Consumer Law & Policy Blog

Schwartz & Solove: Reconciling Personal Information in the United States and European Union

Paul M. Schwartz of Berkeley and Daniel J. Solove of George Washington have written Reconciling Personal Information in the United States and European Union. Herer's the abstract:

US and EU privacy law diverge greatly. At the foundational level, they diverge in their underlying philosophy: In the US, privacy law focuses on redressing consumer harm and balancing privacy with efficient commercial transactions. In the EU, privacy is hailed as a fundamental right that trumps other interests. Even at the threshold level - determining what information is covered by the regulation - the US and EU differ significantly. The existence of personal information - commonly referred to as “personally identifiable information” (PII) - is the trigger for when privacy laws apply. PII is defined quite differently in US and EU privacy law. The US approach involves multiple and inconsistent definitions of PII that are often quite narrow. The EU approach defines PII to encompass all information identifiable to a person, a definition that can be quite broad and vague. This divergence is so basic that it significantly impedes international data flow. A way to bridge the divergence remains elusive, and many commentators have generally viewed the differences between US and EU privacy law as impossible to reconcile.

In this essay, we argue that there is a way to bridge these differences at least with PII. We contend that a tiered approach to the concept of PII (which we call “PII 2.0”) represents a superior way of defining PII than the current approaches in the US and EU. We also argue that PII 2.0 is consistent with the different underlying philosophies of the US and EU privacy law regimes. Under PII 2.0, all of the Fair Information Practices (FIPs) should apply when data refers to an identified person or where these is a significant risk of the data being identified. Only some of the FIPs should apply when data is merely identifiable, and no FIPs should apply when there is a minimal risk that the data is identifiable. We demonstrate how PII 2.0 advances the goals of both US and EU privacy law and is consistent with their different underlying philosophies. PII 2.0 thus begins the process of bridging the current gap between US and EU privacy law.

Grossman Paper: FDA and the Rise of the Empowered Consumer

Lewis A. Grossman of American has written FDA and the Rise of the Empowered Consumer. Here's the abstract:

This paper traces the historical evolution of a view of consumers as informed, rational, and rights-bearing decision makers, and the corresponding diminution of FDA’s role as a paternalistic gatekeeper acting in conjunction with medical and scientific experts to prevent products and information from reaching the public. 

The relationship between consumers and FDA-regulated products has changed dramatically since the mid-1960s.  A half century ago, FDA treated consumers as passive and ignorant. Accordingly, the agency gave them relatively little latitude to make their own choices among products and denied them much of the information they could have used to inform such choices.  By comparison, today’s consumers of food and drugs are much more empowered to make their own, unmediated choices among a wider variety of products, guided by a deluge of labeling and advertising information.

The paper examines this phenomenon against a background of three societal and cultural trends during the past half century: Americans’ declining trust in major institutions, the “rights revolution,” and the dramatic expansion of health care information accessible to consumers.  It then examines a variety of specific regulatory developments during this period of change.  In a section on food, the paper considers reforms in standards of identity and nutrition labeling, the rise of health claims as facilitated by the First Amendment, and various popular movements for freedom of choice with respect to food ingredients and dietary supplements.  The paper then turns to drug regulation, examining the rise of patient labeling and direct-to-consumer advertising of prescription drugs, the tidal wave of “switches” from prescription to over-the-counter status, and the birth of social movements seeking to influence FDA drug approval policy.  The paper concludes by speculating on whether this new model of consumer is a permanent one.

Paper on Whether Regulation Curbs Foreclosures

Fernando López Vicente of the Bank of Spain has written The Effect of Foreclosure Regulation: Evidence for the US Mortgage Market at State Level.  Here's the abstact:

Do laws to protect borrowers curb foreclosures? This question is addressed by analysing the impact of foreclosure laws on default rates at state level in the US mortgage market. Using panel data techniques, we find a statistically significant effect of regulation on the different stages of the foreclosure process. More precisely, we analyse the effect of regulation on 60-day delinquencies and foreclosure starts, with a focus on three protective elements commonly found in state foreclosure laws, namely requiring a judicial process, granting a redemption period and banning a deficiency judgment. We find that, whereas protective states exhibit, on average, lower 60-day delinquency rates, more protection does not ultimately bring about lower foreclosure rates. Lenders seem to ration credit to mitigate costly protective laws, thereby reducing delinquency rates; but this effect is overshadowed by a moral hazard problem since, once borrowers are delinquent, they have incentives to take advantage of the protection due to the lower costs of foreclosure. We also find that the recent housing market crisis has exacerbated that behaviour. Finally, we show that lengthening the foreclosure process is no cure for the foreclosure crisis.

