CL&P Blog

Ben-Shahar Reviews Boilerplate

Omri Ben-Shahar of Chicago has written Regulation Through Boilerplate: An Apologia, forthcoming in the Michigan Law Review. Here's the abstract:

 

This essay reviews Margaret Jane Radin’s Boilerplate: The Fine Print, Vanishing Rights, And The Rule Of Law (Princeton Press, 2013). It responds to two of the book’s principal complaints against boilerplate consumer contracts: that they modify people’s rights without true agreement to, or even minimal knowledge of, their terms; and that the provisions they unilaterally enact are substantively intolerable. I argue, counter-intuitively, that contracts with long fine prints are no more complex and baffling to consumers than any alternative boilerplate-free templates of contracting. Therefore, there is no alternative universe in which consumers enter simpler contracts better informed of the legal terms. In addition, I argue that any policy that mandates consumer-friendlier arrangements (such as ones that eliminate boilerplate arbitration clauses, warranty disclaimers, or data collection) would hurt consumers in an unintended but potentially costly way.

Former FDIC Head Sheila Bair on the CFPB

Bair has a new book out, and so has been the subject of some media attention.  CNN/Money interviewed her and among the questions was an exchange about the CFPB.  Her reply: 

I support the Bureau, and I also strongly endorse it in the book.  And I think they're doing a good job.  I am, if I have one little complaint, and I do have one little complaint, it is that the rules are still too long and complex.  . . .  I think consumers can understand what their rights and protections are.  Smaller banks have basically gotten out of consumer finance because it's just too hard.  The compliance costs are just too hard.  . . .

But they're ramping up.  Finally somebody is examining the non-bank sector, and establishing more of an enforcement presence there, which I think is very important.  And I think they are sending a strong signal to regulated banks as well, but in a way that seems to me, the cases I've seen, are very much justified and in line with their mandate.  So, I don't for the life of me understand why there is this continued controversy and turmoil over the Consumer Bureau.  We did not do a good job protecting consumers of financial products leading up to the crisis.  So, it just didn't happen.  And having a bureau that specifically focused on that I think is a positive thing, and over time it will prove itself.

The Honest Truth About Dishonesty and Consumer Protection

by Jeff Sovern

I have been listening to the audio version of Dan Areily's book, The Honest Truth About Dishonesty, and it may shed some light on consumer protection.  Ariely explores the causes and limits of dishonesty.  He reports on a series of experiments that suggest that many people cheat a little, but not so much as they could get away with, or, to put it another way, so much as economists presuming rational behavior would predict they would.  Ariely believes that the reason people don't cheat more is that they want to believe that they are good, and that if they cheated more, it would make it hard to believe that.  But he also reports that the internal limits to cheating are relaxed in some circumstances.

One such circumstance is if people are able to steal not money but something different.  For example, an employee might feel perfectly comfortable taking pens from an employer, but not money.  That may shed light on why mortgage originators were willing to submit false applications--perhaps they saw the false applications as being different from stealing money because they enabled people to obtain homes they were not able to pay for, which is a step away from stealing money.

Another circumstance is if conflicts are disclosed.  Ariely reports that when agents report a conflict of interest, they feel comfortable giving more self-interested advice than if the conflict is not disclosed.  Ariely also found that while principals discounted the advice somewhat when the conflict was disclosed, they did not do so enough to overcome the amount the agent's self-interested advice cost the principal.  Now think about how mortgage brokers got paid more when consumers took out subprime loans with higher payments than when the brokers put the consumers into lower-cost prime loans.  Many brokers steered consumers who could have qualified for prime loans to such subprime loans.  Under the TILA disclosure forms in use at the time, broker compensation, in the form of a yield-spread premium, was disclosed under a line captioned "POC."  That line was surely meaningless to most consumers, but perhaps it enabled mortgage brokers to feel that their conflict was disclosed, and so that they could steer consumers to higher-cost loans without feeling they were cheating the consumers.  All this raises an odd question: are consumers better off sometimes if conflicts are not disclosed?

Ariely also reports on experiments finding that reminding people to be honest seems to increase honesty on tests and in other contexts. The effect is more prounouced if the reminder comes at the outset.  We might do well to include at the top of forms--including mortgage broker contracts--certifications that the signer is being honest.  It's a nudge with minimal cost.

2011 Selected Consumer Statutes Available

by Jeff Sovern

I am pleased to report that Thomson/West has just published the 2011 edition of Selected Consumer Statutes, a compilation of consumer statutes, regulations, and similar materials on consumer law.  The new edition includes changes in the Truth in Lending Act made by the Dodd-Frank Act, as well as regulations issued or amended since the 2009 edition.  Though designed to accompany our consumer law casebook, it can be used with other casebooks or as a free-standing source for those practicing consumer law.

New NCLC Practice Tools

The National Consumer Law Center has just released 16 new NCLC publications, is accepting web registrations for an upcoming Fair Debt conference, and will conduct a January 20 webinar on auto dealer insolvency's impact on consumers.   

