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Category: Consumer Protection Law

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The Credit Card Merchant Fee Litigation Settlement

I’d like to thank Concurring Opinions for inviting me to blog about In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.  This eight-year-old multi-district litigation has produced the largest proposed cash settlement in litigation history  ($7.25 billion) along with what is perhaps the most extraordinary release from liability ever concocted.  It may also be the most contentious.  Over half the name plaintiffs and over 25% of the class, including most large merchants (think Walmart, Target) and most merchant organizations, have objected.  On September 12, Eastern District of New York Judge John Gleesaon held a fairness hearing to consider the settlement, and the parties are awaiting his decision.  An appeal is a virtual certainty.

This post will provide background on the credit card industry pricing mechanisms that led to this litigation, the legal issues in the case, and the structure of the settlement.  (You can read more about the history of the credit card industry’s relationship to the antitrust laws here.)  In subsequent posts, I’ll separately analyze the damages and relief provisions in the settlement.  (If you can’t wait 8-) my working paper analyzing the settlement is here.)  If there are particular issues that you’d like to read more about, let me know in the comments and I will respond in subsequent posts.

The credit card industry is atypical, but not unique, in that it competes in a two-sided market, i.e., one that serves two distinct customer bases.  A card system like Visa provides both a purchasing device (credit cards) to consumers and a payment acceptance service to merchants.  (By way of comparison, the legal blogging market is also two-sided.  Concurring Opinions provides both an information forum to its readers and a platform to its advertisers.)

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Fine Print as “Surrealist Masterpiece”

PipeFollowing up on the last post, I just wanted to recommend this essay on the nature of fine print in today’s society:

The Treachery of Images[,] probably Magritte’s most famous [painting], shows a well-rendered pipe above its own textual disavowal: “ceci n’est pas une pipe” – or, “this is not a pipe.” In the most obvious reading of the painting, Magritte is said to be pointing out the unbridgeable divide between representation and reality.

Contracts and (particularly) advertisements that use fine print operate on a similar level. The ad’s loudly stated, carefully worded attractions are representations of a proposed deal, the legitimacy of which the fine print discretely disavows. “This is not the deal,” the fine print says. On the subject of Magritte’s painting, Foucault speaks of an “operation cancelled as soon as performed,” a line that might as easily apply to advertising that offers deals too good to be true.

Foucault’s second reading of The Treachery of Images is a little subtler. He suggests that what the sentence “ceci n’est pas une pipe” actually refers to is itself: “this is not a pipe” is not a pipe. In recent years it has become common for fine print to include “unilateral amendment provisions” that entitle the company to change the terms of the deal at anytime as long as they give you written notice. In such cases, the fine print is also referring to itself when it whispers “this is not the deal.”

When people ask me why I’m critical of “notice and consent” in privacy law—well, this is why. The language in so many of these “contracts” is so one-sided, and so open to change over time, that trying to “control one’s data” is a mug’s game.

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The Dignity of the Minimum Wage?

[A brief note of apology: it's been a terrible blogging summer for me, though great on other fronts.  I promise I'll do better in the coming academic year. In particular, I'd like to get back to my dark fantasy/law blogging series. If you've nominations for interviewees, email me.]

WorkDetroitThis is one I’ve been meaning to write for a while.

One of the major lessons of the cultural cognition project is that empirical arguments are a terrible way to resolve value conflicts. On issues as diverse as the relationship between gun ownership and homicide rates, the child-welfare effects of gay parenting, global warming, and consent in rape cases, participants in empirically-infused politics behave as if they are spectators at sporting events. New information is polarized through identity-protective lenses; we highlight those facts that are congenial to our way of life and discounts those that are not; we are subject to naive realism.  It’s sort of dispiriting, really.  Data can inflame our culture wars.

One example of this phenomenon is the empirical debate over minimum wage laws. As is well known, there is an evergreen debate in economics journals about the policy consequences which flow from a wage floor.  Many (most) economists argue that the minimum wage retards growth and ironically hurts the very low-wage workers it is supposed to hurt. Others argue that the minimum wage has the opposite effect. What’s interesting about this debate -to me, anyway- is that it seems to bear such an orthogonal relationship to how the politics of the minimum wage play out, and the kinds of arguments that persuade partisans on one side or another. Or to put it differently, academic liberals in favor of the minimum wage have relied on regression analyses, but I don’t think they’ve persuaded many folks who weren’t otherwise disposed to agree with them. Academic critics of the minimum wage too have failed to move the needle on public opinion, which (generally) is supportive of a much higher level of minimum wage than is currently the law.

