settlement.

All the major cases and settlements that took place in fiscal 2007 ended up in a three-page report from the Antitrust and Consumer Litigation Section. The work of the six attorneys in the consumer division of the West Virginia Attorney General's office produced a 72-page report last year, with 16 pages of exhibits.

In addition to the cases an attorney general pursues, his track record on consumer protection also shows in laws that he pushes.

In his 2008 legislative agenda, McDonnell listed one item under the heading "Consumer Protections That Are Good for Business." It would create the Virginia Trademark Counterfeiting Act to expand the protections of a company's trade and service marks and increase penalties for violators, including when a counterfeit product harms a consumer. Also this year, he is promoting tougher laws against animal fighting, more action to combat illegal immigration, and reforms of commitment rules for mentally ill people.

While McDonnell speaks frequently about identity theft, he hasn't taken a stand on an initiative touted by some as key in preventing it - the ability for consumers to freeze access to their credit reports, which the General Assembly is considering again this year.

McDonnell also has remained silent on one of the most critical consumer issues in Virginia in recent years: payday lending. Since the General Assembly passed the 2002 law permitting such loans, some legislators and consumer activists have pushed for reforms or even a ban of the practice, citing widespread abuses.

"I don't see our attorney general moving forward in a positive manner to protect his people in the commonwealth," said Ward Scull, a Newport News owner of a moving and storage company and co-founder of the group Virginians Against Payday Loans. "My sense is that he's not using the full authority given to him to protect the consumer."

In the interview this month, McDonnell said he believes most payday lenders are acting appropriately.

"We're aware of things that have gone wrong" under current laws and have received numerous complaints, McDonnell said. "If we saw systematic wrongdoing throughout an entire industry, then you might see attorneys general be more proactive."

Other states' attorneys general have gone after payday lenders, however. In North Carolina, the state's top cop shut down most of those businesses in that state after helping to repeal its payday loan law. The West Virginia attorney general's office has pursued Internet lenders that have operated illegally in that state.

During his campaign for attorney general, McDonnell received more than $30,000 from the lending and consumer credit industry, according to the Virginia Public Access Project, which tracks political contributions. Auto dealers also were among his largest contributors.

Irene Leech, president of Virginia Citizens Consumer Council, said as long as the state's attorneys general espouse business interests, consumers will remain out in the cold.

"When they have that kind of attitude, there's not a level playing field," Leech said. "Today, there is no proactivity. What we count on is that businesses are going to have a conscience, and they're going to do things right."

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com