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Valparaiso Univ. Law School

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Friday, March 22, 2013

Online Symposium on Oren Bar-Gill's Seduction By Contract, Part IIC: Alan White, The New Law and Economics and the Subprime Mortgage Crisis

WhiteThis is the fourth in a series of posts on Oren Bar-Gill's recent book, Seduction by Contract: Law Economics, and Psychology in Consumer Markets.  The contributions on the blog are written versions of presentations that were given last month at the Eighth International Conference on Contracts held in Fort Worth, Texas.  This post is the third of a series within the series contributed by Professor Alan White of the CUNY School of Law (pictured at right).

Part II: Plural Norms for a New Law and Economics After the Subprime Mortgage Crisis

Although Oren is not explicit about his normative framework, the frequent references to consumer welfare, maximization, and efficiency hint at a standard utilitarian framework based on revealed preferences. He does mention distributional concerns at certain points, including a reference to the race discrimination evidence.  In the end, I was left wondering what role either welfare maximization or distributional equity were supposed to play; his prescriptions for future legal intervention (better disclosure) ultimately seem motivated mostly by autonomy concerns.

Seduction-by-contract-coverOne of the great insights of behavioral economics is that consumer autonomy and wealth-maximizing efficiency are not so neatly aligned as law and economics previously assumed.  The removal in the 1980s of restrictions on mortgage loan terms and prices increased consumer autonomy; it did not maximize consumer (or lender) welfare. Some behavioralists (for example, Michael Barr) advocate choice architecture or “nudging”,  for example by creating favored mortgage products to be offered as the default option. They implicitly favor welfare maximization over autonomy, but obviously give some weight to autonomy as well in preferring “nudges” to legal mandates for contract terms. Oren, on the other hand, recommends disclosure as the legal response to subprime mortgages, and so seems to come out on the autonomy side of the autonomy-welfare dilemma.

These competing values are embedded in present-day policy choices being made for the law of mortgages.  One example can be found in the debate about the “qualified residential mortgage” (QRM) under the Dodd-Frank financial reform law.  Federal regulators have proposed that mortgage borrowers must make a 20% down payment for a loan to be a QRM.  Mortgages that do not qualify as QRM’s are not banned, but lenders cannot package and sell non-QRM loans as securities without retaining some of the risk on their balance sheets.  This nudge favoring high down payments might further the utilitarian goals of limiting risk and hence external costs of default, and might be thought to promote borrower and lender welfare as well, albeit paternalistically.  On the other hand, lower down payments may promote equity for disadvantaged groups, and may also have positive welfare effects, with careful underwriting.  A rule allowing a broader range of product choices would also promote borrower autonomy, perhaps traded off against these competing values.  There is no clear answer, and revealed preferences, i.e. whatever unregulated lenders and borrowers would agree to, are not especially helpful in weighing the value choices.

The new law and economics recognizes that not all markets simultaneously advance consumer autonomy and welfare, to say nothing of equity.  As Nathan Oman points out, markets sometimes are very good at increasing wealth and decentralizing political power, but they can also be pathological, advancing none of our values.  The law in law and economics can benefit from economists’ insights about utilitarian welfare effects, while the economics in L&E can be explicit about its value choices, and seek to measure welfare, equity and autonomy effects of different legal rules for markets. In my final post, I will turn to the specific proposal Oren makes for an improved APR disclosure as the preferred legal response to the subprime mortgage problem.

[Posted, on Alan White's behalf, by JT]

March 22, 2013 in Books, Commentary, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, March 21, 2013

New in Print

Pile of BooksShu-Cheng Steve Chi, Raymond A. Friedman and Huei-Lin Shih, Beyond Offers and  Counteroffers: The Impact of Interaction Time and Negotiator Job Satisfaction on Subjective Outcomes in Negotiation, 29 Negotiation J. 39 (2013)

Ann E. Conaway & Peter I. Tsoflias, Challenging Traditional Thought: No  Default Fiduciary Duties in Delaware Limited Liability Companies after Auriga, 13 J. Bus. & Sec. L. 1 (2012)

John P. Dawson, William Burnett Harvey, Stanley D. Henderson, & Douglas G. Baird, Contracts (10th ed., Foundation, 2013)

Michael Keegan, Bargaining for Power: Resolving Open Questions from NRG Power Marketing, LLC v. Maine Public Utilities Commission, 65 Me. L. Rev. 99 (2012)

Donald J. Kochan, The Property Platform in Anglo-American Law and the Primacy of the Property Concept, 29 Georgia State University Law Review 453 (2013) (available on SSRN here)

Christina Kunz & Carol Chomsky, Contracts: A Contemporary Approach (2d ed., West, 2013)

Monica P. Navarro, Materiality: A Needed Return to Basics in False Claims Act Liability, 43 U. Mem. L. Rev. 105 (2012)

Alexander Volokh, Privatization and the Elusive Employee-Contractor Distinction. 46 UC Davis L. Rev. 133 (2012)

[JT]

March 21, 2013 in Books, Recent Scholarship | Permalink | TrackBack (0)

Party Sophistication and Value Pluralism in Contract [Self-Promotion]

My article "Party Sophistication and Value Pluralism in Contract" has been "published" to the Touro Law Review website.  I am told that it will be published in a print version in my lifetime - whatever, print is dead (or maybe not and here's the reason why). In all seriousness, even if you don't check out my article, check out the Law Review's fancy new website.

