Consumer Law & Policy Blog

Paper on Profiling and Targeting Consumers in the Internet of Things – A New Challenge for Consumer Law

Natali Helberger of the University of Amsterdam - Institute for Information Law has written Profiling and Targeting Consumers in the Internet of Things – A New Challenge for Consumer Law. Here is the abstract:

What does the shift from buying ‘things’ to buying ‘smart things’ imlies for consumers and consumer protection law and policy? The paper will focus in particular on the aspect of profiling and targeting in the Internet of Things. Profiling and targeting is a topic that is more commonly associated with data protection law and privacy. This chapter will demonstrate that consumer law, too, will have to play an important role in protecting the legitimate interests of consumers, and guaranteeing a fair balance between consumers, providers of smart things and services, advertisers, insurance companies and other parties.

Brescia on the Sharing Economy

Raymond H. Brescia of Albany has written Regulating the Sharing Economy: New and Old Insights into an Oversight Regime for the Peer-to-Peer Economy, 95 Nebraska Law Review  2016 (Forthcoming). Here is the abstract:

The significant expansion of new, peer-to-peer businesses, supercharged by the internet and mobile technologies, has led to an exploration of the proper role that government regulation and oversight should play in these new ventures and markets. The value these companies bring in terms of convenience, quality, and competition justify an approach to regulation that promotes innovation but recognizes the need for consumer protection within these markets. As within this so-called “Sharing Economy,” where companies, regulators, and consumers grapple with the question of how to strike the right balance between innovation and consumer protection, there is an industry that shares many features with Sharing Economy models, one that has dealt with many of these same questions for centuries. That industry is the legal profession, and the manner in which it, and the regulatory infrastructure that has evolved as that sector has evolved, offers lessons to those who wish to explore the best way to regulate the Sharing Economy. Because the legal profession shares so many features with the Sharing Economy and has wrestled with many of the same questions with which actors inside and outside the Sharing Economy now struggle, one can glean insights from the lessons learned over the centuries of the development of the rules and protections that govern the functioning of the legal profession to help inform the debate over the need for and contours of any coming regulatory oversight of the Sharing Economy. Moreover, as the manner in which the legal profession has been regulated over the last two centuries exhibits many of the hallmarks of New Governance approaches to regulation, one can also consider New Governance models in any approach to regulation of the Sharing Economy. This Article thus attempts to engage in an analysis of the evolution of regulation of the legal profession in the United States to unearth lessons from that evolution and draw insights from it that might inform approaches to regulating the Sharing Economy and help strike the balance between innovation and consumer protection. These prescriptions consciously borrow from New Governance models to suggest an approach to regulation of the Sharing Economy that will encourage experimentation and innovation, while not jeopardizing consumer safety.

 

Hoffman Study: How Different Consumer Cohorts View Online Contracting Differently

David A. Hoffman of Temple has written From Promise to Form: How Contracting Online Changes Consumers.  Here is the abstract:

I hypothesize that different experiences with online contracting have led some consumers to see contracts — both online and offline — in distinctive ways. Experimenting on a large, nationally representative, sample, this paper provides evidence of age-based and experience-based differences in views of consumer contract formation and breach. I show that younger subjects who have entered into more online contracts are likelier than older ones to think that contracts can be formed online, that digital contracts are legitimate while oral contracts are not, and that contract law is unforgiving of breach.

I argue that such individual differences in views of contract formation and enforceability might lead firms to discriminate among consumers. There is some evidence that businesses are already using variance in views of contract to induce consumers to purchase goods they would not otherwise have. I conclude by suggesting how the law might respond to such behavior.

Campbell Lecture on Paternalistic Intervention in Consumer Financial Affairs

John Y. Campbell of Harvard's Department of Economics has written Restoring Rational Choice: The Challenge of Consumer Financial Regulation.  Here is the abstract: 

This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.

