Consumer Law & Policy Blog

Solove & Hartzog Paper on the FTC's Common Law of Privacy

Daniel J. Solove of George Washington and Woodrow Hartzog of Samford's Cumberland School of Law and Stanford's Center for Internet and Society have written The FTC and the New Common Law of Privacy, forthcoming in the Columbia Law Review. Here's the abstract:

One of the great ironies about information privacy law is that the primary regulation of privacy in the United States has barely been studied in a scholarly way.  Since the late 1990s, the Federal Trade Commission (FTC) has been enforcing companies’ privacy policies through its authority to police unfair and deceptive trade practices.  Despite more than fifteen years of FTC enforcement, there is no meaningful body of judicial decisions to show for it.  The cases have nearly all resulted in settlement agreements.  Nevertheless, companies look to these agreements to guide their privacy practices. Thus, in practice, FTC privacy jurisprudence has become the broadest and most influential regulating force on information privacy in the United States – more so than nearly any privacy statute and any common law tort.   

In this article, we contend that the FTC’s privacy jurisprudence is the functional equivalent to a body of common law, and we examine it as such. We explore how and why the FTC, and not contract law, came to dominate the enforcement of privacy policies.  A common view of the FTC’s privacy jurisprudence is that it is thin, merely focusing on enforcing privacy promises.  In contrast, a deeper look at the principles that emerge from FTC privacy “common law” demonstrates that the FTC’s privacy jurisprudence is quite thick.   The FTC has codified certain norms and best practices and has developed some baseline privacy protections. Standards have become so specific they resemble rules.  We contend that the foundations exist to develop this “common law” into a robust privacy regulatory regime, one that focuses on consumer expectations of privacy, that extends far beyond privacy policies, and that involves a full suite of substantive rules that exist independently from a company’s privacy representations.

Calo Paper on Digital Market Manipulation

M. Ryan Calo of Washington has written Digital Market Manipulation.  Here's the abstract:

Jon Hanson and Douglas Kysar coined the term “market manipulation” in 1999 to describe how companies exploit the cognitive limitations of consumers.  Everything costs $9.99 because consumers see the price as closer to $9 than $10.  Although widely cited by academics, the concept of market manipulation has had only a modest impact on consumer protection law.

This Article demonstrates that the concept of market manipulation is descriptively and theoretically incomplete, and updates the framework for the realities of a marketplace that is mediated by technology.  Today’s firms fastidiously study consumers and, increasingly, personalize every aspect of their experience.  They can also reach consumers anytime and anywhere, rather than waiting for the consumer to approach the marketplace.  These and related trends mean that firms can not only take advantage of a general understanding of cognitive limitations, but can uncover and even trigger consumer frailty at an individual level.

A new theory of digital market manipulation reveals the limits of consumer protection law and exposes concrete economic and privacy harms that regulators will be hard-pressed to ignore.  This Article thus both meaningfully advances the behavioral law and economics literature and harnesses that literature to explore and address an impending sea change in the way firms use data to persuade.

Pottow Paper (with others) Compares Canadian and US Arbitrabilty Rules

John A. E. Pottow of Michigan, and two recent graduates, Jacob Brege and Tara J Hawley, have written A Presumptively Better Approach to Arbitrability, 53 Canadian Business Law Journal (2013).  Here's the abstract:

One of the most complex problems in the arbitration field is the question of who decides disputes over the scope of an arbitrator’s purported authority. Courts in Canada and the United States have taken different approaches to this fundamental question of “arbitrability” that necessarily arises when one party disputes the contractual validity of the underlying “container” contract carrying the arbitration clause. If arbitration is a creature of contract, and contract is a product of consensual agreement, then any dispute that impugns the underlying consent of the parties to the container contract implicates the arbitration agreement itself (i.e., no contract, no arbitration agreement).

The U.S. approach of “separability” dates back a half-century to a Supreme Court case that was controversial when it was decided and remains so today. The Supreme Court has added several more decisions trying to clarify its arbitrability rules within just the past few years. The Canadians too have tried to sort out this mess, seizing upon the hoary legal distinction between law and fact, also offering recent Supreme Court pronouncements. Neither country’s approach is normatively or functionally satisfying.