How to explain this puzzle?  My colleague Brishen Rogers has a terrific draft article out on ssrn, Justice at Work: Minimum Wage Laws and Social Equality. The paper urges a new kind of defense of minimum wages, which elides the empirical debate about minimum wages’ effect on labor markets altogether. From the abstract:

“Accepting for the sake of argument that minimum wage laws cause inefficiency and unemployment, this article nevertheless defends them. It draws upon philosophical arguments that a just state will not simply redistribute resources, but will also enable citizens to relate to one another as equals. Minimum wage laws advance this ideal of “social equality” in two ways: they symbolize the society’s commitment to low-wage workers, and they help reduce work-based class and status distinctions. Comparable tax-and-transfer programs are less effective on both fronts. Indeed, the fact that minimum wage laws increase unemployment can be a good thing, as the jobs lost will not always be worth saving. The article thus stands to enrich current increasingly urgent debates over whether to increase the minimum wage. It also recasts some longstanding questions of minimum wage doctrine, including exclusions from coverage and ambiguities regarding which parties are liable for violations.”

I’m a huge fan of Brishen’s work, having been provoked and a bit convinced by his earlier work (here) on a productive way forward for the union movement. What seems valuable in this latest paper is that the minimum wage laws are explicitly defended with reference to a widely shared set of values (dignity, equality). Foregrounding such values I think would increase support for the minimum wage among members of the populace.  The lack of such dignitary discussions in the academic debate to date has level the minimum wage’s liberal defenders without a satisfying and coherent ground on which to stand. Worth thinking about in the waning hours of Labor’s day.

 

 

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Privacy Self-Management and the Consent Dilemma

I’m pleased to share with you my new article in Harvard Law Review entitled Privacy Self-Management and the Consent Dilemma, 126 Harvard Law Review 1880 (2013). You can download it for free on SSRN. This is a short piece (24 pages) so you can read it in one sitting.

Here are some key points in the Article:

1. The current regulatory approach for protecting privacy involves what I refer to as “privacy self-management” – the law provides people with a set of rights to enable them to decide how to weigh the costs and benefits of the collection, use, or disclosure of their information. People’s consent legitimizes nearly any form of collection, use, and disclosure of personal data. Unfortunately, privacy self-management is being asked to do work beyond its capabilities. Privacy self-management does not provide meaningful control over personal data.

2. Empirical and social science research has undermined key assumptions about how people make decisions regarding their data, assumptions that underpin and legitimize the privacy self-management model.

3. People cannot appropriately self-manage their privacy due to a series of structural problems. There are too many entities collecting and using personal data to make it feasible for people to manage their privacy separately with each entity. Moreover, many privacy harms are the result of an aggregation of pieces of data over a period of time by different entities. It is virtually impossible for people to weigh the costs and benefits of revealing information or permitting its use or transfer without an understanding of the potential downstream uses.

4. Privacy self-management addresses privacy in a series of isolated transactions guided by particular individuals. Privacy costs and benefits, however, are more appropriately assessed cumulatively and holistically — not merely at the individual level.

5. In order to advance, privacy law and policy must confront a complex and confounding dilemma with consent. Consent to collection, use, and disclosure of personal data is often not meaningful, and the most apparent solution – paternalistic measures – even more directly denies people the freedom to make consensual choices about their data.

6. The way forward involves (1) developing a coherent approach to consent, one that accounts for the social science discoveries about how people make decisions about personal data; (2) recognizing that people can engage in privacy self-management only selectively; (3) adjusting privacy law’s timing to focus on downstream uses; and (4) developing more substantive privacy rules.

The full article is here.

Cross-posted on LinkedIn.

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Museum Fraud?

I was interested to read about a lawsuit that was recently filed against the Metropolitan Museum of Art alleging that the museum is engaged in deceptive business practices with respect to its “admission” fee.  Access to the museum is essentially free.  But the Museum posts admission fees of various sorts when you walk in.  If you look carefully, then you’ll see that these are “recommended” donations. You must give something to enter the Met under a city ordinance, but you can give any amount that you want (such as $.01).

The problem is that lots of tourists (especially foreign tourists) do not know this.  They think, upon seeing a list of admission fees, that these are mandatory.  And the museum (trust me, I’ve been there many times) does not go out of its way to make things clear.  Does this constitute fraud or violate state law?   Do New Yorkers want to chime in?

