Consumer Law & Policy Blog

Hockett: Foreclosure Prevention and Mitigation Options

Robert C. Hockett of Cornell has written Post-Bubble Foreclosure-Prevention and -Mitigation Options in Seattle.  Here's the abstract:

This paper, commissioned by the Seattle City Council, takes the measure of Seattle's post-bubble negative equity and foreclosure problems, estimates numbers of underwater loans that have benefitted by existing federal, state and local programs, and recommends several options that the City has not yet explored but ought to consider.  For underwater but not yet defaulted loans, these include 'lease swap' arrangements of a kind advocated by the author since 2011 and public-private eminent domain partnerships of the kind advocated by the author since the housing bust began.  For already foreclosed properties, the author recommends a variation on the 'land bank' approach being pioneered in several other U.S. cities.

Strandburg Paper on Online Privacy's Market Failure

Katherine J. Strandburg of NYU has written Free Fall:  the Online Market's Consumer Preference Disconnect, University of Chicago Law Forum (2013).  Here's the abstract:

Do Internet users “pay” for online products and services with personal data? The common analogy between online data collection for behaviorally targeted advertising and payment for purchases is seriously misleading. There is no functioning market based on exchanges of personal information for access to online products and services. In a functioning market, payment of a given price signals consumer demand for particular goods and services, transmitting consumer preferences to producers. Data collection serves as “payment” in that critical sense only if its transfer from users to collectors adequately signals user preferences for online goods and services.  It does not.  Indeed, for reasons explored in this article, the behavioral advertising business model leads to a failed online market and erects barriers to entry for no-data-collection alternatives.  The market failure is due in part to the intertwined nature of personal information and involves collective action problems that cannot be solved by consent-based approaches to single transactions.  Those collective action problems, in turn, erect barriers to entry for online businesses employing paid or contextual advertising business models. As a result of these factors, the online market is likely to be stuck in a failed state in which products and services are tailored to advertiser preferences for data extraction, rather than to consumer preferences.

Sovern Paper: Cost-Benefit Analysis and Consumer Protection

by Jeff Sovern

I've posted a paper on SSRN, Can Cost-Benefit Analysis Help Consumer Protection Laws? Or at Least Benefit Analysis?, forthcoming in the University of California-Irvine Law Review.  Here's the abstract:

Cost-benefit analysis is often troubling to consumer advocates. But this article argues that in some circumstances it may help consumers. The article gives several examples of supposed consumer protections that have protected consumers poorly, if at all. It also argues that before adopting consumer protections, lawmakers should first attempt to determine whether the protections will work. The article suggests that because lawmakers are unlikely to adopt multiple solutions to the same problem, one cost of ineffective consumer protections is a kind of opportunity cost, in that ineffective consumer protections might appear to make unnecessary adoption of effective ones. Ironically, such an opportunity cost is unlikely to be taken account of in cost-benefit analysis. Among the protections that especially risk failing to benefit consumers are laws that require consumers to perform certain tasks, such as disclosure laws that presuppose consumers will pay attention to and act on the disclosures; if consumers instead generally ignore the disclosures, the consumer protection will be largely illusory. Accordingly, before adopting measures that depend on consumers to do something, lawmakers should try to verify that consumers will in fact undertake those actions. The article also makes some suggestions for ascertaining whether consumer protections will work—i.e., benefit consumers--and concludes with a brief critique of the proposed Independent Agency Regulatory Analysis Act.

Lahav Paper: Symmetry and Class Action Litigation

Alexandra D. Lahav of Connecticut has written Symmetry and Class Action Litigation, 60 U.C.L.A.L. Rev.(2013).  Here's the abstract:

In ordinary litigation, parties often have different resources to devote to their lawsuit. This is a problem because the adversarial system is predicated on two (or more) parties, equal and opposite one another, making their best arguments to a neutral judge.  The class action is a procedural device that aims to equalize resources between individual plaintiffs and organizational defendants by allowing plaintiffs to pool their claims.  Current developments of class action doctrine, however, reinforce in the courtroom the asymmetry that exists between individual plaintiffs and organizational defendants outside the court.  This Article explores these trends and the questions they raise.  Why is it that critics of class actions (and some judges) argue that class actions ought not to be certified for litigation purposes because they “blackmail” defendants into settling meritless suits, but approve of the practice of certifying class actions for settlement when defendants ask approval to settle clearly meritless claims?    Why is the blackmail argument so resilient in the class action context, and what insight does this lend to the context of binary litigation where litigants are more likely to have unequal resources to devote to litigation and, as a result, more likely to enter into settlements that do not reflect the true value of the lawsuit?  Should asymmetry of resources in litigation be considered a problem for our court system, or is it right for courts to take litigants as they find them, even if litigants have vastly unequal resources to devote to pursuing their lawsuits?

