ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, October 25, 2011

Default Settings, Notice and Contract Design

There have been several interesting articles about company policies in the news in the past couple of weeks. First there was this article which discusses how, as annoyed as customers might be by fees, they stay with their banks. They stay, not out of loyalty, but inertia. This article explains how certain magazine subscriptions are set to automatically renew upon notice. The problem is that the notice is not very noticeable. The next article explains how Google has captured the market for search because it is the default search engine for many users – and because resetting to another default is too complicated. Finally, there’s news here and here that wireless companies have agreed to notify customers when their data usage approaches or exceeds their monthly allotment – and they start to incur excess usage costs.

What all these articles illustrate is the importance of effective notice and default settings -- and how their design is the result of conscious business decisions. Companies get consumers to agree to bank fees, data overage fees and choice of search engine by setting the default to an option that favors the company. Ostensibly customers have a choice. They don’t have to agree to the default. They can affirmatively opt out, but they don’t. The contract (because there is bound to be one) is itself a default setting. The company substitutes notice for an affirmative indication of assent. It has made a choice not to require the customer’s actual assent. Bank fees are slightly different, but even there, the default enables the customer to use the card and assumes they agree to the fees; if they don’t agree, they have to “opt out” by changing their existing habit of using the card.

The design of a contract, including notices, and the choice of default settings really matters. Woody Hartzog has discussed contract design in the context of privacy policies . . Hartzog argues that a company’s privacy settings should constitute part of the agreement with the user. Ryan Calo has done interesting work about “visceral notice” that shows how notice can be rendered in a more effective manner. I’ve argued here and here that we should change the default setting on contractual assent in the online context to presume non-consent, thereby making actual assent a “cost” and making the contracting process part of the product or service offered by the company. [Of course, Arthur Leff made that argument way before I did in a famous essay, Contract as Thing, 19 AM. U. L. REV. 131 (1970).]

Calo’s work on visceral notice will be especially relevant in light of the wireless industry’s agreement to provide customers with text messages to alert them when they approach data usage limitations. Will these companies bombard consumers with so many marketing text messages (for example, to upgrade to another plan) that the usage warnings go ignored? Will users receive more SPAM by marketers, who take advantage of the attention that users will be paying to their texts – with the consequence that users no longer pay attention to their texts?

A broader question -- When there is so much that companies can do to affect the contracting process, especially online, shouldn’t we require them to do it? If a company can provide visceral or visual notice (rather than simply textual notice), why shouldn’t they be required to? If a company can easily enable the customer to indicate assent (by forcing a click, for example) to particular terms, why should we permit “blanket assent” online?

[Nancy Kim]

Commentary, E-commerce, In the News, Web/Tech | Permalink

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