Consumer Law & Policy Blog

The economics of marijuana legalization

The legalization of marijunana creates economic winners and losers. One loser is the private prison industry, which is lobbying against legalization, as explained in this article by Kendall Bentsen.

Critics of Behavioral Law & Econ Strike Back on Credit Cards

Thomas A. Durkin and Gregory Elliehausen, both of the Fed, and Todd J. Zywicki of George Mason have written An Assessment of Behavioral Law and Economics Contentions and What We Know Empirically About Credit Card Use by Consumers.  Here is an abstract:

“Behavioral Law and Economics” (BLE) is a specialized component of the legal literature that purports to base its conclusions on a branch of economic analysis known as behavioral economics. The central claim of BLE is that by applying findings of behavioral economics to the real world it can provide more accurate assumptions about individual behavior and decision making than neoclassical economics and thus better and more effective policy prescriptions where needed. To date, however, BLE’s claims have been almost entirely a priori, taking certain suggested biases identified in the laboratory experiments by behavioral economists and claiming that they extend significantly to actual consumer behavior and the need for regulation. Yet it is well-accepted that the proper test of the scientific validity of an economic theory is the accuracy of its predictions relative to empirically testable hypotheses, not a priori reasoning or hypothetical extensions. This paper focuses on an area where BLE has been particularly active and even influential — the analysis of consumer use of credit cards. Comparison of the claims of BLE against hypotheses of the traditional neoclassical model of consumer credit use developed over the past century finds that available empirical evidence uniformly rejects BLE’s hypotheses for consumer credit. In short, while behavioral considerations are an important component of economic analysis, its BLE extension to policy in the consumer credit area has not yet proven to be useful.

For more on Zywicki, see here.

Philadelphia Fed Authors on What Consumers Learn From Identity Thefts

Julia S. Cheney, Robert M. Hunt, Vyacheslav Mikhed, and Dubravka Ritter all of the Philadelphia Fed, have written Identity Theft as a Teachable Moment.  Here is the abstract:

This paper examines how instances of identity theft that are sufficiently severe to induce consumers to place an extended fraud alert in their credit reports affect their risk scores, delinquencies, and other credit bureau variables on impact and thereafter. We show that for many consumers these effects are relatively small and transitory. However, for a significant number of consumers, especially those with lower risk scores prior to the event, there are more persistent and generally positive effects on credit bureau variables, including risk scores. We argue that these positive changes for subprime consumers are consistent with the effect of increased salience of credit file information to the consumer at the time of the identity theft.

 

Philadelphia Inquirer's Jeff Gelles's Series on Sundance Vacations and Its Efforts to Silence Internet Critics

The main story is here, and sidebars on efforts to silence internet critics can be found here (quoting fellow blogger Scott Michelman) and here. An excerpt:

[The consumers] agreed to pay $16,600 in principal and interest, with seven years of monthly $195 installments. In return, Sundance promised 30 weeks of "resort area condominium accommodations" in the United States, Mexico, or the Caribbean - all provided by Sundance's partner, Travel Advantage Network (TAN) of Millersville, Md., with terms spelled out in eight pages of contract language and disclosures.

Looking back, the [consumers] said they felt pressured and misled into signing up for a deal that to them proved nearly worthless. In return for their money, they mostly counted a litany of frustration - particularly that they were unable to book lodging they wanted and faced fees that made a Sundance vacation more costly than other, less-limited choices.

Sundance rejects such criticism, saying its customers freely enter into contracts after salespeople outline all the key terms - including by requiring customers to sign disclosures asking such questions as, "Do you feel your decision to purchase was based on high-pressure sales tactics?"

M&T Bank Agrees to Refund $2.9 Million After Deceptive Advertising

The Consumer Financial Protection Bureau (CFPB) announced yesterday action against M&T Bank for deceptively advertising free checking accounts. As explained in the CFPB press release:

The CFPB found that M&T lured in consumers with promises of “no strings attached” free checking, without disclosing key eligibility requirements. When consumers failed to meet the requirements, M&T automatically switched them to checking accounts with fees. M&T will provide $2.9 million in refunds to the approximately 59,000 consumers deceived into paying fees and it will pay a $200,000 penalty for the violations.

