Category: Consumer Protection Law


Fat: The Terror Within

William Saletan has an interesting column up today on the anti-fat litigation and regulatory movement newly afoot. The Surgeon General apparently said the fight against obesity would “dwarf 9-11.” Saletan previews the stages of the coming battle: (1) activists will define the harmed class as a particularly susceptible one (kids); (2) experts will show how that the food industry and its audience (the obese) are externalizing costs on the rest of society; and (3) regulators will redefine junk-food as non-food.

This stages-of-battle could probably be generalized to most consumer protection/muckracking crusades. But why do we need all of this work to justify paternalistic interventions?

There are a few reasons, I think, but the most significant is that libertarians have been, relative to their number in American society, remarkably successful norm entrepreneurs. Over time, they have encouraged folks to think of consumption as an (a) individualized; (b) expression of freedom; that (c) is the product of free choice. And why not? The alternative, that folks’ tastes are created and managed by industry, that choice is limited, and that bad decisions abound, leads to increasingly large regulatory interventions that almost always turn sour.

The idea that we’re about to see a real resurgence of federal regulation seems farfetched, and I have to think that if obesity lawsuits ever got purchase (which they have not, to date) we’d see a rush to congress for immunity/preemption. That’s because, as Saletan alludes to, but my co-blogger Dan Filler has nailed, obesity is an example of a “risk society panic,” with no clear moral victims, but more importantly, no folk devils to focus society’s ire. Thus, whatever strategy activists come up with in the battle against fat, to justify uprooting the libertarian background rule, we’ll need a villain.


The Datran Media Case: Information Privacy Due Diligence

datran.jpgRecently, New York AG Eliot Spitzer settled a case against Datran Media that could have some wide-ranging implications for information privacy law. Datran Media styles itself “a leading performance-based marketing company with Enabling Technology that connects marketers to consumers through a comprehensive set of email marketing and digital media services.” This is basically a verbose way of saying that it sends unsolicited email, which is perhaps a kind way of describing spam.

Datran obtained personal information from other companies which violated their privacy policies in selling the data to Datran. According to the AP:

The Internet “customer acquisition” companies proclaimed on their websites that they wouldn’t lend or sell the information provided. Consumers were often enticed to reveal their names, addresses and financial data in exchange for free iPods and DVD movies.

Spitzer accused Datran of knowing of the companies’ pledges but nevertheless spamming those consumers with unsolicited e-mails advertising discount drugs, diet pills and other products. Spitzer’s staff said it believed this was the largest deliberate breach of Internet privacy discovered by U.S. authorities.

In other words, the theory of the case was that Datran engaged in “unfair and deceptive trade practices” when it acquired and used information which it knew was being improperly supplied. Datran settled with Spitzer for $1.1 million. The settlement agreement is here.

Obviously, the database industry is up in arms. In an article critical of the case, Kirk Nahra, a partner at the law firm of Wiley Rein & Fielding, LLP, describes it as an “Alice-in-Wonderland result.” He observes that “Spitzer is holding Datran liable for the list seller’s violation of its own policies.” He goes on to write:

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Three Interesting Things About The New Source Review Decision

The DC Circuit’s invalidation of EPA’s Clean Air Act regulations exempting certain equipment replacements from the new source review process led the Times last weekend, and one look at the number of lawyers who participated in the appeal tells you that a lot of parties thought the case was important. What happened and why should you care?

Very roughly, if you build a new source of air pollution, you have to get a permit to pollute – this is the so-called new source review process. However, if you’re replacing equipment on an old pollution source, you may be able to avoid new source review – or so thought EPA, which passed a rule providing that “the replacement of components with identical or functionally equivalent components that do not exceed 20% of the replacement value of the process unit and does not change its basic design parameters is not a change” triggering new source review. The court held that EPA’s reg was inconsistent with the plain language of the CAA, which, it held, requires new source review upon any modification of the old source that increases pollution. As the court held, “Congress defined ‘modification’ in terms of emission increases, but” EPA’s proposed reg “would allow equipment replacements resulting in non-de minimis emission increases to avoid” the permitting process.

1. This panel included Judge Janice Rogers Brown, the controversial and only recently confirmed libertarian. Perhaps Brown’s hostility to regulators in general explained her hostility to this business friendly interpretation of a congressional directive … but perhaps also this was an easy textual case, or she was persuaded by the brilliant judge who wrote the opinion, Judith Rogers (a judge who has, in the past, hired some law clerks I greatly admire).

2. As is often the case these days, the lineup was states + environmental groups v. federal regulators + industry. I’ve been impressed for a while by the number of legal foot soldiers that environmental groups have gotten out of state attorney general offices.

3. The Times notes that the arena of Clean Air Act combat has shifted from Congress, which wrote an incredibly detailed and quite constraining statute (a very different statute than those with New Deal era broad grants of regulatory authority) to EPA and the courts, who are interpreting that statute in a context where legislative review is unlikely – “there has been no real movement in that direction in recent years.”


An Update on Food Labels

I’ve gotten some on- and off-line comments about my federalism-in-food-labeling post from over the weekend. One reader points out that the market is already experimenting with food labeling, through chains like Whole Foods and Trader Joe’s, which negotiate with food manufacturers for certain production & labeling practices. Thus, if you want to do business with Whole Foods, you need to avoid a really long list of additives. Trader Joe’s, which acknowledges FDA preemption of food labeling here, is quite proud of its business of re-branding private label products so that consumers can be assured of quality and price guarantees. As the reader concluded, we can see the success of such stores as an expression of consumer demand for labeling. In reality, people don’t want to actually know what is in products, they want to know that food is safe, healthy, pro-environment, etc. When you buy at Whole Foods, you get the comfort of your convictions, without actually having to read the fine print: the store has done it for you. On this understanding, we don’t need states to experiment with label design or content: the market will sort out this problem nicely.

