Consumer Law & Policy Blog

Hoofnagle & Urban Reexamine Alan Westin's Privacy Classifications of Consumers

Chris Jay Hoofnagle and Jennifer M. Urban, both of Berkeley, have written Alan Westin's Privacy Homo Economicus, 49 Wake Forest Law Review 261 (2014).  Here's the abstract:

Homo economicus reliably makes an appearance in regulatory debates concerning information privacy.  Under the still-dominant U.S. “notice and choice” approach to consumer information privacy, the rational consumer is expected to negotiate for privacy protection by reading privacy policies and selecting services consistent with her preferences. A longstanding model for predicting these preferences is Professor Alan Westin's well-known segmentation of consumers into “privacy pragmatists,” “privacy fundamentalists,” and “privacy unconcerned.”  

To be tenable as a protection for consumer interest, “notice and choice” requires homo economicus to be broadly reliable as a model.  Consumers behaving according to the model will know what they want and how to get it in the marketplace, limiting regulatory approaches to information privacy.  While notice and choice is undergoing strong theoretical, empirical, and political critique, U.S. Internet privacy law largely reflects these assumptions.

This Article contributes to the ongoing debate about notice and choice in two main ways.  First, we consider the legacy Westin's privacy segmentation model itself, which as greatly influenced the development of the notice-and-choice regime. Second, we report on original survey research, collected over four years, exploring Americans’ knowledge, preferences, and attitudes about a wide variety of data practices in online and mobile markets. Using these methods, we engage in considered textual analysis, empirical testing, and critique of Westin’s segmentation model. 

Our work both calls into question longstanding assumptions used by Westin and lends new insight into consumers’ privacy knowledge and preferences. A close textual look at factual and theoretical assumptions embedded in the segmentation model shows foundational flaws. With testing, we find that the segmentation model lacks validity in important dimensions.  In analyzing data from nationwide, telephonic surveys of Internet and mobile phone users, we find an apparent knowledge gap among consumers concerning business practices and legal protections for privacy, calling into question Westin’s conclusion that a majority of consumers act pragmatically. We further find that those categorized as “privacy pragmatists” act differently from Westin’s model when directly presented with the value exchange — and thus the privacy tradeoff — offered with these services.

These findings reframe the privacy pragmatist and call her influential status in U.S. research, industry practice, and policy into serious question.  Under the new view, she cannot be seen as “pragmatic” at all, but rather as a consumer making choices in the marketplace with substantial deficits in her understanding of business practices.  This likewise calls into question policy decisions based on the segmentation model and its assumptions.  We conclude that updated research and a policy approach that addresses both rationality and knowledge gaps are key.

 

How Long is the iTunes Contract?

32 feet, according to Omri Ben-Shahar's and Carl E. Schneider's new book, More Than You Wanted to Know.  To see a picture of the contract hanging from the ceiling of the Chicago Law School library two stories up (and it more than reaches the ground), watch the video here.

Tara Twomey on the Intersection of Reverse Mortgages and Bankruptcy

Tara Twomey of the National Consumer Law Center and National Consumer Bankruptcy Rights Center has written Crossing Paths: The Intersection of Reverse Mortgages and Bankruptcy.  Here is the abstract:

The senior population of the United States is expected to grow rapidly over the next twenty years.  Rather than enjoying their golden years, increasingly older Americans are struggling with less income, greater debt and insufficient retirement savings.  The average amount of debt held by seniors has soared over the last decade.  Many now rely on credit cards to cover their basic living expenses.  Rising mortgage debt has compromised the use of home equity as a retirement nest egg.  There are few easy solutions.  Two tools available to seniors to combat financial distress are reverse mortgages and bankruptcy.  Reverse mortgages allow seniors to tap their home equity to pay off outstanding debts or supplement monthly income.  Bankruptcy provides an opportunity to obtain a fresh start by discharging certain debts or adjusting one’s financial affairs.  The two options — reverse mortgages and bankruptcy — are not mutually exclusive.  This Article explores the intersection between reverse mortgages and bankruptcy and when they can or cannot work together to assist seniors facing financial distress.