In addition to requiring M&T Bank to refund $2.9 million, the consent order with the CFPB requires the bank to update credit reports, end deceptive advertising of "free checking accounts," and pay a $200,000 fine.

Does multi-district litigation violate the due-process rights of plaintiffs swept into it?

Law professor Martin Redish and law student Jullie Karaba think so, as they explain in One Size Doesn't Fit All: Multidistrict Litigation, Due Process, and the Dangers of Procedural Collectivism. Here is the abstract:

Panel of federal judges regularly transfers cases which may share no more than one common issue from federal districts all over the nation into a single transferee district. The transferee court is then in charge of all pre-trial procedure for all of the cases on a collective basis. This includes conduct of discovery as well as pre-trial motions, including summary judgment. While the transferee district is not permitted to adjudicate the merits of the individual suits at trial (other than in the form of several test cases, binding only on the specific litigants involved), as a practical matter cases return to their transferor districts very rarely. Instead, there is constant pressure to form a global settlement. While individual claimants may opt out of that settlement, the settlement usually effectively ends the process. The claimants’ pre-trial cases are controlled by an appointed steering committee of selected attorneys. Although much has been written on the subject of multidistrict litigation, none of that scholarship to this point has directly challenged the constitutionality of the process. This Article, in contrast to all prior scholarship, conducts a frontal assault on the constitutionality of MDL as a stark violation of the individual claimant’s due process right to her day in court. In so doing, the Article explores the underlying political and constitutional theory of a litigant’s right to her day in court, and explains how current MDL practice unambiguously undermines that right. MDL amounts to a strange cross between The Wild West and political smoke-filled rooms of the twentieth century — hardly a combination that augurs well for either due process or the rule of law. The Article considers and rejects the supposed utilitarian values of efficiency attained by use of MDL as an asserted justification for the serious interference with the individual’s control of her own case. In making its case against the constitutionality of MDL, the Article contrasts the methods by which class action procedure — itself subject to several challenges over the years on due process grounds — seeks to protect the due process rights of absent class members. The Article concludes that whatever due process problems impact class actions pale in comparison to the dangers deriving from the crude form of procedural collectivization imposed by MDL. The Article ends with an exploration of ways in which MDL’s constitutionality might be salvaged through important modifications in its processes.

Judge refuses Apple's request to seal documents in antitrust case

In defending against federal and state antitrust claims that it monopolized the digital music market, Apple sought to file under seal a variety of information, including its prices, names of other companies, and expert analysis. In a victory for court transparency, the U.S. District Court for the Northern District of California late last week refused, calling the request "wholly unjustified." The trial on the antitrust claims is slated for November.

Law360 has the story.

Driving and OTC drugs

The Food and Drug Administration has issued this set of materials concerning which over-the-counter drugs impair the user's ability to drive and operate other machinery.

Force Arbitration

This video, "Lost in the Fine Print," speaks for itself. I highly recommend it.

Education companies' voluntary student-privacy pledge draws mixed reviews

Several education technology companies have signed a pledge to protect student privacy in respects not required by federal law.

Reports Politico:

Companies signing the pledge — including Microsoft, Amplify, Edmodo, Knewton and Houghton Mifflin Harcourt — will commit to clearly disclose what type of personal information they collect about students, and for what purpose. They will promise not to sell the information or use it to target advertising at students. They’ll pledge to let parents see their children’s records and correct any errors. And, perhaps most significantly, they will extend those protections to cover all data they collect.

But critics note that several key players in the market (such as Apple and Google) have not signed on, and point to loopholes and omissions from the policy (such as the absence of a parental consent requirement before collecting student information).

Read more about the pledge, and the tension between self-regulation and proposed government regulation, here.