After discussing and critiquing the two approaches comparatively, we offer our own proposal. We too deploy legal presumptions, but in our case we focus on what we contend are the two most relevant criteria: (1) the nature of the legal challenge to the underlying container contract, and (2) the type of contract at issue. Challenges to consent in contract formation and contracts involving adhesion should be specially scrutinized by the courts before carting parties off to arbitration, whereas commercial agreements between sophisticated actors should presumptively be for arbitral resolution, even for “constitutive” challenges to the underlying contract.

Nathan Cortez Asks if Graphic Tobacco Warnings Violate the First Amendment

Nathan Cortez of SMU has written Do Graphic Tobacco Warnings Violate the First Amendment? 64 Hastings L. J. (2013).  Here's the abstract:

When Congress passed the nation’s first comprehensive tobacco bill in 2009, it replaced the familiar Surgeon General’s warnings, last updated in 1984, with nine blunter warnings. The law also directed the U.S. Food and Drug Administration ('FDA') to require color graphics to accompany the textual warnings. By law, the warnings would cover the top fifty percent of the front and back of tobacco packaging and the top twenty percent of print advertisements, bringing the United States closer to many peer countries that now require graphic warnings. Tobacco companies challenged the requirement on First Amendment grounds, arguing that the compelled disclosures violated their free speech rights. In 2012, the Sixth Circuit Court of Appeals treated the challenge as a facial attack and upheld the law in Discount Tobacco City & Lottery v. United States; five months later, the D.C. Circuit vacated the graphic warnings selected in the FDA’s final rule in R.J. Reynolds v. FDA. Although many expected the Supreme Court to resolve the apparent circuit split, the government withdrew the rule and opposed Supreme Court review. As such, the FDA will reinitiate the lumbering rulemaking process and propose new graphic warnings. And when it does, the tobacco industry most likely will challenge the graphic warnings again on First Amendment grounds. This Article considers several ambiguities that these cases have left unresolved and suggests how the FDA and courts should confront these questions during the next round of rulemaking and litigation. The Supreme Court will probably have another chance to resolve these ambiguities and its decision could have significant consequences for future government efforts to catch our attention at the point of sale.

Elizabeth Renuart Paper on Foreclosure

Elizabeth Renuart of Albany has written Uneasy Intersections: The Right to Foreclose and the UCC, forthcoming in 48 Wake Forest law Review.  Here's the abstract:

Historically, the practice of real property and foreclosure law was routine and noncontroversial. This legal landscape significantly altered during the spectacular growth of securitization deals involving trillions of dollars of residential mortgage loans. The National Conference of Commissioners on Uniform State Laws (NCCUSL) was a driving force behind one of these changes. It adopted amendments to Article 9 of the Uniform Commercial Code in 1998, at least in part, to facilitate securitization. These modifications included extending coverage to the sale of (not merely to a security interest in) promissory notes, declaring that the sale of the note also constitutes a sale of the mortgage without the need for a written assignment of the mortgage, and providing for automatic perfection of interests in both the note and the accompanying mortgage without the need to file.

Meanwhile, the behavior of a number of mortgage lending and securitization participants or their agents generated additional legal complications.  Examples include the mishandling of loan notes and mortgages, the forging of indorsements or the submitting of fraudulent affidavits to courts in support of their purported right to foreclose, and the pressing of foreclosures without the necessary documentation. 

Confusion about the roles of and intersections among Articles 3 and 9 of the UCC and the right to foreclose under state real property law followed in the wake of these changes. These misunderstandings spawned volumes of judicial rulings, many of which appear to be at odds with each other. In an effort to reduce the ensuing legal confusion about the intersections between the right to foreclose and the UCC, this Article provides a roadmap of the relevant rules in Articles 3 and 9 and the right to foreclose in state real property law. Further, it explores the tension developing over the last decade among Articles 3, 9, and the right-to-foreclose concept in state real property law.

This Article advances the literature concerned with the right to foreclose by categorizing recent state appellate court decisions that address this right by the type of analysis applied by those courts. The rulings from Arizona, California, and Georgia fall into one category and are the subject of special scrutiny because they dismiss the role of the UCC outright. Moreover, these three states have experienced some of the worst foreclosure rates in the nation and permit foreclosures to proceed nonjudicially. Hence, these decisions will affect a broad swath of homeowners in danger of losing their homes. The Article then applies statutory construction principles to determine whether those courts ruled out the UCC unnecessarily, proffering that foreclosure laws in those states could be harmonized with the UCC.

