One Reason No One Reads Privacy Policies and How Changing the Incentives Might Make Privacy Policies More Readable

by Jeff Sovern

At the Privacy Law Scholars Conference at GWU, hosted jointly by GWU and Berkeley Law Schools, on June 12 and 13, I served as a discussion leader for a session titled "Death to Privacy Policies" about how few people read privacy policies, why that is, and what could be done about that.  In that capacity, I presented a short talk, about three minutes.  But of course I would have liked to talk longer about the subject, so I'm posting here what I would have said if I'd had, say, five minutes (plus I'm tossing in a few cites).  Privacy policies are only a subset of the many documents consumers don't read, such as contracts with cell phone providers, credit card issuers and the like, and much of what I say here is just as applicable to such documents.

One reason privacy polices may fail to attract attention is that those providing them typically have little incentive to attract attention to them and little incentive to make them clear.  For example, many financial institutions sell their customer lists; if bank customers notice the privacy policies that banks send them and ask the banks not to sell their information, the banks lose money.  So the banks have an incentive to construct their privacy policies in such a way as to minimize the attention they draw.  Here, for example, is an excerpt from a scintillating privacy policy from Cap One:

We may share the information described on Page 1 under “information we may collect” with companies in the Capital One family or with business partners such as financial service providers (including credit bureaus, mortgage bankers, securities broker-dealers and insurance agents); nonfinancial companies (including retailers, online and offline advertisers, membership list vendors, direct marketers, airlines and publishers); companies that perform marketing services on our behalf, or other financial institutions with which we have joint marketing agreements; and others, such as non-profit organizations and third parties that you direct us to share information about you.

And, not surprisingly, what data is publicly available suggest that few consumers have opted out.  See Testimony of John C. Dugan, Partner at Covington and Burling on behalf of the Financial Services Coordinating Council, Before the U.S. Sen. Com. On Banking, Housing and Urban Affairs, Sept. 19, 2002 (“opt-out rates have generally been low, and in nearly all cases under 10 percent.”); W.A. Lee, Opt-Out Notices Give No One A Thrill, 166 American Banker Issue 131, at 1 (July 10, 2001) (“5% opt-out rate . . . has been circulating as the unofficial industry figure . . . .”); ACB Survey (60% of financial institutions report that less than one percent of customers opted out). We know that companies sometimes respond to the incentive to create forms consumers won’t read because in Ting v. AT &T, 319 F.3d 1126 (9th Cir.), cert denied, 540 U.S. 811 (2003), AT&T conducted extensive market research to discover what it could write that would cause consumers to ignore its customer service agreement—and then it went with the form that would cause consumers to throw its letter out. 

New Study on Elderly Abuse by Banks

Banks charged over $1 billion in overdraft fees to elderly consumers dependent on Social Security for most of their income. This is one of the many findings in a report issued this week by the Center for Responsible Lending, relying both on consumer survey data and a database of bank account records. In one case study, an elderly consumer whose only apparent income was a $1,000 Social Security monthly benefit was charged $448 for overdrafts never exceeding $220. Perhaps this helps explain why so many elderly consumers are going bankrupt.

Bounce loans, the Fed rule and the unbanked

By Alan White

The Federal Reserve has proposed a rule to allow consumers to opt out of their bank's discretionary overdraft payment and fee harvesting programs, better known as bounce protection or bounce loans. In the past four or five years banks have adopted the practice of not only paying overdrawn checks at their discretion (and charging a fee of about $35) but also paying debit card purchases, and even ATM withdrawals, and charging the fee. Some banks add a $1 per day fee so long as the account remains overdrawn. Recently banks have started permitting overdrafts at ATMs, with a vague warning that "this withdrawal may result in an overdraft", and without mentioning the $35 fee. Some banks even include a discretionary overdraft limit in the consumer's balance on ATM receipts, misleading the consumer into incurring bounce fees. For more details on bank overdraft practices, read here and here.

At this week's Consumer Advisory Council meeting, industry representatives pushed back hard against the idea of requiring consumers to opt IN to bounce loans. The banks are unsure exactly how they would disclose their programs, because they assert that they retain the discretion whether or not to approve a particular overdrawn check, debit card payment or ATM withdrawal, so they make no contractual promises. It is indeed difficult to describe a contract term that allows one party to provide or not provide a service and price it at its whim.

Particularly compelling were the comments of credit counselors and financial educators, who complained that bounce fees and random overdraft policies make financial education for "unbanked" populations much more difficult. Many unbanked consumers are understandably wary of checking accounts, because of recent salient experiences they or their acquaintances have had paying bank fees. Teaching consumers how to use a checking account is now much more difficult because the tricks and traps keep proliferating. Reason enough to restrict or ban the practice, and force banks to offer the safer cheaper alternatives of linked savings accounts and lines of credit.

HT to Prawfsblawg for the graphic.

Soaring Mortgage Foreclosure Rate in Washington, D.C. Region Among Highest in Country

This front-page story in today's Washington Post explains that the mortgage foreclosure rate in the Washington, D.C. area has exploded in the last year and is now among the highest in the country. An excerpt:

The Washington region now has one of the fastest-growing foreclosure rates in the nation, as 15,613 homes went into foreclosure during the one-year period ending in February, an analysis to be released today has found. Although communities have felt the effects of the housing crisis for months, the report reveals that foreclosures in the Washington region have been increasing at a surprisingly quick pace, outstripping those of most major metropolitan areas. Over the past year, the number of foreclosures per 10,000 homes jumped from 23 to 131 locally, while the national average increased from 58 to 87.