Hoofnagle on Big Data, Privacy, and the FCRA

Chris Jay Hoofnagle of Berkeley has written How the Fair Credit Reporting Act Regulates Big Data for the Future of Privacy Forum Workshop on Big Data and Privacy: Making Ends Meet, 2013. Here is the abstract:

This short essay, prepared for the Future of Privacy Forum's Big Data and Privacy: Making Ends Meet event in September 2013, makes two observations concerning "big data." First, big data is not new. Consumer reporting, a field where information about individuals is aggregated and used to assess credit, tenancy, and employment risks, achieved the status of big data in the 1960s. Second, the Fair Credit Reporting Act of 1970 (FCRA) provides rich lessons concerning possible regulatory approaches for big data.

Some say that "big data" requires policymakers to rethink the very nature of privacy laws. They urge policymakers to shift to an approach where governance focuses upon "the usage of data rather than the data itself."  Consumer reporting shows us that while use-based regulations of big data provided more transparency and due process, they did not create adequate accountability. Indeed, despite the interventions of the FCRA, consumer reporting agencies (CRAs) remain notoriously unresponsive and unaccountable bureaucracies.

Like today's big data firms, CRAs lacked a direct relationship with the consumer, and this led to a set of predictable pathologies and externalities. CRAs have used messy data and fuzzy logic in ways that produce error costly to consumers. CRAs play a central role in both preventing and causing identity fraud, and have turned this problem into a business opportunity in the form of credit monitoring. Despite the legislative bargain created by the FCRA, which insulated CRAs from defamation suits, CRAs have argued that use restrictions are unconstitutional.

Big data is said to represent a powerful set of technologies. Yet, proposals for its regulation are weaker than the FCRA. Calls for a pure use-based regulatory regime, especially for companies lacking the discipline imposed by a consumer relationship, should be viewed with skepticism.

 

Annals of Consumer Law: Stephen Ware Paper on the British Debate on Imprisonment for Debt in the Twentieth Century

Stephen J. Ware of Kansas has written A 20th Century Debate About Imprisonment for Debt.  Here's the abstract:

In the early twentieth century, Parliament debated whether to abolish imprisonment for debt.  Parliament’s Select Committee on Debtors (Imprisonment) of 1909 heard testimony from witnesses and issued a report recommending the continuation of imprisonment for debt.  This testimony and report make for fascinating history.  Although imprisonment is not part of contemporary debates about debt collection and personal insolvency (consumer bankruptcy) law, the competing views expressed in Parliament over a century ago about consumer debtors and those who lend to them will be recognizable to anyone familiar with contemporary debates on either side of the Atlantic.

Solove & Hertzog on the FTC and Privacy and Security Duties for the Cloud

Daniel J. Solove of George Washington and Woodrow Hartzog of Samford's Cumberland Law School and Stanford Law School's Center for Internet and Society have written The FTC and Privacy and Security Duties for the Cloud, 13 BNA Privacy & Security Law Report 577 (2014). Here's the abstract:

Increasingly, companies, hospitals, schools, and other organizations are using cloud service providers (and also other third party data service providers) to store and process the personal data of their customers, patients, clients, and others.  When an entity shares people’s personal data with a cloud service provider, this data is protected in large part through a contract between the organization and the cloud service provider.  In many cases, however, these contracts fail to contain key protections of data.  Because the consumer is not a direct party to these contracts and often cannot even have access to these contracts, the consumer is often powerless, and the consumer’s interests are often not adequately represented.  

In this short essay, we argue that there is a remedy in Section 5 of the Federal Trade Commission (FTC) Act that prohibits unfair and deceptive trade practices.  Certain key cases from the emerging body of FTC enforcement actions on data protection issues can be read together to create a double-edged set of duties – both on the organizations contracting with cloud service providers and on the cloud service providers themselves.  Not only does an organization owe a duty to consumers to appropriately represent their privacy and data security interests in the negotiation, but cloud service providers have an obligation to the consumer as well, and cannot enter into contracts that lack adequate protections and controls.