Finally, the Article concludes that where inconsistencies arise between the UCC and state real property law, applying statutory construction principles likely will result in creating a more uniform legal landscape throughout the nation, in protecting homeowners from unjustified foreclosures, and in reducing litigation costs and judicial resources in a distraught foreclosure system.

Rutledge & Drahozal Paper on the Prevalence of Arbitration Clauses After Concepcion and Amex

Peter B. Rutledge of Georgia and Christopher R. Drahozal of Kansas have written 'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex. Here's the abstract:

We present the results of the first empirical study of the extent to which businesses have switched to arbitration after AT&T Mobility LLC v. Concepcion. After the Supreme Court’s decision in Concepcion, commentators predicted that every business soon would use an arbitration clause, coupled with a class arbitration waiver, in their standard form contracts to avoid the risk of class actions. We examine two samples of franchise agreements:  one sample in which we track changes in arbitration clauses since 1999, and a broader sample focusing on changes since 2011, immediately before Concepcion was decided.  Our central finding is consistent across both samples of franchise agreements:  the use of arbitration clauses in franchise agreements has increased since Concepcion, but not dramatically, and most franchisors have not switched to arbitration. While our results necessarily are limited to franchise agreements and may not be generalizable to consumer and employment contracts, they nonetheless provide valuable evidence on how businesses are responding to Concepcion.

Given our finding that only a handful of franchisors have switched to arbitration clauses since Concepcion, the next question is “why not”?  We reexamine the assumptions underlying the predictions of a switch to arbitration ― that there is no reason for a business not to use an arbitral class waiver and that businesses readily and costlessly can and will modify their form contracts ― and find reason to question both. By using an arbitration clause, businesses do more than simply contract out of class actions:  they contract for a bundle of dispute resolution services, including, for example, a very limited right to appeal.  For businesses that perceive themselves as unlikely to be sued in a class action, these “bundling costs” may discourage them from using an arbitration clause.  In addition, even standard form contracts might be sticky ― i.e., resistant to change even if change might be in the business’s best interest.  We find empirical support for both possible explanations for why many franchisors have not begun using arbitration clauses after Concepcion.

Finally, we consider the potential implications of the Court’s subsequent decision in American Express Cos. v. Italian Colors Restaurant for the future use of arbitration clauses. To the extent bundling costs deter the use of arbitral class waivers, we still would not expect all or most businesses to switch to arbitration even after Amex.  Likewise, to the extent contract stickiness explains the limited switch to arbitration, Amex will have limited effect. In fact, Amex might actually make class action waivers that are not part of an arbitration clause more attractive than before.  Although on its facts Amex addresses the enforceability of arbitral class waivers, much of the Court’s reasoning applies as well to non-arbitral class waivers, which avoid the bundling costs of an arbitral class waiver. Of course, even after Amex much legal uncertainty remains about the enforceability of non-arbitral class waivers. But on this broad interpretation, Amex on the margin increases the attractiveness of non-arbitral class waivers and might result in some uptick in their use (an increase that was occurring even before Amex, at least in franchise agreements).

David Skeel Paper on Behavioral Economics and the CFPB

David A. Skeel Jr. of NYU, Penn, and the European Corporate Governance Institute has written Behavioralism in Finance and Securities Law.  Here is the abstracgt:

In this Essay, I take stock (as something of an outsider) of the behavioral economics movement, focusing in particular on its interaction with traditional cost-benefit analysis and its implications for agency structure.  The usual strategy for such a project — a strategy that has been used by others with behavioral economics — is to marshal the existing evidence and critically assess its significance.  My approach in this Essay is somewhat different.  Although I describe behavioral economics and summarize the strongest criticisms of its use, the heart of the Essay is inductive, and focuses on a particular context: financial and securities regulation, as recently revamped by the Dodd-Frank Act and subsequent rule making.   To lay the foundation for the Essay, I begin by briefly describing behavioral economics and by surveying the most significant critiques of its use.  I then consider how behavioral economics has informed, or might inform, the work of the Consumer Financial Protection Bureau; SEC rulemaking on proxy access; and the efforts of the new financial legislation to ban bailouts.  I suggest, among other things, that behavioralism’s implications are quite different for rules and rulemaking than for questions of regulatory structure.

