Consumer Protection Law Commons^™

Revisiting The Accredited Investor Standard, Syed Haq

Michigan Business & Entrepreneurial Law Review

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and the Jumpstart Our Business Startups (JOBS) Act provided the impetus for several changes in the financial regulatory regime. In the securities markets, Dodd-Frank included provisions that lifted a ban on general solicitation and mandated a review of the accredited investor standard. These changes, while intended to increase capital formation within our private markets, also brought to light serious investor protection issues. This note advocates for a new accredited investor standard that more accurately reflects the risks associated with investing in the private markets.

Debunking Humphrey's Executor, Daniel A. Crane

Articles

The Supreme Court’s 1935 Humphrey’s Executor decision paved the way for the modern administrative state by holding that Congress could constitutionally limit the President’s powers to remove heads of regulatory agencies. The Court articulated a quartet of features of the Federal Trade Commission’s (“FTC”) statutory design that ostensibly justified the Commission’s constitutional independence. It was to be nonpartisan and apolitical, uniquely expert, and performing quasi-legislative and quasi-judicial, rather than executive, functions. In recent years, the staying power of Humphrey’s Executor has been called into question as a matter of constitutional design. This Essay reconsiders Humphrey’s Executor from a different angle. …

The Cost Of Confusion: The Paradox Of Trademarked Pharmaceuticals, Hannah Brennan

Michigan Telecommunications & Technology Law Review

The United States spends nearly $1,000 per person annually on drugs—forty percent more than the next highest spender, Canada, and more than twice the amount France and Germany spend. Although myriad factors contribute to high drug spending in the United States, intellectual property law plays a crucial and well-documented role in inhibiting access to cheaper, generic medications. Yet, for the most part, the discussion of the relationship between intellectual property law and drug spending has centered on patent protection. Recently, however, a few researchers have turned their attention to a different avenue of exclusivity—trademark law. New studies suggest that pharmaceutical …

Mandatory Arbitration In Consumer Finance And Investor Contracts, Michael S. Barr

Articles

Mandatory pre-dispute arbitration clauses are pervasive in consumer financial and investor contracts—for credit cards, bank accounts, auto loans, broker-dealer services, and many others. These clauses often ill serve households. Consumers are typically presented with contracts on a “take it or leave it” basis, with no ability to negotiate over terms. Arbitration provisions are often not clearly disclosed, and in any event are not salient for consumers, who do not focus on the importance of the provision in the event that a dispute over the contract later arises, and who may misforecast the likelihood of being in such a dispute. The …

Regulating Electricity-Market Manipulation: A Proposal For A New Regulatory Regime To Proscribe All Forms Of Manipulation, Matthew Evans

Michigan Law Review

Congress broadly authorized the Federal Energy Regulatory Commission (“FERC”) to protect consumers of electricity from all forms of manipulation in the electricity markets, but the regulations that FERC passed are not nearly so expansive. As written, FERC’s Anti-Manipulation Rule covers only instances of manipulation involving fraud. This narrow scope is problematic, however, because electricity markets can also be manipulated by nonfraudulent activity. Thus, in order to reach all forms of manipulation, FERC is forced to interpret and apply its Anti-Manipulation Rule in ways that strain the plain language and accepted understanding of the rule and therefore constitute an improper extension …

The Volcker Rule, Banking Entities, And Covered Funds Activities, Jeffrey Koh, Kyle Gaughan

Michigan Business & Entrepreneurial Law Review

With the passage of the 2010 Dodd-Frank Act, Congress instituted a host of new laws attempting to protect consumers from the types of risky trading that led to the 2008 economic crisis. However, many of the new rules and regulations, including the Volcker Rule, are yet to fully take effect. Among other restrictions, the Volcker Rule attempts to curtail risky trading by limiting banking entity investments in private equity and venture capital funds. As the Volcker Rule nears its implementation deadline, banking entities are concerned that they will face substantial losses in having to comply with the Volcker Rule by …

Broker-Dealers And Investment Advisers: A Behaviorial-Economics Analysis Of Competing Suggestions For Reform, Polina Demina

Michigan Law Review

For the average investor trying to save for retirement or a child’s college fund, the world of investing has become increasingly complex. These retail investors must turn more frequently to financial intermediaries, such as broker-dealers and investment advisers, to get sound investment advice. Such intermediaries perform different duties for their clients, however. The investment adviser owes his client a fiduciary duty of care and therefore must provide financial advice that is in the client’s best interests, while the broker-dealer must merely provide advice that is suitable to the client’s interests—a lower standard than the fiduciary duty of care. And yet …

