Fed Call for Papers

The Philadelphia Federal Reserve Payment Cards Center has issues a call for papers for the fifth edition of its biennial conference on Recent Developments in Consumer Credit and Payments.  Here are the details:

This year's conference will be held at the bank on September 24-25, 2009. The submission deadline for complete papers is June 15, 2009 (see below for submission procedures). Once again, this conference is a joint endeavor by our bank's Research Department and the Payment Cards Center.  The dramatic deterioration in the markets for consumer credit and mortgages highlights the pressing need for original research in these areas and for a continuing dialogue among researchers and policymakers. Theoretical and empirical papers are welcome. Areas of interest include, but are not limited to, the following:

• Personal bankruptcy and consumer default
• Mortgage lending and default
• Regulation of consumer credit and mortgage markets
• Contractual and informational issues in consumer credit markets
• Credit scoring and credit reporting agencies
• Securitization of consumer debt
• Pricing and efficiency of retail payment services
• Consumer payments networks and their regulation

California passes 90-day Foreclosure Moratorium

by Alan White

Governor Schwarzenegger signed a bill Tuesday imposing a 90-day moratorium on foreclosures in California.  The bill exempts lenders who have a modification program in place meeting standards set forth in the bill, including reduction of payments to 38% of a borrower's income (higher than the 31% DTI standard in the Obama Administration plan.)  Nevertheless a halt to at least some foreclosures is a key missing piece of the Administration's plan announced last week.  Outside of California and apart from lenders with voluntary foreclosure freezes, homes will continue to be foreclosed while the new program, and perhaps even the legislation to allow Bankruptcy Court restructuring, is rolled out.  This means not only needless home losses but also needless losses for banks, to the tune of about $125,000 per house in January.

While the Administration's new plan has some merit, it doesn't actually stop any foreclosures, which is the point.  Regrettably, the Obama/Geithner plan perpetuates two basic flaws with mortgage modifications to date:  payment reductions are temporary (5 years) so that we will have another payment shock crisis in 2014, and homeowners for the most part are not deleveraged, because principal writedowns are not a central part of the program.  To its credit, the Administration is sticking to its guns on supporting bankruptcy stripdown of underwater mortgages, but that will still require getting past the Blue Dogs in Congress. 

In upcoming posts I will report on this week's International Association of Consumer Law conference in Hyderabad India, perhaps including some topics other than the U.S. mortgage foreclosure crisis.

Spring 2009 Issue of Journal of Consumer Affairs Table of Contents

The Spring issue of the Journal of Consumer Affairs is available here.  It includes an article by Jef I. Richards titled Common Fallacies in Law-Related Consumer Research.  Here's the table of contents:

Editorial Prelude: Looking Forward by Looking Back

State Prescription Drug Policies, Cost Barriers, and the Use of Acute Care Services by Medicaid Beneficiaries by Sharon Tennyson and Hae Kyung Yang

Consumer Self-Confidence in Searching for Information by Cäzilia Loibl, Soo Hyun Cho, Florian Diekmann, and Marvin T. Batte

The Bold and the Bankable: How the Nuestro Barrio Telenovela Reaches Latino Immigrants with Financial Education by Jonathan Spader, Janneke Ratcliffe, Jorge Montoya, and Peter Skillern

Explaining Financial Management Behavior for Koreans Living in the United States by John E. Grable, Joo-Yung Park and So-hyun Joo

Alcohol Messages in Prime-Time Television Series by Cristel Antonia Russell and Dale W. Russell

Playing With Food: Content Analysis of Food Advergames by Mira Lee, Yoonhyeung Choi, Elizabeth Taylor Quilliam and Richard T. Cole

Notes, Observation and Historical Perspectives

Trends in Journal of Consumer Affairs Feature Articles: 1967-2007 by Russell N. James III and Brenda J. Cude

Understanding Communication Research Findings by Ivan L. Preston

Common Fallacies in Law-Related Consumer Research by Jef I. Richards

Editorial Postlude

Disciplined Conduct of Inter-Disciplinary Research by Herbert Jack Rotfeld

           

Libel Tourism Hits a New Low

by Paul Alan Levy

A currently developing situation represents a new low for “libel tourism” – the practice of bringing libel claims against United States defendants in foreign courts where the First Amendment and other provisions of US law that protect free speech are not recognized.  The plaintiff's objective is to suppress speech by obtaining a judgment abroad and then claiming that international principles of comity require that the judgment be recognized – subject to a possible defense that enforcing the judgment would violate public policy – or at least to intimidate other speakers that might be tempted to engage in similar criticism.  In the most recent example, a UK company has seized on another recent trend in efforts to suppress free speech online — instead of taking action directly against a web site operator who might actually defend his or her free speech rights, the plaintiff goes after the speaker’s Internet Service Provider in the hope that it may be unwilling to risk a lawsuit and may, instead, sacrifice its customer’s free speech.  By threatening to file suit in a jurisdiction that does not recognize principles of ISP immunity, the company hoped to achieve its objective of suppressing criticism without even having to obtain a judicial determination that the speech was wrongful.  Public Citizen has urged Congress to address this issue in legislation currently being considered on the subject of libel tourism.

January 2009 NHTSA and CPSC Recalls

National Highway Traffic Safety Administration recalls for January 2009 are here. The Consumer Product Safety Commission recalls for January 2009 are here.  

Blockshopper Settles Jones Day’s Trademark Linking Suit – What Are the Lessons? What Can We Do Now?

by Paul Alan Levy

Late last week, lawyers for Jones Day filed a stipulation of dismissal of its trademark claims against the real-estate website Blockshopper. The lawsuit alleged that, by providing links to lawyer bio pages on the Jones Day web site from anchor text that set forth the lawyers’ names, Blockshopper was creating a likelihood of consumer confusion about whether Jones Day was the sponsor of or affiliated with the Blockshopper web site.  Under the terms of the settlement, Blockshopper agreed not to provide a clickable link to Jones Day’s web site from any form of anchor text other than the actual URL to which the viewer would be taken. Thus, instead of linking to Paul W. Schroeder, the lead counsel for Jones Day in the case, in the way I have just done, Blockshopper would have to configure its site this way: Paul W. Schroeder, http://www.jonesday.com/pwschroeder/.

There have been several excellent blog posts about the ramifications of the settlement, on Consumerist, Techdirt, Slate, and Ars Technica.  But here is my take on who won, and what lessons are to be drawn from this development.  Although there is reason to be concerned about the chilling effect of the litigation, there is something that the blogging community can do to limit that chilling effect.

Insult to Injury

The AP reports on a new trend: states making deals with banks to impose fees for access to unemployment benefits.

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.

Second Circuit Upholds New York Fast-Food Menu Rule

by Deepak Gupta

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.