What’s Wrong with the Financial Services Industry?

I tried to answer this question at length in a review of Robert Shiller’s Finance and the Good Society. But if you want the short version, look no further than Barry Ritholtz’s list. One could easily expand it into an ever-growing wiki, but sometimes succinctness is supreme. Here’s Ritholtz on the multiple intermediary problem:

Too many people have a hand in your pocket[.] The list of people nicking you as an investor is enormous. Insiders (CEO/CFO/Boards of Directors) transfer wealth from shareholders to themselves, with the blessing of corrupted Compensation Consultants. Active mutual funds charge way too much for sub par performance. 401(k)s are disastrous. NYSE and NASDAQ Exchanges have been paid to allow a HFT tax on every other investor. FASB and accountants have done an awful job, allowing corporations to mislead investors with junk balance statements. The media’s job is to sell advertising, not provide you with intelligent advice. The regulators have been captured.

And while we’re on the topic of the personal consequences of finance, do take a look at Helaine Olen’s Pound Foolish. Olen has been making the intellectual podcast rounds, and offers a devastating portrait of a personal finance industry warped by ideology and greed.

“The Creditor Was Always Right”

What would a world of totally privatized justice look like? To take a more specific case—imagine a Reputation Society where intermediaries, unbound by legal restrictions, could sort people as wheat or chaff, credit-worthy or deadbeat, reliable or lazy?

We’re well on our way to that laissez-faire nirvana for America’s credit bureaus. While they seem to be bound by FCRA and a slew of regulations, enforcement is so wan that they essentially pick and choose the bits of law they want to follow, and what they’d like to ignore. That, at least, is the inescapable conclusion of a brief but devastating portrait of the bureaus on 60 Minutes. Horror stories abound regarding the bureaus, but reporter Steve Kroft finds their deeper causes by documenting an abandonment of basic principles of due process:
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Google Antitrust: the FTC Folds

Both Eric Goldman and James Grimmelmann have the details on the FTC’s rather extraordinary capitulation today. It is a big win for Google. Still, a few questions remain. I have the following:

1) Commissioner Rosch included this intriguing footnote in his concurrence/dissent:

I . . . have concerns that insofar as Google has monopoly or near-monopoly power in the search advertising market and this power is due in whole or in part to its power over searches generally, nothing in this “settlement” prevents Google from telling “half-truths”–for example, that its gathering of information about the characteristics of a consumer is done solely for the consumer’s benefit, instead of also to maintain a monopoly or near-monopoly position. . . .That is a genuine cause for “strong concern.”

Did Google ever say that it was gathering data purely for consumers’ benefit? That would seem to be an odd representation for a for-profit company to make.
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Better, Simpler Disclosure

Here is an apt response to the question: “What would an ideal food label look like?:”

Even the simplest information — a red, yellow or green “traffic light,” for example — would encourage consumers to make healthier choices. That might help counter obesity, a problem all but the most cynical agree is closely related to the consumption of junk food.

Of course, labeling changes like this would bring cries of hysteria from the food producers who argue that all foods are fine, although some should be eaten in moderation. To them, a red traffic-light symbol on chips and soda might as well be a skull and crossbones. But traffic lights could work: indeed, in one study, sales of red-lighted soda fell by 16.5 percent in three months.

Having recently spent time at a roundtable with transparency advocates (including one author of this excellent book), I can attest to the fact that only the clearest signals tend to get through the noise in an era of information overload.

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PETs, Law and Surveillance

In Europe, privacy is considered a fundamental human right. Section 8 of the European Convention of Human Rights (ECHR) limits the power of the state to interfere in citizens’ privacy, ”except such as is in accordance with the law and is necessary in a democratic society”. Privacy is also granted constitutional protection in the Fourth Amendment to the United States Constitution. Both the ECHR and the US Constitution establish the right to privacy as freedom from government surveillance (I’ll call this “constitutional privacy”). Over the past 40 years, a specific framework has emerged to protect informational privacy (see here and here and here and here); yet this framework (“information privacy”) provides little protection against surveillance by either government or private sector organizations. Indeed, the information privacy framework presumes that a data controller (i.e., a government or business organization collecting, storing and using personal data) is a trusted party, essentially acting as a steward of individual rights. In doing so, it overlooks the fact that organizations often have strong incentives to subject individuals to persistent surveillance; to monetize individuals’ data; and to maximize information collection, storage and use.

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