Protecting Whistleblower Protections In The Dodd-Frank Act, Samuel C. Leifer

Michigan Law Review

In 2008, the United States fell into its worst economic recession in over seventy years. In response, Congress enacted the near-comprehensive Dodd–Frank Wall Street Reform and Consumer Protection Act. Section 922 of Dodd–Frank, in particular, includes specific provisions designed to incentivize and protect corporate whistleblowers. These provisions demonstrated Congress’s belief that a comprehensive and robust whistleblower protection scheme was essential to preventing many of the abuses that caused the financial crisis. Unfortunately, this section’s inconsistent language has produced conflicting decisions within the federal judiciary. In accordance with the Securities and Exchange Commission (“SEC”)’s own reading of Section 922, several district …

Opening Schumer’S Box: The Empirical Foundations Of Modern Consumer Finance Disclosure Law, Hosea H. Harvey

University of Michigan Journal of Law Reform

This Article explores the fundamental failure of Congress’ twenty-five-year quest to utilize disclosure as the primary tool to both regulate credit card issuers and educate consumers. From inception until present, reforms to this disclosure regime, even when premised on judgment and decision-making behavioralism, were nomothetic in orientation and ignored clear differences in population behavior and the heterogeniety of consumers. Current law prohibits credit card issuers from acquiring consumer socio-demographic data and prevents issuers and regulators from using market and policy experimentation to enhance disclosure’s efficacy. To explain why this regime was structured this way and why it must change, this …

Tesla And The Car Dealers' Lobby, Daniel A. Crane

Articles

Tesla Motors, the offspring of entrepreneur Elon Musk (who brought us Pay-Pal and SpaceX), is the most exciting automotive development in many decades and a marquee story of American technological dynamism and innovation. The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested. Despite the acclaim, Tesla faces enormous challenges Despite the acclaim, Tesla faces enormous challenges in penetrating an automotive market that has been dominated for a century by internal combustion engines. Not only must it build cars that customers …

A Disclosure-Focused Approach To Compelled Commercial Speech, Andrew C. Budzinski

Michigan Law Review

In 2010, the Food and Drug Administration passed a rule revising compelled disclaimers on tobacco products pursuant to the Family Smoking Prevention and Tobacco Control Act. The rule required that tobacco warnings include something new: all tobacco products now had to bear one of nine graphic images to accompany the text. Tobacco companies filed suit contesting the constitutionality of the rule, arguing that the government violated their right to free commercial speech by compelling disclosure of the graphic content. Yet First Amendment jurisprudence lacks a doctrinally consistent standard for reviewing such compelled disclosures. Courts’ analyses typically depend on whether the …

Rationality's Reach, Adam B. Badawi

Michigan Law Review

Economic analysis and the rational actor model have dominated contracts scholarship for at least a generation. In the past fifteen years or so, however, a group of behaviorists has challenged the ability of the rational choice model to account for consumer behavior. These behaviorists are not trying to dismantle the entire enterprise. They generally accept the fundamentals of economic analysis but argue that the rational actor model can be improved by incorporating evidence of decisionmaking flaws that people exhibit. Oren Bar-Gill has been one of the foremost and influential proponents of a behaviorist take on contracts, and his recent book, …

House Swaps: A Strategic Bankruptcy Solution To The Foreclosure Crisis, Lynn M. Lopucki

Michigan Law Review

Since the price peak in 2006, home values have fallen more than 30 percent, leaving millions of Americans with negative equity in their homes. Until the Supreme Court’s 1993 decision in Nobelman v. American Savings Bank, the bankruptcy system would have provided many such homeowners with a remedy. They could have filed bankruptcy, discharged the negative equity, committed to pay the mortgage holders the full values of their homes, and retained those homes. In Nobelman, however, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a three-to-one split of circuits in favor of the minority view …

Tesla And The Car Dealers’ Lobby, Daniel A. Crane

Law & Economics Working Papers

Tesla Motors, the offspring of the South African-American entrepreneur Elon Musk who also brought us Pay-Pal and SpaceX, is the most exciting automotive development in many decades and a marquee story of American technological dynamism and innovation. The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested.

Tesla faces enormous challenges in penetrating an automotive market that has been dominated for a century by internal combustion engines. Not only must it build cars that customers want to drive (and, ultimately, produce …

The Tempting Of Antitrust: Robert Bork And The Goals Of Antitrust Policy, Daniel A. Crane

Articles

Of all Robert Bork’s many important contributions to antitrust law, none was more significant than his identification of economic efficiency, disguised as consumer welfare, as the sole normative objective of U.S. antitrust law. The Supreme Court relied primarily on Bork’s argument that Congress intended the Sherman Act to advance consumer welfare in making its landmark statement in Reiter v. Sonotone that “Congress designed the Sherman Act as a ‘consumer welfare prescription.’” This singular normative vision proved foundational to the reorientation of antitrust law away from an interventionist, populist, Brandeisian, and vaguely Jeffersonian conception of antitrust law as a constraint on …