The story briefly describes what local government and non-profits are trying to do to cushion the problem.

AARP Report: Bankruptcy Filings By Older Americans Have More Than Doubled

The AARP's Public Policy Institute has just released Generations of Struggle, the first research report using data collected from the 2007 Consumer Bankruptcy Project.  The authors are Deborah Thorne of Ohio University, Elizabeth Warren of Harvard Law School, and Teresa A. Sullivan of the University of Michigan.

Debt has become the common denominator of American life:  In 2007, more than a million people filed for bankruptcy. The report's findings reveal grim news for older adults in particular. The rate of bankruptcy filings among those ages 65 and older has more than doubled since 1991, and the average age for filing bankruptcy has increased. Other important findings are:

• Americans age 55 or older have experienced the sharpest increase in bankruptcy filings.
• Americans age 34 or younger have experienced the sharpest decrease in bankruptcy filings.
• The influence of Baby Boomers on bankruptcy filings has moderated substantially.

Read the report here.

Interesting Empirical Work on Consumer Privacy and EULAs

I spent part of last week at the splendid Privacy Law Scholars Conference at GWU, hosted jointly by GWU and Berkeley Law Schools, and organized by Dan Solove and Chris Hoofnagle.  One of the great things about the conference is that it included non-legal academics who have been conducting and posting to the web research that law professors might find useful. Among the most intriguing is the empirical work of Jens Grossklags on how consumers respond to the End User License Agreements ("EULAs"), those boxes on web sites that ask you to click that you agree to the web site’s terms for downloading software (you can find Jens’ publication list here), and the work of the Carnegie-Mellon Usable Privacy and Security Lab (their work is described here) on privacy policies. 

How High Can Tuition Go?

by Jeff Sovern

Each year, colleges and universities hike tuition, typically by more than the rate of inflation.  Competition among schools undoubtedly constrains the hikes to some extent, but are there any other limits?  An economist might say that it makes sense to pay tuition as long as the tuition is less than the present value of the expected lifetime benefits of the education, minus the opportunity costs.  Put another way, if the amount you receive in the form of increased salary over your lifetime after going to college is higher than the amount you would earn without a degree, which is what has consistently been reported, it makes sense to pay tuition as long as the tuition is less than the present value of that increase. That formulation overlooks the nonpecuniary benefits of education, which are substantial, but if you could quantify those benefits, you would add them to the expected benefits as well.  In any event, it suggests that when the costs of education exceed the benefits, people should stop paying tuition.

That should work the same way for law schools as well, except that we’re comparing incomes as lawyers with incomes as non-lawyers for college grads.  We’ve already seen some signs that law school tuition has risen high enough to price some people who formerly went to law schools out of the market.  In my early years as a law teacher, our school had a substantial number of students who saw becoming a lawyer as a second long-term career; many were retiring after twenty years or so as teachers or police officers, for example.  Most of them were enrolled in our part time night program, but some went full-time during the day.  The number of such students has dropped dramatically with a correspondingly dramatic shift in the character of the night program.  I can’t be certain, but I suspect that a contributing factor is that they can no longer expect to earn enough in the years between beginning their second career and retirement to justify spending money on the much higher tuitions we and other law schools charge.  I haven’t researched the matter, but friends at other law schools with night programs have told me that their programs too have many fewer students who see law school as a doorway to such a second long term career.  Those students used to enrich our classes by bringing in relevant experiences, and we’ve lost that (though in return we’ve gained greater financial resources to do other things), plus society has lost whatever benefits accrue from having lawyers with substantial experience in other careers.

May 2008 Safety Recalls

Check out the May 2008 safety recalls for vehicles from the National Highway Traffic Safety Administration and for other consumer products from the Consumer Product Safety Commission.

Elizabeth Warren on Business Week's NAF expose

Over the weekend, Brian posted about Business Week's new must-read investigative report on how the National Arbitration Forum stacks the deck against consumers.  Elizabeth Warren has just posted her thoughts on the article over at Talking Points Memo:

Whether you know it or not, you may have already lost your next dispute with your credit card company--even if they made the mistake and you can prove it.  . . .  The Business Week story is for everyone who thinks that, by and large, fairness will win out, for everyone who thinks that a big-name company would never deliberately take advantage of its customers, and for everyone who things that arbitration sounds like a low-cost, fair way to clear up problems.

(For more background on the subject, check out Public Citizen's statistical analysis of NAF cases.) 

ACORN Names State Attorneys Generals Doing the Most to Battle the Foreclosure Crisis

by Brian Wolfman

The grassroots organization ACORN has just released a report that I think our readers will find interesting. The report looks at the reaction of the attorneys general of the 50 states and D.C. to the current foreclosure crisis and honors six "A+" recipients: Lisa Madigan of Illinois, Lori Swanson of Minnesota, Tom Miller of Iowa, Andrew Cuomo of New York, Martha Coakley of Massachusetts, and Richard Blumenthal of Connecticut. It discusses the best practices of the AGs in the areas of legal strategy, constituent services, public advocacy, and data collection. Read the full report and ACORN's press release. And, while you're at it, listen to a press call with three of the A+ attorneys general: Madison, Swanson, and Blumenthal.

ACORN's effort was spurred by its belief that the AGs' efforts to deal with foreclosures have been under-reported, and that although a number of AGs are doing great work, too many are still sitting on the sidelines and haven't yet tuned in to the crisis. ACORN hopes that the A+ AGs will serve as role models for the others.