Consumer Law & Policy Blog

Beyranevand Article: Regulating Inherently Subjective Food Labeling Claims

Laurie J. Beyranevand of Vermont has written Regulating Inherently Subjective Food Labeling Claims, 37 Environmental Law 543 (2017).  Here is the abstract:

For many consumers, the modern food label serves as the sole source of information regarding any individual food product. While it may be considered informative in some respects, it is often enigmatic in others. The present debate regarding the creation of a federal regulation to define use of the term “healthy” exemplifies the difficulties associated with seemingly subjective food labeling claims.The law requires manufacturers to include certain facts on food labels. However, they are permitted to include additional voluntary statements related to the healthfulness of the food product, the presence or absence of certain ingredients, and information related to production and growing methods, among other things. These claims have the potential to cause consumers a great deal of confusion, particularly with regard to their veracity. Many scholars have analyzed First Amendment limits on the Food and Drug Administration’s (FDA) ability to restrict specific types of claims, yet few have addressed the issue of whether the agency can and should restrict claims unable to be supported by significant scientific agreement due to the inherent subjectivity of the claim. This Essay proposes FDA adopt such an approach as a means of effectuating the Federal Food, Drug, and Cosmetic Act’s purpose of protecting consumers from false or misleading food product labels. As an alternative, if FDA is unwilling to restrict those claims altogether, this Essay suggests the agency could require curative disclaimers on labels, as they do for qualified health claims, that are not supported by significant scientific agreement.

Paper Examines Overdraft Regulation and Markets in US, UK, and Israel

Harvard SJD candidate Aluma Zernik has written When Markets, Consumers and Regulators Collide: Overdrafts in the US, UK and Israel. Here's the abstract:

There is a fierce debate in the US about whether to regulate overdrafts and, specifically, about whether overdraft should be limited or prices should be capped. Proponents of regulation claim overdrafts are not marginally priced and cause financial harm. Opponents of regulation claim that capping overdraft prices will harm consumers by limiting access to overdraft credit and protection against rejected transactions. This paper conceptually unpacks some of these claims, while comparing the overdraft markets in the US, the UK and Israel. First, I argue that overdrafts can, and do in fact fulfill three different functions: (i) unintentional overdrawing and insurance against the rejection of transactions (ii) short-term high-cost credit and (iii) long-term revolving credit lines. This distinction sheds light on the differences in pricing structures between countries and how overdrafts compete with alternative financial products. Thus, while prices in the US may be non-marginal when compared to short-term high-cost credit such as payday loans, competition with credit card companies might explain why overdrafts in the US aren’t provided as long-term revolving credit at significantly lower prices, as is the case in Israel and the UK. Additionally, this distinction raises the need for more fine-tuned regulation, acknowledging that different functions and pricing structures of overdrafts trigger diverse market failures, cognitive biases and mistakes. The harm from inadvertent overdrafts could be mitigated with the use of technology and real-time notifications, and cannot be detached from the prices of insufficient funds charges and other forms of overdraft protection such as credit lines. When overdrafts are used as emergency, short-term funds, they should be compared to other short-term high-cost credit, such as payday loans. Since banks have significantly lower overhead and risk-based costs, this indicates banks may be charging excessive prices, while exploiting consumers’ insensitivity to prices and underestimation of their future financial hardship. Finally, while consumers in the UK and Israel may benefit from lower prices for inadvertent overdrafts and long-term credit, the design features of overdrafts as revolving credit with no clear repayment date might reduce consumers’ welfare by limiting their ability to devise self-control mechanisms, exacerbating overconsumption and leading to high, chronic, and persistent levels of debt.