Paper on Behavioral Economics and Consent to Tracking Internet Use

Frederik J. Zuiderveen Borgesius of the Institute for Information Law (University of Amsterdam) has written Consent to Behavioural Targeting in European Law - What are the Policy Implications of Insights from Behavioural Economics?  Here is the abstract:

Behavioural targeting is the monitoring of people’s online behaviour to target advertisements to specific individuals. European law requires companies to obtain informed consent of the internet user before they use tracking technologies for behavioural targeting. Other jurisdictions also emphasise the importance of choice for internet users. But many people click ‘I agree’ to any statement that is presented to them. This paper discusses insights from behavioural economics to analyse problems with informed consent to behavioural targeting from a regulatory perspective. What are the policy implications of insights from behavioural economics in the context of behavioural targeting? Two approaches to improve regulation are explored. The first focuses on empowering the individual, for example by making informed consent more meaningful. The second approach focuses on protecting the individual. If aiming to empower people is not the right tactic to protect privacy, maybe specific prohibitions should be introduced.

Paper Comparing Foreclosure Procedures and the Number of Mortgage Originations

Quinn Curtis of Virginia has written State Foreclosure Laws and Mortgage Origination in the Subprime Market, forthcoming in the Journal of Real Estate Finance and Economics. Here's the abstract:

Foreclosure procedures in some states are considerably swifter and less costly for lenders than in others. In light of the foreclosure crisis, an empirical understanding of the effect of foreclosure procedures on the mortgage market is critical. This study finds that lender-favorable foreclosure procedures are associated with more lending activity in the subprime market. The study uses hand-coded state foreclosure law variables to construct a numerical index measuring the favorability of state foreclosure laws to lenders. Mortgage origination data from state-border areas shows that lender-friendly foreclosure is associated with an increase in subprime originations, but has less effect on the prime market.

Paper Explains and Critiques the Account Stated Cause of Action

International & Comparative Law Fellow Emanwel J. Turnbull at Maryland has written Account Stated Resurrected: The Fiction of Implied Assent in Consumer Debt Collection.  Here's the abstract:

When are modern American consumers like 17th century merchants? The answer is “now”. Often, in collection lawsuits, creditors allege that consumers in debt are liable for an “account stated.” This “account stated” is a theory of liability that dates back to the medieval period. Today it is used precisely because it offers to treat consumers in debt like Renaissance merchants. The core rule of an account stated claim today is that if a debtor receives a statement of what he owes and he does not object to the statement, he is assumed to have agreed that the statement is correct and to have promised to pay the debt. This rule began as a custom between merchants in the 17th century. It became part of English law and was received into American law with the rest of English common law. The rule, which I will call “implied account stated”, was extended to non-merchants in the United States in the 19th century. In the 20th century, account stated began to fall into obscurity.

Surprisingly, account stated has been resurrected in recent years by debt-collectors, for the purpose of collecting consumer debt. Today, the primary function of account stated is to reduce the evidence plaintiffs must provide to obtain a judgment. Implied account stated, at its worst, requires no more than evidence that the plaintiff sent the debtor a bill and the debtor failed to object to the bill. Account stated is particularly attractive to businesses which purchase defaulted consumer debts: “debt buyers” because it allows them to collect with little evidence in hand.

This article will trace the history of account stated, from its medieval origins to the implication of accounts stated from the trade practices of merchants in the 17th and 18th centuries, and extension of implied account stated from merchants, to any person with legal capacity. Analysis of the current position of account stated claims in New York, Maryland and West Virginia will follow, showing how New York has accepted the extension, Maryland has no definitive case and West Virginia explicitly rejected the extension.

After establishing the history and current use of account stated, this article will argue for reform, on grounds of both policy and principle. Account stated is generally justified as a consensual relationship. Yet the implication of account stated violates one of the simplest rules of contract law: that silence does not amount to assent. Thus the consensual nature of account stated in modern consumer collection actions is no more than a legal fiction. To consumers, it is merely a harsh and archaic technicality, which allows collection actions to proceed on scant evidence.

These problems call for a change to account stated doctrine. I argue that account stated must be brought back to conformity with the normal principles of contract law. Account stated should be implied only where there is evidence sufficient to imply, as a matter of fact, that real assent was given by the consumer. Significantly, these changes would remove a theoretical inconsistency from the law. More importantly, they would prevent the abuse of account stated as a vehicle for collection when the plaintiff cannot or will not present adequate evidence to succeed upon a breach of contract claim. By narrowing account stated, whether it is through regulation or through judicial rediscovery of its origins and its relationship to ordinary contract law, consumers can be further protected, courts can be relieved of the burden of grappling with this ancient cause of action and the broken collection system, at least in one aspect, can be mended.