Consumer Law & Policy Blog

Ware Article on The Politics of Arbitration and Centrist Proposals

Stephen J. Ware of Kansas has written The Politics of Arbitration Law and Centrist Proposals for Reform, 53 Harvard Journal on Legislation (2016).  Here is the abstract:

Arbitration law in the United States is far more controversial when applied to individuals than to businesses. While enforcement of arbitration agreements between businesses sometimes raises legal issues that divide courts, those issues tend to interest only scholars, lawyers, and other specialists in the field of arbitration. In contrast, enforcement of arbitration agreements between a business and an individual (such as a consumer or employee) raises legal issues that interest many members of Congress and various interest groups, all of whom have taken positions on significant proposals for law reform. The Consumer Financial Protection Bureau has extensively researched and reported on consumer arbitration agreements and is expected to issue a rule regulating, or even prohibiting, such agreements.

This Article both explains how issues surrounding consumer and other adhesive arbitration agreements became divisive along predictable political lines and introduces a framework to understand and compare various positions on them. This new framework arrays on a continuum five positions on the level of consent the law should require before enforcing an arbitration agreement against an individual. Progressives generally would require higher levels of consent than arbitration law currently requires, while conservatives generally defend current arbitration law’s low standards of consent.

This Article proposes a centrist position. It joins progressives in rejecting overbroad enforcement of adhesive arbitration agreements due to conservative supported anomalies in arbitration law’s treatment of contract-law defenses, legally- erroneous decisions, and class actions. Once these anomalies are fixed, though, this Article joins conservatives in defending general enforcement of adhesive arbitration agreements under contract law’s standards of consent because adhesive arbitration agreements should — contrary to progressive opinions — be as generally enforceable as other adhesion contracts. This Article briefly concludes by proposing language for a rule the Consumer Financial Protection Bureau could adopt to enact the reforms advocated in this Article.

Bambauer et al. Article on Defects in Privacy Disclosures

Jane R. Bambauer, Jonathan D. Loe, and D. Alex Winkelman, all of Arizona have written A Bad Education, 2016 University of Illinois Law Review ___ (Forthcoming).   Here is the abstract:

Mandated disclosure laws achieve their regulatory goals by educating the public about latent attributes of a product or service. At their best, they improve the accuracy of consumers’ cost-benefit analyses compared to a world without disclosure and inspire firms to reduce unnecessary risks. But when mandated disclosures do not improve cost-benefit assessments — when they are useless or, worse still, when they reduce the quality of those assessments — then they constitute a bad education.

American privacy law, which is principally a mandated disclosure regime, imposes a bad education on consumers. This article proposes a theory for differentiating valuable disclosures from wasteful and harmful ones. Valuable disclosures provide notice about material attributes without inducing an overreaction. After validating the theory in an experimental setting using disclosures about health risks, moral risks, and pseudoscience, we apply the model to four distinct forms of privacy invasive practices. We find that the disclosures required by regulators are usually wasteful and may cause consumers to overreact. This is the first study to compare disclosures about privacy practices to disclosures about other types of attributes. It raises for the first time a troubling insight: if consumer law were guided by the same justifications as our privacy law, it would have to mandate disclosures about GMOs, animal testing, and an unlimited range of other attributes that produce visceral responses.

Bar-Gill & Ben-Shahar Paper: Optimal Defaults in Consumer Markets

Oren Bar-Gill of Harvard and Omri Ben-Shahar of Chicago have written Optimal Defaults in Consumer Markets.  Here's the abstract:

The design of default provisions in consumer contracts involves an aspect that does not normally arise in other contexts. Unlike commercial parties, consumers have only limited information about the content of the default rule and how it fits with their preference. Inefficient default rules may not lead to opt outs when they deal with technical aspects consumers rarely experience and over which consumers’ preferences are defined only crudely. This paper develops a model in which consumers are uninformed about their preferences, but can acquire costly information and then choose a contract term that best matches their preferences. The paper explores the optimal design of default rules in such environments, and how it differs from the existing conceptions of efficient default rule design.