How Insurance Substitutes For Regulation, Omri Ben-Shahar, Kyle D. Logue

Articles

Legal regulation of behavior requires information. Acquiring information about the regulated party's conduct, setting benchmarks by which that conduct is measured, and establishing the correct scale of payoffs for violating or following regulation are costly and require expertise and motivation. Thus, economic theories of rulemaking are often based on the relative information advantages that different regulatory bodies have and how that information can be harnessed to enhance incentives and thereby improve welfare. Government regulators, on average, do not have informational advantages. They are not paid for performance and thus may lack adequate incentives. They are not disciplined by market forces …

Outsourcing Regulation: How Insurance Reduces Moral Hazard, Omri Ben-Shahar, Kyle D. Logue

Michigan Law Review

This Article explores the potential value of insurance as a substitute for government regulation of safety. Successful regulation of behavior requires information in setting standards, licensing conduct, verifying outcomes, and assessing remedies. In various areas, the private insurance sector has technological advantages in collecting and administering the information relevant to setting standards and could outperform the government in creating incentives for optimal behavior. We explore several areas that are regulated more by private insurance than by government. In those areas, the role of the law diminishes to the administration of simple rules of absolute liability or no liability, and affected …

Why American Express V. Italian Colors Does Not Matter And Coordinated Pursuit Of Aggregate Claims May Be A Viable Option After Concepcion, Gregory C. Cook

University of Michigan Journal of Law Reform Caveat

This Comment suggests that the upcoming decision by the Supreme Court in American Express Co. v. Italian Colors Restaurant will not change the class action landscape. While the plaintiff bar contends that certain public policy goals will be lost as a result of American Express and AT&T Mobility LLC v. Concepcion, this Comment argues that, in the correct circumstances, coordinated individual arbitrations can address at least some of these public policy goals and plaintiff counsel should focus on such coordination efforts (including, for instance, ethically recruiting actually-injured plaintiffs, the use of common plaintiff counsel, the use of common experts, and …

Cruises, Class Actions, And The Court, David Korn, David Rosenberg

University of Michigan Journal of Law Reform Caveat

As the Carnival Triumph debacle splashed across the national consciousness, lawyers shook their heads. Sensationalist news coverage exposed common knowledge in the legal community: cruise passengers have little recourse against carriers, and, as a result, they often bear the brunt of serious physical and financial injuries. Cruise lines, escaping legal accountability for their negligence, sail off undeterred from neglecting passenger safety on future voyages. While its previous decisions helped entrench this problem, a recently argued case presents the Supreme Court with another opportunity to address it.

Tying And Consumer Harm, Daniel A. Crane

Articles

Brantley raises important issues of law, economics, and policy about tying arrangements. Under current legal principles, Brantley was on solid ground in distinguishing between anticompetitive ties and those that might harm consumer interests without impairing competition. As a matter of economics, the court was also right to reject the claim that the cable programmers forced consumers to pay for programs the customers didn’t want. The hardest question is a policy one - whether antitrust law should ever condemn the exploitation of market power in ways that extract surplus from consumers but do not create or enlarge market power. I shall …

Notice Is Not Enough: Why Tila Requires More Than A Letter Of Intent, Levi Smith

University of Michigan Journal of Law Reform Caveat

The federal Truth in Lending Act (TILA) provides borrowers with protections and remedies against certain actions by lenders. TILA allows, in some circumstances, a borrower to rescind a loan from a lender within a three-year period from when the loan is made. However, a circuit split has developed regarding how the right to rescind must be exercised. Of the circuits that have considered this question, some require a lawsuit to be filed within the three-year period to rescind the loan. Other circuits have held that providing notice of the intent to rescind the loan within the three-year period is sufficient …

Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policy makers typically approach human behavior from the perspective of the rational agent model, which relics on normativc, a priori analyses. The model assumes people make insightful, well-planned, highly controlled, and calculated decisions guided by considerations of personal utility. This perspective is promoted in the social sciences and in professional schools and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, and the one we will articulate here, provides a substantially difierent perspective on individual behavior and its policy and regulatory implications. According to the empirical perspective, behavior …

Ability To Pay, John A. E. Pottow

Law & Economics Working Papers

The landmark Dodd-Frank Act of 2010 transforms the landscape of consumer credit in the United States. Many of the changes have been high-profile and accordingly attracted considerable media and scholarly attention, most notably the establishment of the Consumer Financial Protection Bureau (CFPB). But when the dust settled, one profoundly transformative innovation that did not garner the same outrage as CFPA did get into the law: imposing upon lenders a duty to assure borrowers’ ability to repay. Ensuring a borrower’s ability to repay is not an entirely unprecedented legal concept, to be sure, but its wholesale embrace by Dodd-Frank represents a …