1. Eight NCLC Treatise Updates: Automatic subscribers just received the Winter 2010 Updates. Others can order at www.nclc.org/updates

• Truth in Lending (7th ed. 2010) (2 volumes, 1498 pp.): new laws and rules create substantive requirements for mortgage loans and credit cards  
• Fair Credit Reporting (7th ed. 2010) (1138 pp.)
• Student Loan Law (4th ed. 2010) (694 pp.)
• Repossessions (7th ed. 2010) (860 pp.)
• Consumer Law Pleadings (Website and 2010 Index Guide) (656 pp. guide)
• Consumer Bankruptcy Law and Practice 2010 Supplement (394 pp.
• Unfair and Deceptive Acts and Practices 2010 Supplement (350 pp.)
• Consumer Arbitration Agreements 2010 Supplement (328 pp.)

  2. Eight Recent NCLC REPORTS Issues (contact publications@nclc.org for back issues or to subscribe):

• Consumer Credit & Usury Ed.: Nov./Dec.: FRB bans yield spread premiums, steering; remedies for TIL credit card violations; Sept/Oct: Mortgage discrimination class litigation; NCUA raises usury cap for small loans; municipalities regulate pay day lenders
• Deceptive Practices & Warranties Ed. Nov./Dec.: Importance of little-known federal record retention requirements; selecting and using a forensic document examiner Sept./Oct.: Implications of FTC's new Mortgage Assistance Relief Services Rule on consumer attorneys; 10 things every attorney should know about CROA
•  Bankruptcy & Foreclosures Ed.: Nov./Dec.: State law mandates of loss mitigation as foreclosure pre-condition; Social Security benefits excluded from projected disposable income in ch. 13 Sept/Oct.: Robosigning just tip of the iceberg; testimony in bankruptcy case signals trouble for mortgage industry
• Debt Collection & Repo Ed: Nov./Dec.: Important new Circuit Court of Appeals FDCPA decisions; courts dismissing debt buyer collection suits Sept./Oct: FDCPA requirements for mortgage loss mitigation process; new Senate and FTC proposals; new FDCPA cases

3. The Fair Debt Collection Practices Conference is in Seattle, March 3-4, 2011. Register online at: www.nclc.org/conferences-training/fair-debt-collection-practices-conference.html. Get up to speed on your first debt collection abuse cases and proceed to more in-depth sessions on developing fair debt collection cases and a fair debt collection law practice. Faculty includes the top Fair Debt Collections Lawyers from across the country. CLE credit.

4. NCLC Webinar Series has resumed: January 20 at 2PM: Dealers Going Out of Business, Leaving Consumers Out of Luck. Contact jhiemenz@nclc.org for this and future webinars. Go to www.nclc.org/conferences-training/webinars.html for FREE downloads of past webinars.

MIchael W. Hudson Quotes Ameriquest Loan Officer: "Every closing that we had really was a bait and switch,"

MIchael W. Hudson interviewed industry insiders for his new book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis.  It won't be out until October 26, but you can read a fascinating excerpt here.  The excerpt and subtitle suggest that this book will focus much more on the conduct of the predatory lenders themselves than other accounts of the subprime crisis have.  It sounds like the book will help add to our understanding of why so many people took out loans they couldn't repay.

Ninth Circuit says consumers may not own their software

by Greg Beck

Most people outside the software industry probably assume that when they pay money in exchange for a package of software, they have just purchased that software. In Vernor v. Autodesk, the Ninth Circuit today cast that assumption into doubt. The court held that Timothy Vernor, who purchased authentic, second-hand copies of software at garage and office sales to sell on eBay, did not own that software and thus had no right to resell it.

Public Citizen represented Vernor in his case against software-publisher Autodesk, which claimed that reselling the software on eBay was copyright infringement. The district court agreed with Vernor and rejected Autodesk’s copyright argument, holding that Vernor had a right to resell the software under copyright’s first-sale doctrine. The first-sale doctrine holds that the “owner of a particular copy” of a copyrighted work has the right to resell that work without permission of the copyright owner. The doctrine dates from a 1908 Supreme Court decision in which the Court held that a book publisher could not restrict the price at which its books were sold on the secondary market, and Congress subsequently added the doctrine to the Copyright Act as one of the law’s crucial consumer-protection provisions. Here, the district court held that Vernor was the “owner” of the software, and thus entitled to the doctrine’s protection, because Autodesk had distributed the software in exchange for a one-time payment and had no expectation that the software would ever be returned. In other words, because the transaction looked like a sale, it was a sale.

The Ninth Circuit disagreed, relying on the “license agreement” that Autodesk packages with its software. The license stated that Autodesk retained title in the software, restricted redistribution, and imposed some other terms that are pretty typical in the software industry, such as a prohibition on reverse engineering. The Ninth Circuit held that these terms were restrictive enough that anyone in possession of the software could not be considered its actual owner. Although Vernor never installed the software or agreed to its terms, the court held that license effectively bound him anyway because Autodesk, as the software’s legal owner, could dictate the terms on which it was used.