Amy Schmitz Article: Remedy Realities in Business-to-Consumer Contracting

Amy Schmitz of Missouri has written Remedy Realities in Business-to-Consumer Contracting, 58 Arizona Law Review 213 (2016). Here is the abstract:

Professor Jean Braucher greatly contributed to the exploration of consumer and contract law by questioning how the law operates in the real world and highlighting the importance of “law in action.” In recognition of that contribution, this Article focuses on law in action with respect to consumers’ quest to obtain remedies regarding their business-to-consumers (“B2C”) contracts. Currently, consumers often have no practical recourse with respect to B2C purchase problems due to the complexity, cost, and inconvenience of the processes for obtaining remedies. Accordingly, stated legal rights become meaningless for individuals living in the real world. This Article, therefore, explores access to consumer remedies and proposes ideas for expanding that access through development of fair and efficient online dispute resolution (“ODR”) processes.

Hoofnagle on Privacy and the FTC's Bureau of Economics

Chris Jay Hoofnagle of Berkeley has written Privacy and Security Through the Lens of the Federal Trade Commission's Bureau of Economics.  Here's the abstract:

At the Federal Trade Commission (FTC), all privacy and security matters are assigned to a consumer protection economist from the agency’s Bureau of Economics (BE). The BE is an important yet often ignored element of the FTC. Advocates and others operating before the Commission have been inattentive to the BE, choosing to focus instead on persuading Commissioners and staff attorneys to take privacy and security cases. This article describes the BE, discusses the contours of its consumer protection theories, and discusses how these theories apply to privacy and security. I explain why the FTC, despite having powerful monetary remedy tools, almost never uses them: this is because the BE sees privacy and security injuries as too speculative and because the FTC’s remedies come too late to deter platform-age services. The BE is also skeptical of information privacy rights because of their potential impact on innovation policy and because privacy may starve the market of information. In this, the BE hews to certain interpretations of information economics, ignoring research in traditional and behavioral economics that sometimes finds benefits from regulation of information.

The article concludes with a roadmap for fostering a BE that sees invasions of privacy and security problems as causing harms worthy of monetary remedy. The roadmap includes the consideration of existing markets for privacy as a proxy for the value of personal information. For example, tens of millions of Americans pay money to keep non-sensitive information, such as their home address, secret. Additionally, the FTC’s civil penalty factors, which consider issues such as how to deny a defendant the benefits from illegal activity, could justify interventions to protect privacy and security. Finally, the BE could explore how existing information practices have inhibited the kinds of control that could lead to a functioning market for privacy.

MacDonald Article Calls for Judicial Review of CFPB's Non-Legislative Rules

Kevin M. McDonald of VW Credit, Inc. has written Who's Policing the Financial Cop on the Beat? A Call for Judicial Review of the Consumer Financial Protection Bureau's Non-Legislative Rules, 35 Review of Banking and Financial Law, 224 (2015-2016).  Here's the abstract:

This law review article addresses administrative power in the context of financial services. The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), an independent executive agency, to oversee this space. The CFPB issues interpretations and other guidance documents of consumer financial regulations it administers. This article discusses whether courts should defer to the CFPB's issuances in certain contexts. The claim in this article is that courts should not defer to the Bureau's interpretations and other regulatory guidance documents that seek to interpret regulations the CFPB administers. This article argues that the CFPB has been issuing "legislative," or "substantive" rules while avoiding the notice-and-comment process. This practice by the CFPB has been used to regulate fair lending in the context of automotive finance. Through a case study of Ally Financial, Inc., this article illustrates how the Bureau has enforced its interpretation of fair lending through adjudication of its own interpretations. 

 

Peter Holland's Powerful Piece: Current Trends in Consumer Junk Debt Buyer Litigation

Here.  In the Maryland Bar Journal.  And here is the abstract:

This article examines current trends in debt buyer litigation, including a review of recent regulatory actions and the impact of debt buyer lawsuits on individual consumers and on small claims courts. The article calls for a ban on the sale of consumer junk debt by banks, and for a requirement to make public the terms, conditions and disclaimers from sales contracts between banks and junk debt buyers.

Chris Peterson Article on CFPB Enforcement

Christopher Lewis Peterson of Utah has written Consumer Financial Protection Bureau Law Enforcement: An Empirical Review, forthcoming in the Tulane Law Review. Here's the abstract:

In the aftermath of the U.S. financial crisis, Congress created a new federal agency — the Consumer Financial Protection Bureau (CFPB) — with the goal of fashioning a more just and efficient American consumer finance market. The CFPB now serves as the U.S. Government’s primary regulator and civil law enforcement agency governing consumer lending, payment systems, debt collection, and other consumer financial services. In its first four years of enforcing federal consumer protection laws, the CFPB has announced over a hundred different law enforcement cases forcing banks and other financial companies to relinquish over $11 billion in customer refunds, forgiven debts, and financial penalties. Drawing upon pleadings, consent orders, settlement agreements, press releases, and other public documents, this Article presents an empirical analysis of the CFPB’s law enforcement track record. In particular, this paper:

(1) provides an introduction to the jurisdiction and powers of the CFPB’s Supervision, Enforcement and Fair Lending Division;

(2) classifies all of the CFPB’s publicly announced enforcement matters through 2015; and,

(3) presents seven notable findings on the CFPB’s public law enforcement program. An appendix listing the CFPB’s publicly announced enforcement cases through 2015 follows.  