 

Pridgen Article on Attempts to Eliminate Private UDAP Claims

by Jeff Sovern

My co-author, Dee Pridgen of Wyoming, has written an important and disturbing account of attempts by the American Legislative Exchange Council (ALEC) to dismantle a fundamental device to protect consumers: the private UDAP claim. Readers of this blog will find her article, Wrecking Ball Disguised as Law Reform: ALEC's Model Act on Private Enforcement of Consumer Protection Statutes, 39 New York University Review of Law & Social Change (2015), of particular interest. Here is the abstract:

The consumer protection statutes of every state are currently under attack by a proposed model law that would effectively eliminate the critical private enforcement provisions that give these laws their power.  The American Legislative Exchange Council (ALEC) has produced a purported law reform vehicle that is actually a wrecking ball to destroy one of the building blocks of consumer protection, namely the private enforcement of state unfair and deceptive practices acts. It does this by systematically weakening each and every provision of these laws, such as lower burdens of proof, special damages, and attorney’s fees, that were designed to provide consumers with access to justice for small economic wrongs. This article examines the history and goals of the state consumer protection statutes, with their private enforcement mechanisms, and then demonstrates how the ALEC model act would undermine these goals. The article also critically examines certain research studies that claim to demonstrate abuses of the current laws.  The article concludes that while the statutes in question could perhaps benefit from some limited reforms, the ALEC proposal is an ill-conceived attempt to effectively repeal the private enforcement of state consumer protection statutes.

Tidmarsh Article on Auctioning Class Settlements

Jay Tidmarsh of Notre Dame has written Auctioning Class Settlements, forthcoming in the William & Mary Law Review. Here's the abstract:

Although they promise better deterrence at a lower cost, class actions are infected with problems that can keep them from delivering on this promise. One of these problems occurs when the agents for the class (the class representative and class counsel) advance their own interests at the expense of the class. Controlling agency cost, which often manifests itself at the time of settlement, has been the impetus behind a number of class-action reform proposals.

This Article develops a proposal that, in conjunction with reforms in fee structure and opt-out rights, controls agency costs at the time of settlement. The idea is to allow the court, once a settlement has been achieved, to put the class’s claims up for auction, with the settlement acting as  reserve  price. An entity  that outbids  the settlement becomes owner of the class’s claims, and may continue to pursue the case against the defendant. A successful auction results in more compensation for the class. On the other hand, if no bids are received, the court has evidence that the settlement was fair. The prospect of a settlement auction also deters class counsel and the defendant from negotiating a sweetheart deal that sells out the class.

The Article works through a series of theoretical and practical issues of settlement auction, including the standards that a court should use to evaluate bids, the limitations on who may bid, and the ways to encourage the emergence of an auction market.

Goldsmith & Martin Study of Public Attitudes Towards Interest Rate Caps

Timothy E. Goldsmith of New Mexico's Psychology Department and Nathalie Martin at New Mexico's Law School have written Interest Rate Caps, State Legislation, and Public Opinion: Does the Law Reflect the Public's Desires? 89 Chicago-Kent Law Review (2014).  Here's the abstract:

In scholarly circles, debates about the benefits and burdens of high-costs lending are prevalent, as are debates about whether to cap interest on certain kinds of consumer loans. Despite this scholarly interest, few scholars actually know what the general public thinks or knows about interest rates on common consumer credit products. This article tries to close this gap through an empirical study of consumer attitudes about interest rates in the state of New Mexico, a state in which high-cost loans such as payday loans and title loans are ubiquitous. Our data show that the general public overwhelmingly supports interest rate caps both in general and for certain types of loans. We also found that many consumers are unaware that there are no interest rate caps on many forms of consumer loans. These data could be useful in explaining why consumers do not do more to change the law on interest rate caps.

Article on High-Pressure Invited In-Home Selling

Paul Harrison, Marta Massi & Kathryn Chalmers have written Beyond Door-to-Door: The Implications of Invited In-Home Selling, 48 J. Consumer Affairs 195 (2014).  Here is the abstract:

Over the past 20 years, consumer groups and policymakers have expressed concerns about the high-pressure selling techniques used during in-home selling, often highlighting the distinction between typical door-to-door selling, and the type of selling that occurs when a salesperson is “invited” through a previous interaction to undertake a sales process in the consumer's home. This article explores these high-pressure selling techniques in the context of the invited in-home selling (IIHS) of educational software and the consequences in terms of consumer vulnerability and consumer protection policy. We conclude by drawing upon earlier discourse in this field to argue that policy-makers, consumer advocates and businesses consider a holistic, multi-dimensional contextualization of consumer vulnerability as a means to consider consumer protection in this, and other contexts.