Kar and Radin Article: Pseudo-Contract & Shared Meaning Analysis

Robin Bradley Kar of Illinois and Margaret Jane Radin of Toronto and Michigan have written Pseudo-Contract & Shared Meaning Analysis. Here is the abstract:

Over the last several decades, courts have struggled with when to enforce boilerplate text as contract. An example is the copious digital text that consumers receive links to before clicking “I agree” to a purchase. Everyone knows that recipients rarely read this boilerplate text and would not understand it if they did. Still, given recent revolutions in digital contracting, many courts and scholars see no choice now but to absorb all boilerplate text into contract with relaxed requirements of “assent.” In a series of moves reminiscent of the ancient theory of “epicycles,” which tried to square geocentric theories of planetary motion with recalcitrant observation, contract law has been shifting away from its traditional focus on enforcing parties’ actual agreements. This shift is sufficiently well underway, and has been transforming the meanings of enough central contract law terms and concepts, to diagnose an unconscious paradigm slip from contract (or a legal regime rooted in actual agreement) into what we call “pseudo-contract” (or a system of private obligations created unilaterally without actual shared agreement).

The recent paradigm slip into pseudo-contract raises a complex blend of linguistic, factual, conceptual, normative and doctrinal problems. The full scope and interwoven nature of these problems has not yet been sufficiently appreciated, and the problems are only building as the use of boilerplate text expands. A major intrusion into the traditional sphere of contract law and modern market activity has gone largely unrecognized; or, at least, its true nature has escaped notice. These doctrinal facts are inviting expanding forms of market deception, which are hard to discern when hidden under the false mantel of “contract.” 

To resolve these problems, we develop a more nuanced and coherent method of analysis—“shared meaning analysis”—which courts can use to determine when any particular piece of boilerplate text does, and does not, contribute meaning to a contract. Shared meaning analysis draws on the well-known linguistic distinction, first treated rigorously by the philosopher of language Paul Grice, between “speaker meaning” and “sentence meaning.” Parties and courts implicitly rely on this distinction in a broad range of contract settings, and the distinction is critical for a proper identification of the scope and content of parties’ actual agreements. Indeed, closer attention to this distinction is critical to understand what contract and freedom of contract are. We develop the resources needed to prevent contract from slipping into pseudo-contract—or, put differently, to rescue a realm of private ordering from deteriorating into something different and normatively problematic.

Paper on How Firms Can Deliberately Induce Info Overload to Obscure Disclosures

Petra Persson of Stanford University; Research Institute of Industrial Economics has written Attention Manipulation and Information Overload. Here is the abstract:

Limits on consumer attention give firms incentives to manipulate prospective buyers' allocation of attention. This paper models such attention manipulation and shows that it limits the ability of disclosure regulation to improve consumer welfare. Competitive information supply, from firms competing for attention, can reduce consumers' knowledge by causing information overload. A single firm subjected to a disclosure mandate may deliberately induce such information overload to obfuscate financially relevant information, or engage in product complexification to bound consumers' financial literacy. Thus, disclosure rules that would improve welfare for agents without attention limitations can prove ineffective for consumers with limited attention. Obfuscation suggests a role for rules that mandate not only the content but also the format of disclosure; however, even rules that mandate "easy-to-understand" formats can be ineffective against complexification, which may call for regulation of product design.

Issacharoff Book Chapter on Class Actions

Samuel Issacharoff of NYU has written Collective Action and Class Action, in THE CLASS ACTION EFFECT: FROM THE LEGISLATOR’S IMAGINATION TO TODAY’S USES AND PRACTICES, (Catherine Piché, ed., Éditions Yvon Blais, 2018 Forthcoming).  Here is the abstract:

Over the past 25 years, class actions have emerged as a central feature of Canadian law. The conceptual heart of these class actions comes from the Ontario Law Reform Commission’s 1982 Report on Class Actions, particularly in common law Canada. Drawing on the experiences of the early-adopter provinces of Québec, Ontario and British Columbia, the Report set out the objectives of the modern class action: judicial economy, access to justice, and behavior modification.

The reasoning in the Ontario Report is insufficient to explain the need for class actions. The stated premises are all classic accounts of the lack of individual redress that require collective action. As such they form the classic argument for the state. Class actions are private sources of collective authority, even if formed pursuant to legal rules governing class certification. Put simply, if it is public goods we seek, why not use public authority to obtain them?

