Consumer Law & Policy Blog

More on the FTC: Politics and History

The WSJ recently published Companies Seek to Sway Trump Administration on FTC Choice (behind pay wall) about who the next FTC chair will be.  Google's rivals want Utah AG Sean Reyes, while acting chair Maureen Ohlhausen remains a possibility. Commissioner Ohlhausen is seen as more accommodating to Google  because of an earlier antitrust decision in which she participated. Meanwhile, for more on the FTC's functioning and the lessons to draw from it, see Mark Budnitz The FTC’s Consumer Protection Program During the Miller Years: Lessons for Administrative Agency Structure and Operation, 46 Catholic U Law Rev, 371 (1997).

Zwyicki Chapter: Market-Reinforcing versus Market-Replacing Consumer Finance Regulation

Todd J. Zywicki of George Mason has written Market-Reinforcing versus Market-Replacing Consumer Finance Regulation in Hester Peirce and Benjamin Klutsey, eds., Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, Mercatus Center at George Mason University, pp. 319-341, 2016.  Here's the abstract:

The aftermath of the financial crisis has seen the formation of several new banking regulators and an onslaught of new financial regulation. In the area of consumer financial protection bureau these regulations have resuscitated the regulatory approach of prior eras, namely substantive regulation of the prices, terms, and products offered to consumers. But these regulations have also resulted in predictable unintended consequences — higher prices, reduced innovation, and exclusion of many consumers from mainstream financial products. This chapter drawn from the book Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, distinguishes between two types of regulatory approaches, “market-reinforcing” and “market-replacing” consumer finance regulation, and argues that consumer welfare would be improved by a regulatory strategy that makes markets work better instead of displacing them with command-and-control regulation.

Cooper & Shepherd Paper: Economic and Emprical Analysis of State Consumer Protection Acts

James C. Cooper of George Mason and Joanna Shepherd of Emory have written State Consumer Protection Acts: An Economic and Empirical Analysis.  Here's the abstract:

Consumer protection acts (CPAs) developed with the goal to protect American consumers from fraudulent, deceptive and unfair business practices. Initially, Congress, through the FTC Act, sought to define and deter conduct that the existing legal system largely failed to remedy. Subsequently, states localized and individualized these rights while maintaining a careful balance between protecting consumers and preventing the proliferation of lawsuits that harm both consumers and businesses. But in recent decades, this thoughtful balance has yielded to damaging legislative and judicial overcorrections at the state level with a common theoretical mistake: the assumption that more CPA litigation automatically yields more consumer protection. The result has been an explosion in consumer protection litigation, which serves no social function and for which consumers pay indirectly through higher prices and reduced innovation. Using data on state and federal CPA litigation from 2000-2013, we find substantial increases in CPA litigation in both, with federal litigation growing almost twice as fast in federal than state courts (a cumulative average growth rate of 6.1 percent vs. 3.4 percent). We also find that the financial crisis appears to have played a large role in the recent growth in CPA litigation — the financial services industry is the most common target for private CPA actions in a set of cases we sample, and a large proportion of these cases involve debt collection or federal lending or housing statutes. We conclude that although the entire suite of expansive provisions in CPAs — enhanced damages, class actions, attorneys fees, and eliminating the need to show harm — are responsible for the explosion in private CPA litigation, from a social standpoint, requiring consumers to show cognizable harm would be the most efficient reform.

Ben-Shahar & Strakilvitz on Contracting Over Privacy: A Symposium Introduction

Omri Ben-Shahar and Lior Strahilevitz, both of Chicago, have written an introduction to a symposium, Contracting Over Privacy: Introduction, 43 Journal of Legal Studies, No. S2, 2016. Here's the abstract:

This short essay introduces papers presented at the symposium Contracting over Privacy, which took place at the Coase-Sandor Institute for Law and Economics at the University of Chicago in fall 2015. The essay highlights a quiet legal transformation whereby the entire area of data privacy law has been subsumed by consumer contract law. It offers a research agenda for privacy law based on the contracting-over-privacy paradigm.