Skiba Paper: Tax Rebates and Payday Borrowing

Paige Marta Skiba of Vanderbilt has written Tax Rebates and the Cycle of Payday Borrowing.  Here's the abstract:

I use evidence from a $300 tax rebate to test whether receipt of this cash infusion by payday borrowers affects the likelihood of borrowing, loan sizes, or default behavior. Results from fixed-effects models show that the rebate decreased the probability of taking out a payday loan in the short run. These impacts are most apparent among credit-constrained, infrequent borrowers. Those who take out loans around the time of the rebate borrow amounts similar to their normal borrowing behavior but are more likely to default. Overall, however, the effects are small and short-lived, suggesting a muted response to this cash windfall in payday borrowing and repayment.

Kar Comments on Boilerplate

Robin Bradley Kar of Illinois has written The Challenge of Boilerplate, forthcoming in Jotwell.  Here's the abstract:

Although Margaret Jane Radin is perhaps best known for her work in property theory, she has recently been focusing her formidable intellect on questions of contract. Boilerplate reflects her first book length treatment of these topics, and there is much to like about this book. This review focuses on one contribution that the book makes to normative jurisprudence, which is to clarify the centrality, pervasiveness (and perhaps even inescapability) of a specific problem for modern contract theory. The problem involves what I like to call a generalized lack of theory-to-world fit: if Radin’s arguments are valid, then a very broad range of modern contract theories are addressing the wrong subject matter, given the way that contracts increasingly work in the modern world. 

The challenge that boilerplate thus poses to a broad range of normative contract theories -- including economic theories -- is much deeper than typically recognized.

A Pair of Privacy Papers: Big Data

Michael Birnhack of Tel Aviv University has written S-M-L-XL Data:  Big Data as a New Informational Privacy Paradigm. Here's the abstract:

Can informational privacy law survive Big Data? A few scholars have pointed to the inadequacy of the current legal framework to Big Data, especially the collapse of notice and consent, the principles of data minimization and data specification. These are first steps, but more is needed. To better understand the informational privacy implications of Big Data, this short comment locates Big Data as the newest point on a continuum of Small-Medium-Large-Extra Large data situations. This path indicates that Big Data is not just "more of the same", but a new informational paradigm.

One suggestion is to conceptualize Big Data in terms of property: Perhaps data subjects should have a property right in their data, so that when others process it, subjects can share the wealth. However, privacy has a complex relationship with property. Lawrence Lessig's 1999 proposal to propertize personal data, was criticized: instead of more protection, said the critics, there will be more commodification. Does Big Data render property once again a viable option to save our privacy? I begin a query about the property/privacy relationship, by juxtaposing informational privacy with property, real and intangible, namely copyright. This path indicates that current property law is unfit to address Big Data.

Meanwhile, OMER TENE of the College of Management - School of Law, Israel and JULES POLONETSKY, of the Future of Privacy Forum have co-authored Judged by the Tin Man: Individual Rights in the Age of Big Data, forthcoming in the Journal of Telecommunications and High Technology Law.  Here's their abstract:

Big data, the enhanced ability to collect, store and analyze previously unimaginable quantities of data in tremendous speed and with negligible costs, delivers immense benefits in marketing efficiency, healthcare, environmental protection, national security and more.  While some privacy advocates may dispute the merits of sophisticated behavioral marketing practices or debate the usefulness of certain data sets to efforts to identify potential terrorists, few remain indifferent to the transformative value of big data analysis for government, science and society at large.  At the same time, even big data evangelists should recognize the potentially ominous social ramifications of a surveillance society governed by heartless algorithmic machines. 

In this essay, we present some of the privacy and non-privacy risks of big data as well as directions for potential solutions. In a previous paper, we argued that the central tenets of the current privacy framework, the principles of data minimization and purpose limitation, are severely strained by the big data technological and business reality.  Here, we assess some of the other problems raised by pervasive big data analysis. In their book, “A Legal Theory for Autonomous Artificial Agents,” Samir Chopra and Larry White note that “as we increasingly interact with these artificial agents in unsupervised settings, with no human mediators, their seeming autonomy and increasingly sophisticated functionality and behavior, raises legal and philosophical questions.”  In this article we argue that the focus on the machine is a distraction from the debate surrounding data driven ethical dilemmas, such as privacy, fairness and discrimination. The machine may exacerbate, enable, or simply draw attention to the ethical challenges, but it is humans who must be held accountable. Instead of vilifying machine-based data analysis and imposing heavy-handed regulation, which in the process will undoubtedly curtail highly beneficial activities, policymakers should seek to devise agreed-upon guidelines for ethical data analysis and profiling. Such guidelines would address the use of legal and technical mechanisms to obfuscate data; criteria for calling out unethical, if not illegal, behavior; categories of privacy and non-privacy harms; and strategies for empowering individuals through access to data in intelligible form.