This chapter addresses the question of the relation of private aggregation in relation to public authority. The discussion is illuminated by looking to the U.S. experience in this light, an experience that looms large in the Canadian debate.

Paper: Consumer Access to Credit Decreases in States Whose Senators Become Powerful

Pat Akey of the University of Toronto - Rotman School of Management, Rawley Heimer of the Boston College - Department of Finance, and Stefan Lewellen of the London Business School have written Politicizing Consumer Credit. Here's the abstract:

Using proprietary credit bureau data, we find that consumers’ access to credit decreases by 4.5 percent–8 percent when the borrower’s home-state U.S. senator becomes the chair of a powerful Senate committee. The reduction in credit access mostly affects historically credit-constrained consumers (low income and nonwhite and borrowers with poor credit scores), and is stronger in areas with less politically engaged constituents and more politically connected lenders. Additional evidence supports a “political protection” hypothesis—banks that are connected to powerful politicians consider fair-lending regulatory guidelines to be less binding. The results highlight the distinction between political power and legislative outcomes, and contrast recent findings that governments expand credit access to firms and consumers.

Here is an excerpt from the conclusion:

Moreover, the reduction in credit access mostly affects borrowers that have historically been credit constrained: consumers with low incomes and poor credit scores, and racial minorities. The results are robust to increasingly stringent geographic fixed effects as well as individual fixed effects, which account for unobserved heterogeneity in borrower quality across political constituencies.

Our results are consistent with a “political protection” hypothesis whereby banks tighten screening standards on disadvantaged borrowers once they are “protected” by a powerful homestate Senator. Consistent with this explanation, we find that the largest reductions in credit access occur in Census tracts where regulatory guidelines, such as the Community Reinvestment Act, are most likely to cause additional lending. We also find that the largest contractions in credit to disadvantaged borrowers occur in areas that are politically unengaged, while the effects are amplified in regions with a large proportion of politically-connected banks. Additionally, we find that the applicants who receive credit following political power shocks tend to be of higher observable credit quality than the applicants who receive credit prior to political power shocks. Finally, we find that banks become more profitable following these shocks. Collectively, these results suggest that increased political power causes lenders to tighten screening standards in a manner that reduces credit provision to disadvantaged borrowers.

 

 

Paper on the Impact of Judicial vs. Nonjudicial Foreclosure on Mortgage Origination

Brian D. Feinstein a Bigelow Fellow at Chicago has written Judging Judicial Foreclosure.  Here is the abstract:

For the third time in the last several decades, policymakers are contemplating an overhaul of mortgage-finance regulations. Despite the considerable attention paid to how ex ante regulations affect the availability of credit and the appropriateness of the mortgage products that lenders offer, our understanding of how the legal framework governing foreclosures — a form of ex post borrower protection — impacts mortgage lending is incomplete. Leveraging data on loan applicants that are geographically proximate and subject to the same federal mortgage-finance regulations and nearly identical state foreclosure regimes — but for the presence or absence of a judicial foreclosure requirement — this analysis enables the identification of the independent effects of judicial-foreclosure requirements on loan approval decisions and the share of approved applicants that are offered subprime loans.

I find that lenders adopt a more conservative posture in evaluating loan applications in jurisdictions where they must haul delinquent borrowers into court. All else equal, loan applications are less likely to be approved and approved borrowers are less likely to be offered subprime loans in judicial-foreclosure states. Further, some models indicate that these results may be amplified for borrowers with lower socio-economic status, suggesting that judicial supervision of foreclosures may have tempered one of the more flagrant practices of the subprime era: providing high-rate mortgages with a greater likelihood of default to lower-income and minority borrowers. These results suggest that, in contemplating changes to the regulation of mortgage lenders, policymakers should consider state foreclosure law to be among the tools in their regulatory toolkit.