Cooper & Wright on Economics in FTC Privacy Policy

James C. Cooper and Joshua D. Wright, both of George Mason have written The Missing Role of Economics in FTC Privacy Policy, Cambridge Handbook of Consumer Privacy, Jules Polonetsky, Evan Selinger & Omer Tene, eds., Cambridge University Press (2017), Forthcoming.  Here's the abstract:

The FTC has been in the privacy game for almost twenty years. In that time span, the digital economy has exploded, dramatically increasing the importance of privacy regulation to the economy. Unfortunately, the sophistication of the FTC’s privacy policy has yet to keep pace with its stature. Privacy stands today where antitrust stood in the 1970s. Antitrust’s embrace of economics helped transform it into a coherent body of law that almost all agree has been a boon for consumers. Privacy regulation at the FTC is ripe for a similar revolution. We examine the history of FTC privacy enforcement and policy making, with special attention paid to the lack of economic analysis, and we show the unique ability of economic analysis to ferret out conduct that is likely to threaten consumer welfare, and provide a framework for FTC privacy analysis going forward. Specifically, the FTC needs to be more precise in identifying privacy harms and to develop an empirical footing for both its enforcement posture and prophylactic measures that it urges firms to adopt, such as “privacy by design” and “data minimization.” The sooner that the FTC begins to incorporate serious economic analysis and rigorous empirical evidence into its privacy policy, the sooner consumers will begin to reap the rewards. 
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Pamela Foohey Article on Complaints to the CFPB

Pamela Foohey of Indiana has written Calling on the CFPB for Help: Telling Stories and Consumer Protection, 80 Law & Contemporary Problems (Forthcoming). Here is the abstract:

Since it began operating in 2011, the Consumer Financial Protection Bureau (CFPB) has handled more than a million complaints regarding consumer financial product and services. Beginning in June 2015, the CFPB began publishing consumers’ narratives submitted with their complaints. This Article analyses a random sample of 5,000 of these narratives to assess how people engage with the complaint mechanism in light of the CFPB’s role in processing complaints. I find that people predominately use the complaint function for two distinct purposes: to express their anger and frustration about companies’ practices, or to express sadness and fear about how companies’ practices have impacted their lives. When people write with anger and frustration, they typically direct their comments to the subject company, which aligns with the CFPB’s role in processing complaints. In contrast, when people write with sadness and fear, they often plead with the CFPB for individualized help in solving their broader problems. But the CFPB is not equipped to help people on an individual basis and such is not the goal of its complaint mechanism. Identifying that some consumers seem to expect the CFPB to provide this type of assistance presents an opportunity for the CFPB to address the serious problems that these consumers are voicing and to enhance how it utilizes the complaint data to further its goal of consumer protection. However, the CFPB is but one government agency that allows people to write narratives describing their problems. This Article thus provides suggestions for how agencies generally may mine their narrative databases to help people in need and to advance their missions.

Drahozal Article Examines Arbitral Issue Preclusion as a Substitute for Class Actions

Christopher R. Drahozal of Kansas has written The Issue Preclusive Effect of Arbitration Awards, Proceedings of the NYU 69th Annual Conference on Labor: Mediation and Arbitration of Employment and Consumer Disputes, Forthcoming.  Here's the abstract:

Courts in the United States have two primary means (in addition to individual adjudication) by which to resolve disputes in which numerous claimants have claims against a defendant that raise the same or similar issues. The first is the class action, in which the class representative brings suit on behalf of similarly situated but absent plaintiffs. A judgment in the class action (assuming that a class has been certified) binds the defendant and the absent class members. Since the Supreme Court’s decisions in Concepcion and Italian Colors, however, businesses can reduce if not avoid the risk of class actions by using arbitration clauses with class arbitration waivers in their standard form contracts with consumers and employees. When businesses use such contract provisions, disputes are to be resolved in individual arbitration, with no aggregation of claims either in arbitration or in court.

The second primary means of resolving duplicative litigation of similar claims is the doctrine of issue preclusion (also referred to as collateral estoppel). Issue preclusion bars a party from relitigating an issue that was resolved in a prior case involving the same party or parties. The issue must have been fully and fairly litigated and actually decided in the prior case, and only a party to the prior litigation or one in privity with a party is bound by the prior judgment. But a non-party to the prior case can, in appropriate circumstances, rely on issue preclusion against a party to the prior case (what is called “nonmutual issue preclusion”) and preclude relitigation of the issue — i.e., hold the other party bound by the resolution of that issue in the prior case.