Ian Ayres & Alan Schwartz Paper: The No Reading Problem in Consumer Contract Law

Two Yale heavyweights, Ian Ayres & Alan Schwartz, have written The No Reading Problem in Consumer Contract Law, forthcoming in the Stanford Law Review. Here is the abstract:

Instead of attempting to promote informed consumer assent through quixotic attempts to have consumers read ever-expanding disclosures, this Article argues that consumer protection law should focus on unexpected, unfavorable terms. We propose a system under which mass market sellers are required periodically to engage in a process of "term substantiation" through which sellers would learn whether their consumers held accurate beliefs about the terms of their agreement. Terms that meet or exceed the median consumer’s expectation would be enforceable even if buried or only available on request.  But sellers could enforce unexpected, unfavorable terms only if they are disclosed in a "warning box" that has a government-provided standard border.  To prevent overuse of the box, sellers would need (i) to exclude terms from the box that meet or exceed consumer expectations and (ii) to order terms in the box in descending order of consumer importance.  Such a system of term substantiation coupled with targeted warnings about unexpected terms jettisons as unworkable the duty to read ideal.  It instead economizes on consumer scarce attention by increasing the salience of those terms that are most likely to inhibit informed consent. 

We report on the results of an original term substantiation field experiment documenting user expectations concerning unread Facebook EULA provisions. Consistent with our analysis, we find that users can correctly evaluate many of these provisions. Importantly, we also uncover the existence of a few unexpectedly, unfavorable terms that, under our proposal, would be presumptively unenforceable unless subject to heightened disclosure.

Daniel Schwarcz Paper on Post-Sale Monitoring of Financial Products

Daniel Schwarcz of Minnesota has written Monitoring, Reporting, and Recalling Defective Financial Products, University of Chicago Legal Forum (2013).  Here is the abstract:

In recent years, innovations in consumer financial protection have drawn heavily from the law governing the safety of tangible products.   This short essay, prepared for a symposium entitled "Frontiers of Consumer Protection," extends this approach by evaluating whether the law governing post-sale product safety for tangible consumer products offers potential lessons for consumer financial protection. In particular, it considers the extent to which the law could require providers of consumer financial products to affirmatively monitor, report or correct regulatory problems with their products that come to light after sale.  Such post-sale self-policing by financial firms could offer benefits similar to those that justify standard product recall law: the sellers of financial products may be best situated to identify unintended negative consequences of their products that come to light after sale and to minimize the resulting costs through proactive market interventions.  The essay illustrates this approach by reconsidering the Consumer Financial Protection Bureau’s rules implementing the Dodd-Frank Act’s “ability to repay” requirement for mortgages.  It also suggests that the analytical frame embedded in post-sale safety requirements offers potential lessons for a number of other consumer financial protection issues, such as disclosure requirements and prohibitions on impermissible discrimination.

Call for Papers: Behavioural Economics, Environmental Policy and the Consumer

For the Journal of Consumer Policy. More here. 

Study on How Judges' Politics Affects Their Application of the Twombly-Iqbal Pleading Rules

Raymond H. Brescia and Edward J. Ohanian, both of Albany have written The Politics of Procedure: An Empirical Analysis of Motion Practice in Civil Rights Litigation Under the New Plausibility Standard, forthcoming in 46 Akron Law Review (2013).   Here's the abstract:

Is civil procedure political?  In May of 2009, the Supreme Court issued its decision in Ashcroft v. Iqbal, which explicitly extended the “plausibility standard,” first articulated in Bell Atlantic v. Twombly two years earlier, to all civil pleadings. That standard requires that pleadings, in order to satisfy Rule 8(a) of the Federal Rules of Civil Procedure, must state a plausible claim for relief. For many, these rulings represented a sea change in civil pleading standards. Where prior Supreme Court precedent had provided that a pleading should not be dismissed “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim,” the new standard requires that judges utilize their own “judicial experience and common sense” to determine whether claimants have set forth facts sufficient to “nudge their claims across the line from conceivable to plausible.”  In the years since their issuance, this standard has provoked many questions. One such question, which lurks behind all otherwise neutral rules of procedure is the following: could this apparently neutral principle of procedure be subject to political manipulation?  

After Twombly, and again after Iqbal, many expressed fears that the new plausibility standard offered judges too much discretion; a judge could dismiss a case where a plaintiff’s claims did not comport with that judge’s experience and common sense. There was a particular fear that this discretion would have a disparate and adverse impact on civil rights cases: i.e., if members of the federal bench were predisposed to disfavor such claims, they might use these precedents to dismiss civil rights cases too readily. Several years have now passed since the Court issued these decisions, and the district courts have compiled a body of thousands of decisions citing these precedents.  As a result, it is now possible to assess the impact of these decisions on practice in the lower courts, particularly their effect on civil rights cases. The study described here attempted to do just that by looking at outcomes and trends in motions challenging the specificity of the pleadings in over 500 employment and housing discrimination cases over a period of six years (including decisions issued both before and after Twombly and Iqbal). This research reviewed the outcomes in such cases based on a number of metrics, including, most importantly, the political affiliation of the president who appointed the judge issuing each decision reviewed.

