The AP reports on a new trend: states making deals with banks to impose fees for access to unemployment benefits.
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Friday, February 20, 2009
Wednesday, February 18, 2009
Standing Up to Facebook's Terms of Use
How do companies get away with slipping arbitration clauses and other abusive terms into their contracts? For one thing, they rely on the fact that most people do not have the time or motivation to read all the fine print, and that many of those who do will not understand the implications of what they are agreeing to, or will not care enough to object. Even those who do complain will not likely get far because consumer contracts are typically offered in a take-it-or-leave it manner.
This week, however, Facebook's attempt to take advantage of the usual ignorance and apathy backfired in a big way. A couple weeks ago, Facebook revised its terms of use in a way one would not expect to lead to a major controversy. Specifically, it deleted this language from its terms of use:
You may remove your User Content from the Site at any time. If you choose to remove your User Content, the license granted above will automatically expire, however you acknowledge that the Company may retain archived copies of your User Content.
The removal of this language wouldn't have meant much to most users, and it doesn't seem to have attracted a lot of attention at first. But as time went on, a few began to figure out the implications of the change and to write about it on Facebook and on their blogs. Basically, Facebook was saying that the perpetual license that it had granted itself to the contents of users' profiles would no longer expire when those users shut down their accounts. Translation: "We Can Do Anything We Want With Your Content. Forever."
Outrage grew and spread, leaping from the blogosphere to the mainstream media. People began to look to other problems with the agreement, including an arbitration clause, and the requirement of using a single arbitrator in Santa Clara County, California.
Eventually, the controversy became big enough that Facebook could not ignore it, and last night in a late-night blog post the company's CEO, Mark Zuckerberg, announced that the terms of use would be rolled back to the previous version. Facebook's license to its users' content will expire once again. Arbitration remains as it was in the old agreement, but is no longer limited to Santa Clara County. Moreover, the company says this is just a temporary step. The old terms will remain until the company can draft new terms that are responsive to users' complaints. Zuckerberg promises that the new terms will be "written clearly in language that everyone can understand" and that "Facebook users will have a lot of input in crafting these terms." A new Facebook group, Facebook Bill of Rights and Responsibilities, was created for this purpose.
The Facebook incident raises the question whether the Internet is changing the balance of power between the drafters of one-sided terms of use and their customers. Even if most of a company's users don't read revised terms of use, it's pretty likely that at least a few will. Those few who take the time to understand the legalese can communicate with others on Facebook, on their blogs, and in the countless other forums the Internet provides. And the company can no longer easily ignore attempts to renegotiate abusive terms when it's not just one or two customers, but thousands, that are complaining.
Stephen Baker's The Numerati
by Jeff Sovern
I've been listening to the audio version of Stephen Baker's fascinating book The Numerati, and while I'm not done with it, I thought I would blog about some of what I've encountered in it thus far, as well as some thoughts it's prompted. Baker's thesis is that data miners are attempting to construct mathematical models of individuals which will enable them to predict how those individuals will respond to particular stimuli. Though Baker ranges across politics (how to get people to vote the way you want) and the workplace, I'm going to focus on consumer matters, as befits our Blog.
Suppose a grocer wants to persuade consumers to buy a particular item, say Advil. One option is to offer coupons, but those will reach many shoppers (or even non-shoppers) who won't respond to them. Thus, the grocer will waste money advertising to people who aren't interested, while also burdening shoppers who read the ad but are not interested in Advil. Inefficient. But now suppose the grocer offers frequent shopper cards that enable it to identify consumers who have used such coupons in the past. If the grocer can target such consumers with coupons, it can reach those likely to be influenced by the coupons without wasting money on (and wasting the time of) those who would not be interested in the coupons. So far, it sounds like a winning proposition all around.
Baker reports that existing technology permits that. Some stores use "smart carts," shopping carts that can flash to shoppers specials, etc., that are likely to be of interest to the particular shopper. The smart cart reads the chip embedded in the frequent shopper card to figure out what is likely to matter to the owner of the card. OK--but what if the item is something that the consumer might not want to have flashed on a screen, like an ad for savings on condoms or laxatives? Probably grocers would figure out not to use the technology on such items. Even so, some consumers might be troubled by the invasion of privacy this technology implies, but they could always not use the frequent shopper card, if they know what use of that card permits retailers to do. But that's something that probably few consumers are aware of. For what it's worth, I wrote about whether collecting and using information about consumers without informing them of that fact violates the FTC Act and UDAP statutes in an article, Protecting Privacy with Deceptive Trade Practices Legislation, 69 Fordham Law Review 1305 (2001).