This paper examines the extent to which arbitration awards have issue preclusive effect, such that issue preclusion might substitute for class actions when businesses use arbitration clauses with class waivers. It further suggests that the law governing issue preclusion in arbitration might develop in ways parallel to the law governing class actions and arbitration: with businesses using “issue preclusion waivers” to avoid the issue preclusive effect of awards, consumers and employees challenging such waivers as unenforceable, and businesses relying on FAA preemption in response.

HT: Gregory Gauthier.  I haven't posted lately because I'm swamped with a tight deadline for grading exams ("Make America Grade Again!"), but I hope to be back posting soon.

Klonoff: A Respite from the Decline in Class Actions

Robert H. Klonoff of Lewis & Clark has written Class Actions Part II: A Respite from the Decline.  Here is the abstract:

In a 2013 article, I explained that the Supreme Court and federal circuits had cut back significantly on plaintiffs' ability to bring class actions. As I explain in the present article, that trend has subsided. First, the Supreme Court has denied certiorari in several high profile cases. Second, the Court's most recent class action rulings have been narrow and fact specific. Third, the federal circuits have likewise adopted narrow and fact specific approaches to class actions. One explanation for this new trend is that defendants have been overly aggressive in their arguments, losing credibility and causing courts to push back.

Joshua Wright: Federalism and the Rise of State Consumer Protection Laws

Former FTC Commissioner Joshua D. Wright of George Mason has written Federalism and the Rise of State Consumer Protection Law in the United States, in The Law and Economics of Federalism, Jonathan Klick, ed., Edward Elgar Publishing, Forthcoming. Here's the abstract:

Starting in the 1960s, individual states began to adopt and enforce Consumer Protection Acts (“CPAs”), the purpose of which was to supplement the FTC’s consumer protection authority to prohibit “unfair or deceptive acts or practices.” By 1981, each state had its own CPA. The proliferation of state CPAs provides a valuable opportunity to observe competitive federalism in action and to observe the potential effects of concurrent state and federal regulation. The purpose of this paper is to understand the role of state CPAs in the consumer protection landscape with an eye toward drawing lessons concerning whether state CPAs manifest the benefits of competitive federalism, embody a failure of this principle, or neither. After describing the dramatic rise and expansion of state CPAs, this paper focuses upon two empirical studies that cast significant doubt upon the failure of jurisdictional competition to constrain the adoption of state CPA features likely to result in net harm to consumers.

Paul Bland: The Swamp on Steroids: Trump’s Plan to Repeal Dodd-Frank Will Enable Corruption

Here.  The whole piece is worth reading, but here's an excerpt:

Donald Trump’s Presidential campaign was filled with a lot of bold talk about “draining the swamp” and fighting against lobbyists. He attacked Hillary Clinton for her supposed cozy relationship with banks, and talked about how he’d stand up to Wall Street on behalf of the little guy.

That was then. 

Now, he wants to grant banking lobbyists’ every wish. While the first few days after the election have brought little clarity on most topics (maybe he won’t repeal the Affordable Care Act after all, or maybe he will), Trump has made one very specific promise – to repeal the Dodd-Frank Act.

* * *

Simply put, before 2008, a federal agency was enabling banks to cheat consumers, and blocking those banks’ customers from fighting back.  And that’s why Dodd-Frank included numerous provisions designed to make it much harder for federal regulators to wipe away state laws.

The rampant fraud that cost people their homes, and also cheated millions of investors from their savings, was encouraged and abetted by a corrupt system where government regulators worked hand-in-hand with banks.

That’s the model the Trump Administration is poised to take us all back to.

* * *

 The [federal Office of the Comptroller of the Currency] weighed in on 60 court cases between 1994 and 2006 where consumers who felt they had been cheated were suing banks. The OCC (dependent on bankers’ good will for its budget) sided with the banks in 58 out of the 60 cases.

But wait; the OCC did even more for big banks. The agency issued regulations erasing state consumer protection laws, and replaced them with . . . nothing.