Another reader heatedly claims that I’ve underestimated the cost of labeling products for multiple states. So long as producers, and not distributors, do the labeling, it will be cost-prohibitive. My response to that argument is that current labeling practices are contingent on the FDA’s top-down command and control system. In a world with 50 different state practices, labeling would likely be done on-site through, say, the same type of sticker machine that currently set prices. The reader, in turn, maintains that the costs of labeling ought to considered in light of the negligible consumer benefits, and asserts that studies have found only 11% of supermarket consumers actually read labels before purchasing products. This number is debatable, of course. (A study here claims that 56% of subjects read labels some of the time). But the point that inconsistent labeling regimes would put severe burdens on smaller manufacturers obviously a good one, and would caution against allowing experimentation when the pro-consumer effects are as yet not quantified.


Experimenting With Food Labels

label.jpgSteve Bainbridge highlights pending federal legislation to preempt state food label rules that are inconsistent with the FDA’s standards. He comments that the law would be a “perfectly plausible exercise of Congress’ power under the Commerce Clause.” I agree, even though there are non-frivolous arguments to the contrary (federalism concerns for states’ police powers; locally grown foods; etc.) But putting aside constitutional shibboleths, I think that just because Congress has the ability to preempt state legislation doesn’t mean it should.

The argument against allowing states to add new disclosure requirements to food labels goes like this. The great competitive strength of the American economy is its internal free trade network. Inconsistent regulation internally is to be avoided where possible, because it results in inefficiencies as producers are forced to retool their products for different states. Moreover, producers must increase their legal compliance costs, hiring lawyers to keep track of regulations in the several states, capture regulators lobby in 50 state legislatures, etc.

But such arguments discount the benefits of permitting experimentation in dealing with cognitive problems. The science of information processing is still relatively young: we haven’t gotten a handle on what disclosures trigger what types of consumption activity. As Larry Ribstein argues in a very different context here allowing states free reign to try different regulations will – as Brandeis long ago argued – create a natural laboratory allowing experimentation in reducing cognitive error. States that require disclosure of facts that consumers find unimportant will soon receive feedback to that effect. Similarly, if producers (as expected) increase prices in markets requiring more disclosure, we could obtain some evidence as to how much consumers actually value labeling. [This could get complicated given cross-border purchasing and free-rider problems, I suppose]. But most importantly, states could try different approaches to the problem of the method of regulation itself. Is the best way to encourage the right disclosure a rule (you must state the number of milligrams of sodium) or a standard (you must disclose information that consumers find valuable)? Should this process be run by regulators (as it is in the federal system) or the common-law jury?

We could start getting answers to such questions, but only if the feds back off.


Netflix and “Throttling”

netflix1.jpgNetflix allows customers to rent movies online — as many as they want. According to the company’s website:

With Netflix you can rent as many DVDs as you want from the comfort of your home and have them delivered to your door in about 1 business day! There are no late fees and no due dates, and shipping is free both ways. Plans start at $9.99 plus any applicable tax. With our most popular plan, 3 at-a-time (Unlimited), you can rent as many DVDs as you want for just $17.99 a month plus any applicable tax. You keep a revolving library of up to 3 DVDs at a time and can exchange them for new available DVDs as often as you like.

Sounds like a great deal, right? Well, if you use it really well to your advantage, Netflix will penalize you. According to the AP:

Manuel Villanueva realizes he has been getting a pretty good deal since he signed up for Netflix Inc.’s online DVD rental service 2 1/2 years ago, but he still feels shortchanged. That’s because the $17.99 monthly fee that he pays to rent up to three DVDs at a time would amount to an even bigger bargain if the company didn’t penalize him for returning his movies so quickly.

Netflix typically sends about 13 movies per month to Villanueva’s home in Warren, Mich. — down from the 18 to 22 DVDs he once received before the company’s automated system identified him as a heavy renter and began delaying his shipments to protect its profits.

The same Netflix formula also shoves Villanueva to the back of the line for the most-wanted DVDs, so the service can send those popular flicks to new subscribers and infrequent renters.

The little-known practice, called “throttling” by critics, means Netflix customers who pay the same price for the same service are often treated differently, depending on their rental patterns.

“I wouldn’t have a problem with it if they didn’t advertise ‘unlimited rentals,'” Villanueva said. “The fact is that they go out of their way to make sure you don’t go over whatever secret limit they have set up for your account.”

Originally, Netflix kept its differential treatment of customers a secret, but after a class-action lawsuit, Netflix now warns about this in the fine print:

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Free Credit Reports: My Exciting Adventure

Under the federal Fair and Accurate Credit Transactions Act of 2003, the credit reporting agencies must provide a yearly free credit report to individuals who request it. This was one of the benefits given to consumers by the law in return for extending the federal preemption of certain state law regulations.

There are three major credit reporting agencies: Equifax, Experian, and Trans Union. You may have heard that there’s a new website where you can conveniently get your credit report from all three agencies. Since I pay attention to this field of law, I knew the name of the website, but many people I’ve spoken to don’t know what it is called.

But we live in the age of Google, so most people would just do a Google search for “free credit report.” Here’s what you pull up in your search:


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