If standard fine-print license terms like Autodesk’s are enough to withhold ownership, it is safe to assume that most people do not own the software they believe they have bought. And, unfortunately, there is no obvious reason why other publishing industries couldn’t begin imposing the same terms. If they do, it may be the end of ownership of books and music.

The Ninth Circuit acknowledged the seriousness of some of these concerns, but held that its hands were tied by prior circuit decisions. Hopefully, the en banc court will be willing to reconsider those decisions.

Email Updates to Our Casebook and Selected Consumer Statutes Are Now Available

You can request them by emailing westacademic@thomsonreuters.com.

New Book by Bill Patry -- who is back to blogging

by Paul Levy

Bill Patry has just published an intellectually provocative and useful polemic, Moral Panics and the Copyright Wars, that urges public attention to excessive incursions on the public domain undertaken at the behest of copyright holders through what Patry calls “The Copyright Wars.”  Patry is the author of two significant copyright treatises, Patry on Copyright and The Fair Use Privilege in Copyright Law, as well as the very well-received Patry Copyright Blog that he suspended last year.

Patry points out that although there is always a very powerful constituency for the expansion of copyright protection, and it is easy to identify those who will gain economically from such expansion and hence whose wrath will be incurred by politicians who refuse to go along, the constituency for protecting the interests of consumers and other users who benefit as works pass into the public domain tends to be more diffuse, and the victims of incursions into the public domain are far less likely to punish the elected officials who hurt them.  Yet the evidence supporting the proposition that augmentation of copyright protection is needed to create incentives for the production of creative works – the supposed justification for copyright and patent protection found in the Constitution’s so-called “intellectual property” clause – is really quite thin.  Indeed, evidence suggests that the expansions protect industries that exploit authors, not the authors themselves.

Patry draws on his own lengthy experience in the legislative branch, dealing with such masterful lobbyists as Jack Valenti, to point out the effectiveness of the copyright-expansion interests in manipulating publc attitudes.  For example, he argues that the very use of the term intellectual “property” unduly loads the dice in the public mind because decision-makers often ignore the ways in which copyright is solely the product of legislation, much more so than real or personal property that necessarily entail exclusive possession and enjoyment at any one time.

Not all of what Patry says is entirely persuasive, but the book is a good read and worth reading.  There is a blog devoted to the issues raised in the book, thus far consisting largely of back and forth between Patry and blogger Ben Sheffner.  Patry has also recently posted to his main blog, the Patry Copyright Blog -- we may hope that he will resume that useful point of discussion of recent developments in copyright law.

Buyology and Consumer Law

I've been listening to the audio version of Martin Lindstrom's Buyology, a book about the neurological basis of marketing.  Lindstrom is a branding expert and marketer and reports on what brain scans have contributed to the art of marketing.  For example, as Lindstrom recently wrote about in a New York Times op-ed, Inhaling Fear, brain scans of smokers indicated that not only did health warnings about smoking not light up the fear section of the brain, but they actually stimulated the brain's craving spot.  Lindstrom describes a host of other discoveries about how the brain responds to marketing.  Among these are "mirror neurons," neurons that fire in response to stimulation and cause us to feel what the people we observe are feeling.  For example, when we watch a movie with people who feel sad, we feel sad.  Similarly, when teens observe attractive models at Abercrombie and Fitch wearing Abercrombie clothes, their mirror neurons flash, and they think they too will feel attractive if they wear Abercrombie clothes (I still don't get why Abercrombie has shirtless guys at the front of their stores, though maybe I don't really want to know the answer to that one). 

Does this have any implications for consumer law?  I'm not sure.  You could argue that brain-scan-based marketing raises questions for consumer law, like is it fair or deceptive to use marketing that is based on how the brain reacts to stimuli.  In terms of the FTC's deception analysis, is seeing an attractive model in Abercrombie clothes likely to deceive the teenage consumer acting reasonably under the circumstances into thinking that he or she will be more attractive in Abercrombie clothes, given that the teen's mirror neurons are flashing just that message, even though nothing to that effect is said or implied?  I think we have a while to go before the FTC and courts adopt that approach, if indeed they ever do, which may only mean that our consumer protection laws have become somewhat outmoded.  Similarly, does the use of mirror neurons, using the FTC's unfariness analysis, cause a substantial injury which cannot reasonably be avoided by the consumer that is not outweighed by countervailing benefits to consumers?  It's hard to see a benefit to consumers in the triggering of mirror neurons to stimulate purchases, and consumers can't reasonably avoid something that they're not aware of.  Manipulating a consumer into making a purchase the consumer would otherwise not make seems like a substantial injury.  But do we want regulators to prohibit the use of this technology to stimulate sales?  I'm not sure. 

This seems like a fruitful subject for a law review article, and perhaps for FTC study.  Science fiction meets consumer law.  I hope someone will have fun with it.