Study of Privacy Policy Vagueness

Joel R. Reidenberg of Fordham, Jaspreet Bhatia and Travis Breaux, both of Carnegie Mellon,and Thomas B. Norton also of Fordham have written Automated Comparisons of Ambiguity in Privacy Policies and the Impact of Regulation. Here is the abstract:

Website privacy policies often contain ambiguous language that undermines the purpose and value of privacy notices for site users. This paper compares the impact of different regulatory models on the ambiguity of privacy policies in multiple online sectors. First, the paper develops a theory of vague and ambiguous terms. Next, the paper develops a scoring method to compare the relative vagueness of different privacy policies. Then, the theory and scoring are applied using natural language processing to rate a set of policies. The ratings are compared against two benchmarks to show whether government-mandated privacy disclosures result in notices less ambiguous than those emerging from the market. The methodology and technical tools can provide companies with mechanisms to improve drafting, enable regulators to easily identify poor privacy policies and empower regulators to more effectively target enforcement actions.

Josuhua Wright & John Yun on the FTC's Unfairness Power and Digital Platforms

Former FTC Commissioner Joshua D. Wright, now of George Mason,  and John M. Yun of the FTC have written Stop Chug-a-Lug-a-Lugin 5 Miles an Hour on Your International Harvester: How Modern Economics Brings the FTC's Unfairness Analysis Up to Speed with Digital Platforms, 6 George Washington Law Review,  2130 (2015). Here is the abstract:

In this Essay, the authors argue that in cases involving digital platforms, the Federal Trade Commission — when alleging unfair acts or practices in violation of section 5 of the Federal Trade Commission Act — must adopt the insights from platform economics and apply them within the legal framework of section 5(n), as informed by the Commission’s Policy Statement on Unfairness. After outlining the development and rise of digital platforms and discussing of the importance of digital platforms to consumers and the marketplace, this Essay sets forth a brief overview of the basic economics of multisided platform markets and points out the key differences between these markets and traditional markets as well as their corresponding implications for consumer welfare. The Essay then describes the evolution of the Commission’s unfairness authority in consumer protection cases — including the statutory requirement that the agency conduct cost-benefit analysis — and examines how the Commission has performed such cost-benefit analyses in recent cases. The Essay critiques the Commission’s decision in the recent Apple case as an example of the potential pitfalls for consumer protection in multisided markets when the Commission conducts a cost-benefit analysis without arming itself with the basic economic insights from platform economics. Untethered from the appropriate economic framework, the Commission’s logic allows it to condemn product design decisions whenever it can imagine an alternative design it believes survives a cost-benefit test. As the number of consumer protection cases involving digital platforms inevitably rise, the authors recommend that the Commission instead apply insights from platform economics within the well-established legal framework of section 5(n) and the FTC Policy Statement on Unfairness.

Ben-Shahar & Chilton Study Finds Simplifying Privacy Disclosures Doesn't Help

Omri Ben-Shahar and Adam S. Chilton both of Chicago have written Simplification of Privacy Disclosures: An Experimental Test. Here's the abstract:

Simplification of disclosures is widely regarded as an important goal and is increasingly mandated by regulations in a variety of areas of the law. In privacy law, simplification of disclosures is near universally supported. To guide this simplification, various “Best Practices” presentation techniques have been recommended, aimed at transforming privacy notices into clear and accessible information aids for consumers. In addition, some have proposed “Warning Labels” designed to familiarize consumers with only a short list the least expected privacy practices. But do such simplifications actually inform consumers and prevent unwise behavior? Since this question has not been rigorously studied, we conducted a survey experiment designed to test whether simplifying privacy disclosures affects respondents: (1) comprehension of the disclosure; (2) willingness to disclose personal information; and (3) expectations about their privacy rights. Our results reveal that none of the simplification techniques help inform respondents or affect their behavior. They call into further question the wisdom of focusing much regulatory effort on improved disclosures.

Drahozal Article on Confidentiality in Arbitration

Christopher R. Drahozal of Kansas has written Confidentiality in Consumer and Employment Arbitration, 7 Yearbook on Arbitration & Mediation ___ (forthcoming 2015). Here is the abstract:

This article examines an apparent misperception among some commentators about the confidentiality of consumer and employment arbitration in the U.S. Arbitration is a private process—i.e., the public cannot attend an arbitration hearing—and arbitrators and arbitration administrators are (with some exceptions) required to keep information about arbitrations confidential. But the parties to the arbitration agreement are not subject to an obligation of confidentiality. Either party can disclose the existence of the dispute and any underlying facts, the existence of any arbitration proceeding, and any information about or provided in the arbitration proceeding, including the arbitral award. Only if the arbitration clause also includes a confidentiality provision are the parties subject to a confidentiality obligation, as set out in their agreement.