Braucher on Scams, Literature, and Behavioral Economics

Jean Braucher of Arizona haas written Scamming Considered as One of the Exact Sciences:  19th Century American Literature Foreshadows Insights of Behavioral Economics.  Here's the abstract:

Nineteenth century American literary masters Edgar Allen Poe, Herman Melville, and Mark Twain (with co-author Charles Dudley Warner) all examined scamming in their largely pre-regulatory time. These authors made two prescient observations of continuing importance: scammers carefully study their marks to find weaknesses to exploit with tricks and traps, and scammers’ subjective states of mind are often unfathomable behind masks in which they pose as legitimate and trustworthy. Furthermore, the moral hollowness of confidence men portrayed in 19th century literature provides a metaphor for contemporary businesses that exploit consumer misperceptions. The article argues that the humanities arrived much earlier at insights of behavioral economics recently used to develop consumer protection law, which now authorizes administrative regulation to prevent businesses from taking advantage of consumers’ lack of understanding. Literature thus provides a comparative perspective from which to evaluate and affirm the law’s new efforts to address scamming more effectively.

DiLorenzo Column: Qualified Mortgages: Safe Harbor From What?

by Jeff Sovern

My colleague, Vincent DiLorenzo, has a piece in the New York Law Journal on the CFPB's qualified mortgages regulations. 

Guest Post from Kathleen C. Engel: Currents, Continents and Consumer Law

We are grateful to Professor Kathleen C. Engel of Suffolk University Law School for providing this guest post on the International Association of Consumer Law biannual conference:

Every two years, consumer law academics from around the world gather to present their research and discuss their countries’ credit markets and consumer protection laws. This year, the International Association of Consumer Law held its biannual conference at the University of Sydney. Given Australia’s extraordinary success protecting consumers while providing broad access to capital, the setting was fitting.

The conference delegates hailed from Taiwan, Brazil, South Africa, China, Finland, Indonesia, Japan, Malaysia, the UK, and many other countries. There were well over sixty papers presented as as enlightening talks by Australian regulators, ombudspeople, and members of the judiciary.

For me, the highlight of IACL conferences is the opportunity to learn about the experiences of other countries—the challenges they face in making affordable credit available, the structure of their credit markets, their consumer regulatory systems, and the protections they provide consumers.  At the end of the day, the balance between protecting consumers and ensuring access to credit seems to be
the core issue in all countries.

The individual papers were outstanding and I wish I could write a synopsis of each of them. Instead, I will highlight a few of themes.  One distressing theme was that while many countries have strengthened their consumer laws in recent years, widespread exploitation of consumers continues. During one session, the audience was exuding envy at a description of Brazil’s consumer protections, which are Constitutional, only to find that abuses continue there.  Why?  Because the profits to be made through unlawful loans far exceed any consequences for making such loans.  Brazil is not alone.

Switching gears, Sharia complaint financing was on the conference agenda.  In western countries,there are structural barriers to Islamic financing, such as how to develop credit products that do not have any interest features and developing a secondary market for such products.  There are also concerns about how to reconcile Islamic financing with extant consumer protection laws.  For example, with some types of Sharia compliant financing, homes are under “underwater” from the outset, which could run afoul of loan-to-value limits.  Even in countries where there are significant Muslim populations, there are issues of bank compliance with both religious and secular law.

Big data and the internet came up at a number of sessions.  For years, people have talked about how lenders can dupe consumers because of inequalities in their understanding of credit terms and unequal bargaining power. There is another growing power imbalance: the private sector has more information on individual consumers’ spending habits and credit histories than the consumers themselves have.  Industry can use this information to target consumers with specific products, but consumers don’t have information on their spending patterns that would help them make informed choices. 

The intersection of the internet and consumer protection gave rise to a host of papers, including the question: what is applicable law in cross-border transactions?  What consumer law applies if I use the internet to rent an apartment in Shanghai that is owned by someone in Pretoria? No easy answers to this question.

If you want to learn more about the conference, the program with presenters’ names and the titles of their presentations is available at: http://www.iaclsydney2013.com/program_full.html.

My final thought is actually an expression of thanks to Gail Pearson, Professor at the University of Sydney, who hosted and planned a flawless conference.