The study revealed a statistically significant relationship between the outcomes in civil rights cases and time period (i.e. pre-Twombly, post-Twombly but pre-Iqbal, and post-Iqbal)  where the political affiliation of the president who appointed the judge reaching the decision in each case was Republican. For cases decided by judges appointed by Democrat-affiliated presidents, no such relationship was observed. This paper reports on the findings of this study and discusses their implications.

Ben-Shahar Reviews Boilerplate

Omri Ben-Shahar of Chicago has written Regulation Through Boilerplate: An Apologia, forthcoming in the Michigan Law Review. Here's the abstract:

 

This essay reviews Margaret Jane Radin’s Boilerplate: The Fine Print, Vanishing Rights, And The Rule Of Law (Princeton Press, 2013). It responds to two of the book’s principal complaints against boilerplate consumer contracts: that they modify people’s rights without true agreement to, or even minimal knowledge of, their terms; and that the provisions they unilaterally enact are substantively intolerable. I argue, counter-intuitively, that contracts with long fine prints are no more complex and baffling to consumers than any alternative boilerplate-free templates of contracting. Therefore, there is no alternative universe in which consumers enter simpler contracts better informed of the legal terms. In addition, I argue that any policy that mandates consumer-friendlier arrangements (such as ones that eliminate boilerplate arbitration clauses, warranty disclaimers, or data collection) would hurt consumers in an unintended but potentially costly way.

Pat McCoy on Barriers to Foreclosure Prevention

Patricia A. McCoy of Connecticut has written Barriers to Foreclosure Prevention During the Financial Crisis, forthcoming in 55 Arizona Law Review. Here's the abstract:

The number of modifications to distressed residential loans has been subpar to date compared to the number of foreclosures. This raises concerns about the presence of artificial barriers to loan modifications in situations where foreclosure should be avoidable. Numerous theories have been advanced for the relatively low level of modifications, including restrictions on loan modifications in private-label servicing agreements, threats of lawsuits by private-label investors, servicer compensation arrangements, the high cost of loss mitigation, accounting rules, junior liens, and tax considerations. This Article concludes that servicer compensation coupled with the costly nature of loan workouts, accounting standards and junior liens form the biggest impediments to an efficient level of loan modifications. These factors also distort the mix of loan modifications that are made toward types of modifications with higher redefault rates. Other explanations, such as servicing agreement restrictions, tax consequences, and the threat of lawsuits, either are not at play or are of second order importance.

Jimenez Paper: Illegality in Consumer Debt Contracts and What to Do About it

Dalie Jimenez of Connecticut has written Illegality in Consumer Debt Contracts and What to Do About it.  Here's the abstract:

Many of the contracts for the sale of consumer debts that are publically available contain “quitclaim” language disclaiming all warranties about the underlying debts sold or the information transferred, generally referring to the debts as being sold “as is” and “with all faults.” Some of the contracts contain even more specific language, disclaiming any representations as to the “validity, enforceability, or collectability” of the debts sold as well as “the accuracy or completeness of any information provided by the seller to the buyer, including ... current balance or accrued interest.”   

This paper argues that the collection of a consumer debt that was sold or assigned through a contract containing this quitclaim language is a per se violation of the Fair Debt Collection Practices Act's prohibition against using false, deceptive, or misleading representations in connection with the collection of a debt. The paper argues that collectors make a misleading representation when they seek to collect from a consumer when they state that the consumer owes a particular dollar amount on the debt or a particular amount in interest. The paper also argues  that where the underlying debt was sold subject to quitclaim language, collectors who seek to collect by bringing a lawsuit are not only violating the FDCPA, they are also materially misrepresenting facts to the court and potentially violating state analogs to Fed. R. Civ. P. 11.

Given the high likelihood that any given attempt at collection by a debt buyer to collect a consumer debt is based on a contract that contains quitclaim language, the Article proposes steps that could be taken by various actors in the collection system to ameliorate this issue. The first solution focuses on federal or state regulators using their enforcement and supervisory powers to stop the collection of debts based on underlying contracts with this language. The second focuses on courts, state legislators, and the consumer attorney bar, and urges them to require or request the production of the underlying contracts. The third recommendation is a novel proposal for a national debt registry system that I argue would go a long way towards solving this (and other problems) going forward.