Preferences For Banking And Payment Services Among Low- And Moderate-Income Households, Michael S. Barr, Jane Dokko, Eleanor Feit

Law & Economics Working Papers

This paper characterizes the features of an account-based payment card – including bank debit cards, prepaid debit cards, and payroll cards – that elicit a high take-rate among low- and moderate-income (LMI) households, particularly those without bank accounts. We apply marketing research techniques, specifically choice modeling, to identify the design of a specific financial services product for LMI households, who often face difficulties maintaining standard bank accounts but need banking services. After monthly cost, we find that, on average, non-monetary features of a payment card, such as the availability of federal protection and the type of card, are factors LMI …

Why Governance Might Work In Mutual Funds, Michael C. Schouten

Michigan Law Review First Impressions

The Supreme Court's recent decision in Jones v. Harris Associates L.P. has highlighted the potential for agency conflicts in mutual funds, whose advisors have the de facto power to award themselves high fees. While the surrounding debate has focused on the extent to which market competition replaces the need for fee litigation, there appears to be a growing consensus that fund governance, through the use of voice, is unlikely to be effective. The use of voice is commonly said to be hampered by collective action problems. More recently, scholars have argued that it is further weakened by the easy availability …

Toward Legitimacy Through Collaborative Governance: An Analysis Of The Effect Of South Carolina's Office Of Regulatory Staff On Public Utility Regulation, William H. Ellerbe

Michigan Telecommunications & Technology Law Review

In 2004 the South Carolina General Assembly instituted a major reform to its system of public utility regulation. Previously, the Public Service Commission, the administrative agency in charge of regulating public utilities, both adjudicated utility proceedings and, through its staff,a advocated for the public interest. A scandal concerning revelations of extensive ex parte communications between regulated utilities and members of the Public Service Commission led to the 2004 reform, which created the Office of Regulatory Staff (ORS) as a separate agency to perform the Commission's advocative functions. In my research, I use data on fuel factor proceedings before and after …

Financial Literacy Or Financial Castigation?, John A. E. Pottow

Articles

This year, the Canadians- through their government-convened Task Force on Financial Literacy - have proudly produced, "Canadians and their Money: Building a Brighter Financial Future." Armed with 30 recommendations, its most dramatic innovation is to recommend the creation of a Financial Literacy Leader. I have been asked to provide an American perspective on this report specifically and the broader agenda of "financial literacy" more generally as a consumer welfare intervention. Let me start by acknowledging the critiques of the Canadian Task Force. For example, my Canadian colleague, Saul Schwartz, has already drafted a compelling analysis of the political economy behind …

Ability To Pay, John A. E. Pottow

Articles

The landmark Dodd-Frank Act of 2010 ("Dodd-Frank") transforms the regulation of consumer credit in the United States. Many of its changes have been high-profile, attracting considerable media and scholarly attention, most notably the establishment of the Consumer Financial Protection Bureau ("CFPB"). Even specific consumer reforms, such as a so-called "plain vanilla" proposal, drew hot debate and lobbying firepower. But when the dust settled, one profoundly transformative innovation that did not garner the same outrage as plain vanilla or the CFPB did get into the law: imposing upon lenders a duty to assure a borrower's ability to repay. Ensuring a borrower's …

Technology Convergence And Federalism: Who Should Decide The Future Of Telecommunications Regulation?, Daniel A. Lyons

University of Michigan Journal of Law Reform

This Article critically examines the division of regulatory jurisdiction over telecommunications issues between the federal government and the states. Currently, the line between federal and state jurisdiction varies depending on the service at issue. This compartmentalization might have made sense fifteen years ago, but the advent of technology convergence has largely rendered this model obsolete. Yesterday's telephone and cable companies now compete head-to-head to offer consumers the vaunted "triple play" of voice, video, and internet services. But these telecommunications companies are finding it increasingly difficult to fit new operations into arcane, rigid regulatory compartments. Moreover, services that consumers view as …

The Rise In Elder Bankruptcy Filings And Failure Of U.S. Bankruptcy Law, John A. E. Pottow

Law & Economics Working Papers

Recent empirical legal scholarship on the consumer bankruptcy system has uncovered a marked rise in the proportion of elder Americans filing for relief under the Bankruptcy Code. But these studies have not probed the reasons behind that rise, an omission this Article seeks to address. Professor John Pottow and colleagues recently assembled the new dataset of the Consumer Bankruptcy Project (CBP), the largest national sample of consumer debtors in this country, which he uses to explore the sources of elder bankruptcy. The findings are both striking and ominous. While multiple factors, such as health problems and medical debts, contribute to …