Ware Article: The Centrist Case for Enforcing Adhesive Arbitration Agreements

Stephen J. Ware of Kansas has written The Centrist Case for Enforcing Adhesive Arbitration Agreements, Forthcoming in the Harvard Negotiation Law Review.  Here is the abstract:

"The Politics of Arbitration Law and Centrist Proposals for Reform", 53 Harvard J. on Legislation 711 (2016), explained how issues surrounding consumer, and other adhesive, arbitration agreements became divisive along predictable political lines (progressive vs. conservative) and proposed an intermediate (centrist) position to resolve those issues. However, "The Politics of Arbitration Law" did not argue the case for this centrist position. It left those arguments for two more articles: (1) "The Centrist Case against Current (Conservative) Arbitration Law", 68 Florida Law Review 1227 (2016), which argued against the overly-conservative parts of current arbitration law; and (2) this Article, which argues against progressive proposals to repeal, not only the overly-conservative parts of current arbitration law, but also the parts of current arbitration law that should be retained. While progressives would prohibit enforcement of individuals’ adhesive arbitration agreements, this Article argues that such agreements generally should be enforced.

Marcus Article on the History of Class Actions 1981-1994

David Marcus of Arizona has written The History of the Modern Class Action, Part II: Litigation and Legitimacy, 1981-1994,  Fordham Law Review (forthcoming 2018). Here is the abstract:

The first era of the modern class action began in 1966, with revisions to Rule 23 of the Federal Rules of Civil Procedure. It ended in 1980. Significant turmoil roiled these years. Policymakers grappled with the powerful device as advocates argued over its purpose, and judges struggled to create rules for the novel litigation the remade Rule 23 generated.

This article tells the story of the class action’s second era, which stretched from 1981 to 1994. At first blush, these were quiet years. Doctrine barely changed, and until the early 1990s, policymakers all but ignored the device.

Below this surface tranquility lurked important developments in what the class action, newly embroiled in fundamental debates over litigation and legitimacy, was understood to implicate. Critics castigated the civil rights class action as an emblem of the “imperial judiciary’s” rise and of courts’ inability to separate law from politics. To industries targeted by plaintiffs’ lawyers, the securities fraud class action exemplified the “litigation explosion” and challenged judicial competence to screen for meritorious lawsuits. The emergence of the mass tort class action as an alternative to legislative and administrative processes made a determination of litigation’s legitimate role particularly urgent.

These second era episodes deepened partisan divides over the class action and prompted new claims about what sort of private litigation could legitimately proceed. The three episodes drew new and influential participants into fights over the class action, and they eventually re-engaged policymakers with its regulation. Such developments made a third era, one of significant reform, all but inevitable.

CFP: Northeast Privacy Scholars Workshop

We received the following call for papers:

The Innovation Center for Law and Technology
at New York Law School

and

The Center on Law and Information Policy
at Fordham University School of Law

are pleased to issue this Call for Papers for the inaugural Northeast Privacy Scholars Workshop, which will take place at New York Law School on October 20, 2017.

The Workshop offers privacy scholars from diverse fields the opportunity to receive extensive, constructive commentary on their works-in-progress. We invite submissions on a variety of privacy-related topics and from a wide range of disciplines, including, but not limited to, law, social science, computer science, engineering, communications, and public policy.

The Workshop format is designed to facilitate discussion and commentary on papers that can benefit from them. Therefore, the Workshop will give preference to projects and papers that are sufficiently along to be read and critiqued, but not yet submitted for publication. There will be no presentations, only commentators and feedback from participants. Participants are expected to read all papers beforehand. Also, because feedback from a broad range of disciplines is important for interdisciplinary privacy scholarship, we ask that all participants stay for the entire one-day workshop.

Important Dates:

Abstracts due: August 20, 2017, by 5 PM

Selections made no later than: September 3, 2017, by 5 PM

Papers due and commentators assigned: September 20, 2017, by 5 PM

More information here.