The book also has implications for consumer discrimination law. Baker describes how the technology can be used to drive away undesirable shoppers, the so-called "barnacles" who buy only a few items, and those on sale. Barnacles may cost grocers money by buying loss-leaders (items priced at below cost to attract consumers in the hope that the consumers, once in the store, will also buy more profitable items) and not buying anything else. Smart carts could flash barnacles specials on caviar and other expensive items rather than the items that more conventional shoppers might see, in an attempt to cause the barnacles to go elsewhere. Put that way, it's kind of funny, but what if the grocer uses the smart card to show different specials to consumers of different races or genders--something that the technology would not only be able to do, but because of its ability to target consumers who are interested in different products, seems like a real possibility, if it turns out that people of different races or genders respond differently to the same offers. Could we end up with price discrimination based on such classifications, with some groups getting access to specials that others never learn about?
Baker writes about how when one cell phone company charged an extra fee for a particular service, it received numerous complaints from consumers almost all of whom shared certain characteristics. Suppose, he goes on, the company had offered that service for free to consumers with those characteristics, but charged consumers who were less likely to complain? Again, we have price discrimination. Is that troubling? Suppose those of a particular race or gender generally end up paying more for that service. I think most people would find that troubling. I know I do. How would we even know?
Anyway, it's a thought-provoking book and I'm looking forward to the rest of it.
Tuesday, February 17, 2009
Second Circuit Upholds New York Fast-Food Menu Rule
I'm delighted that the Second Circuit has decided to uphold New York City’s landmark fast-food menu rule, which requires chain restaurants to disclose calorie information on their menus. (We previously blogged about the case here and here.) Today’s decision is a major victory in the fight against the obesity epidemic. It protects consumers’ right to know important nutritional facts and make informed and healthy choices when they eat out. The ruling is also significant because it clears the way for many similar state and local laws throughout the nation, such as those recently passed by the state of California and the city of Philadelphia.
The fast-food industry had asked the court to strike down New York’s rule, claiming that it was preempted by the Nutrition Labeling and Education Act of 1990 and that it violated the First Amendment under a compelled-speech theory. Public Citizen filed a brief opposing those arguments, representing a broad coalition that included Congressman Henry Waxman (the lead sponsor of the 1990 law), former FDA Commissioner David Kessler (who signed the first rules implementing the statute), the Center for Science in the Public Interest, the American Medical Association, the American Diabetes Association and many other leading public health groups and academic experts.
Today’s decision echoes many of our arguments and begins with a passage that comes right out of our brief: "In requiring chain restaurants to post calorie information on their menus," the court concluded, "New York City merely stepped into a sphere that Congress intentionally left open to state and local governments.”
In assessing the industry's First Amendment arguments under a rational basis standard, the court cited research showing that eating out is a major contributor to obesity and that consumers are typically unable to assess the caloric content of foods. They do not know, for example, that a smoked turkey sandwich at Chili’s (930 calories) contains more calories than a sirloin steak (540 calories), or that two jelly donuts from Dunkin Donuts have fewer calories than a sesame bagel with cream cheese. Until I started working on this case, I had no idea either.
As a matter of political philosopy, New York's rule is perhaps a good illustration of the kind of "libertarian paternalism" advocated by certain scholars influenced by behavioral economics, such as Cass Sunstein and Richard Thaler (as described in their recent book, Nudge, which Jeff Sovern has thoughtfully blogged about in these pages.) In theory, at least, this is the kind of law that people from all ends of the political spectrum should be able to support; it helps consumers make choices that will maximize their welfare, but the choice is ultimately left up to them. Even Richard Posner has offered a qualified defense of the regulation.
Monday, February 16, 2009
Experian-Based FICO Scores to be Unavailable to Consumers
by Jeff Sovern
Fair Isaac has reported that Experian has terminated their agreement under which FICO credit scores based on Experian's credit data can be made available to consumers, though consumers can still obtain their FICO scores based on TransUnion and Equifax data. Because Experian also has its own credit score system, VantageScore (a joint venture with Experian's other competitors, Equifax and TransUnion), it competes with Fair Issac, and that may have contributed to the decision; Fair Isaac has also sued Experian in connection with VantageScore. Coverage in the Times is here. The Times article states: "Experian itself will continue to sell FICO scores based on its data to lenders, so some banks may make credit decisions, at least in part, on a score that consumers can no longer see."
This may pose a problem for consumers contemplating borrowing who would like to know their credit score in advance. Maybe it won't be a big deal because they will still be able to obtain the other credit scores, and the Experian credit report from which the Experian-based FICO score will be drawn is still available. But to the extent that the Experian-based FICO score is based on factors in the Experian report that are not obvoius to consumers (which could happen; FICO scores are based on a proprietary algorithm which has not been publicly disclosed), consumers could be surprised by rejections from lenders using the Experian-based FICO score. That seems inconsistent with the trend towards greater transparency of credit information reflected in the 2003 FACTA Act, which mandated that credit bureaus provide consumers with their credit reports without charge at least once a year upon request, though it did not require the credit bureaus to provide credit scores for free. Congress has a lot on its agenda, but maybe it will turn its attention to this issue at some point.