Perzanowski & Hoofnagle Article on What Consumers "Buy" When They Buy Digital Media

Aaron Perzanowski of Case Western Reserve and Chris Jay Hoofnagle of Berkeley have written What We Buy When We 'Buy Now', 165 University of Pennsylvania Law Review (Forthcoming 2017), Here's the abstract:

Retailers such as Apple and Amazon market digital media to consumers using the familiar language of product ownership, including phrases like “buy now,” “own,” and “purchase.” Consumers may understandably associate such language with strong personal property rights. But the license agreements and terms of use associated with these transactions tell a different story. They explain that ebooks, mp3 albums, digital movies, games, and software are not sold, but merely licensed. The terms limit consumers' ability to resell, lend, transfer, and even retain possession of the digital media they acquire. Moreover, unlike physical media products, access to digital media is contingent — it depends on shifting business models, the success and failure of platforms, and often on the maintenance and availability of DRM authentication systems years after the consumer clicked “buy now.”

This article presents the results of the first-ever empirical study of consumers' perceptions of the marketing language used by digital media retailers. We created a fictitious Internet retail site, surveyed a nationally representative sample of nearly 1300 online consumers, and analyzed their perceptions through the lens of false advertising and unfair and deceptive trade practices. The resulting data reveal a number of insights about how consumers understand and misunderstand digital transactions. A surprisingly high percentage of consumers believe that when they “buy now,” they acquire the same sorts of rights to use and transfer digital media goods that they enjoy for physical goods. The survey also strongly suggests that these rights matter to consumers. Consumers are willing to pay more for them and are more likely to acquire media through other means, both lawful and unlawful, in their absence. Our study suggests that a relatively simple and inexpensive intervention — adding a short notice to a digital product page that outlines consumer rights in straightforward language — is an effective means of significantly reducing consumers’ material misperceptions.

Sales of digital media generate hundreds of billions in revenue, and some percentage of this revenue is based on deception. Presumably, if consumers knew of the limited bundle of rights they were acquiring, the market could drive down the price of digital media or generate competitive business models that offered a different set of rights. We thus turn to legal interventions, such as state false advertising law, the Lanham Act, and federal unfair and deceptive trade practice law as possible remedies for digital media deception. Because of impediments to suit, including arbitration clauses and basic economic disincentives for plaintiffs, we conclude that the Federal Trade Commission (FTC) could help align business practices with consumer perceptions. The FTC’s deep expertise in consumer disclosures, along with a series of investigations into companies that interfered with consumers’ use of media through digital rights management makes the agency a good fit for deceptions that result when we “buy now.”

Bagchi: Standard Terms in Consumer Contracts in Comparative Contract Law

Aditi Bagchi of Fordham has written At the Limits of Adjudication: Standard Terms in Consumer Contracts in Comparative Contract Law  (eds. DiMatteo & Hogg, (UP, 2015).  Here is the abstract:

This chapter first identifies three features of standard form contracts that challenge the classical theory of contract: standard terms lack of salience, consumers lack practical choice over such terms, and the scale of standard terms across an industry renders bilateral agreements a form of mass private regulation. After offering a descriptive overview of American treatment of standard terms, the chapter reviews how scholars have thus far conceptualized the challenge of standard terms. We have seen the lenses of consent, cognitive error, market failure, substantive unfairness and democratic degradation. Each view identifies an important concern but also suffers from some limitation in its accounting of the problem. The chapter builds off these theories to propose an alternative framework: Standard terms create cumulative externalities that implicate the public interest in ways that are not easily taken into account in the course of resolving bilateral disputes. We need legislative action that not only disallows an inevitably limited set of standard terms but also empowers courts to take into account certain externalities in the way contracts are read and enforced. For example, the scope of evidence considered relevant to contract adjudication and the interpretive defaults used to read contracts should be adjusted so that courts are in a position to limit the cumulative negative externalities of standard terms.