Accordingly, criticisms of the confidentiality of arbitration, and in particular that arbitration clauses enable businesses to hide wrongdoing, are at best overstated and at worst misguided. They are overstated because information about disputes remains available, not from the court system but from the parties themselves. When a dispute is subject to arbitration, interested persons are not able to obtain filings and other information from the court clerk like they could if the case was in court. In the rare case that would have gone to trial, the public is not able to watch. But the parties continue to be able to disclose the same information they can disclose without an arbitration clause. The criticisms are misguided because they direct attention toward arbitration clauses and away from confidentiality provisions, which seem to be the real source of many commentators’ complaints.

(HT: Gregory Gauthier)

Braucher & Litwin Article on Examination as a Method of Consumer Protection

The late Jean Braucher of Arizona and Angela K. Littwin of Texas have written Examination as a Method of Consumer Protection, 87 Temple Law Review, 807 (2015).  Here is the abstract:

Lack of compliance with consumer protection law has been a crucial problem in the field for as long as such law has existed. The Consumer Financial Protection Bureau (CFPB) has the potential to change this state of affairs, especially with its supervision powers, which provide for dedicated consumer protection examination, a new development in the law. Although examination commands resources both from the agency and regulated entities, it is far less resource-consuming than litigation. It thus provides a relatively cost-effective way for an agency to obtain both changes in company practices and compensation for victims.

For a symposium honoring the scholarship of Professor William C. Whitford, we apply to the CFPB’s supervision program a framework Whitford developed for predicting whether a consumer protection law will produce compliance. Our answer to this question is a tentative yes. The CFPB’s statutory structure enables a strong commitment to consumer protection, especially with respect to supervision. In practice, the CFPB relies heavily on this robust regulatory tool, and there is evidence the CFPB is using this power to the fullest. If the CFPB maintains this level of commitment, its supervision program has the potential to radically reshape the market for consumer financial services. Reading the Bureau’s reports on its supervision activities is like stepping into an alternate universe in which consumer protection is the norm. Major problems that academics, advocacy groups, and the news media have been documenting for the past several years are now being written up as official government findings and followed with corrective action. But supervision is necessarily a confidential process, which makes it susceptible to agency capture. The CFPB, however, is currently implementing two strategies that may mitigate this risk in the future — so long as political forces do not eliminate the agency outright.

Web Privacy Census Updated

Ibrahim Altaweel of Good Research, Nathan Good, also of Good Research, and Chris Jay Hoofnagle of Berkeley have posted their updated Web Privacy Census, Technology Science 2015121502, Online. Here is the abstract:

Most people may believe that online activities are tracked more pervasively now than they were in the past. In 2011, we started surveying the online mechanisms used to track people online (e.g., HTTP cookies, Flash cookies and HTML5 storage). We called this our Web Privacy Census. We repeated the study in 2012. In this paper, we update the study to 2015.

Results summary: Our approach uses web crawler software to simulate online browsing behavior, and we record the occurrences of tracking mechanisms for the top 100, 1,000, and 25,000 most popular websites. We found that users who merely visit the homepages of the top 100 most popular sites would collect over 6,000 HTTP cookies in the process (see Top 100 Websites -- Shallow Crawl). Eighty-three percent of cookies are third-party cookies. The homepages of popular sites placed cookies for 275 third-party hosts. In just visiting the homepage of popular sites, we found 32 websites placed 100 or more cookies, 7 websites placed 200 or more cookies, and 6 websites placed 300 or more cookies. We found that Google tracking infrastructure is on 92 of the top 100 most popular websites and on 923 of the top 1,000 websites. This means that Google's ability to track users on popular websites is unparalleled, and it approaches the level of surveillance that only an Internet Service Provider can achieve.

-- We repeated a 2012 survey of tracking mechanisms such as HTTP cookies, Flash cookies, and HTML5 storage, used by top 25,000 most popular websites.

-- We found that users who merely visit the homepages of the top 100 most popular sites would collect over 6,000 HTTP cookies with 83% being third-party cookies.

-- We found that Google tracking infrastructure is on 92 of the top 100 most popular websites and on 923 of the top 1,000 websites, providing Google with a significant surveillance infrastructure online.