[Meredith R. Miller]

March 21, 2013 in Recent Scholarship | Permalink | TrackBack (0)

Yoga Fail: Lululemon Recalls Revealing Yoga Pants

Lululemon manufactured and sold yoga pants that turn out to be "see-through."  These basic facts would make for some interesting UCC hypos (better than widgets): 

Lululemon Yoga Pants via ABC News

March 21, 2013 in In the News | Permalink | Comments (0) | TrackBack (0)

Online Symposium on Oren Bar-Gill's Seduction By Contract, Part IIB: Alan White, The New Law and Economics and the Subprime Mortgage Crisis

AlanThis is the third in a series of posts on Oren Bar-Gill's recent book, Seduction by Contract: Law Economics, and Psychology in Consumer Markets.  The contributions on the blog are written versions of presentations that were given last month at the Eighth International Conference on Contracts held in Fort Worth, Texas.  This post is the second of a series within the series contributed by Professor Alan White of the CUNY School of Law (pictured at right).

At least three important points should be added to Oren’s account of the subprime market failure. First, the range of consumer and lender biases, abbreviated reasoning, and situational influences that cause mortgage products to depart systematically from rational welfare maximizing is considerably wider than the territory he surveys. Second, his account focuses on pricing, but much of the harm done by subprime mortgages was due to product features that needlessly increased the risk of default, quite apart from whether prices were excessive or misunderstood. Third, subprime mortgage originators and their funders did more than simply respond to consumer behavior. They deliberately framed the choices and exploited consumer behaviors to maximize yield spread. In other words, lenders had agency, and the product offerings were not merely a response to consumer demand.

Lauren Willis’ 2006 paper, for example, described subprime mortgage borrowers’ “assent” to harmful contracts as a result not only of the cognitive limitations mentioned by Oren, but also to the ego threat presented by the possibility a loan application will be denied, and the emotional distress attendant to the home purchase and financing context. She points out as well that abbreviated reasoning brought on by both cognitive limitations and emotional factors led subprime mortgage borrowers to focus almost exclusively on the initial monthly payment as a proxy for the loan price. Indeed, minority mortgage applicants may not attend to price terms at all, if their focus is primarily on finding a lender willing to approve a loan in the first place. These emotional factors are not readily addressed by better information disclosure.

SeductionSellers, of course, are not perfectly rational either. Apart from the exploitation issue, any account of the subprime mortgage market that does not acknowledge overt and implicit racial bias is necessarily incomplete. The empirical evidence is clear that price discrimination, i.e. charging higher rates and fees to equally qualified borrowers, was rampant and had a disparate effect on minority borrowers. While price discrimination can be seen as rational rent seeking, it is difficult to explain the systematic practice of steering minority mortgage borrowers to unnecessarily expensive loan products when market share might have been gained by competing on price for these borrowers. It bears emphasizing that minority homeowners did not just face more expensive and risky loans because of lower credit scores and home values. The credible research tells us that homeowners of color paid higher rates and were more likely to get subprime mortgages than comparably qualified white homeowners. Homeowners lost homes, and much of their accumulated wealth, not just because they were financially weaker, but also because they were black or brown. The role of race in the descriptive story of the subprime mortgage market distinguishes it from the market failures in credit card, cell phone, and other consumer markets, and has important implications for regulation of mortgage contracts.

Even when loan prices reasonably reflect lender costs, subprime loans imposed welfare losses via excess risk of default and foreclosure. By increasing the loan amount, dispensing with income verification, adding prepayment penalties and deferring payment of interest and principal, lenders dramatically increased the risks of default, in ways that borrowers either misunderstood or predictably ignored. Often the same borrowers would have qualified for safer mortgages at similar cost, or in the case of income documentation, at lower cost. Consumers’ inability to judge loan risk or avoid needlessly risky mortgages is the topic of another paper by Professor Willis. While rational choice adherents would say borrowers who knowingly took on a 25% risk of default might have reasonably weighed the benefits of the loan and the risk, and therefore they were not harmed by taking such a risky loan, that account of welfare and utility is thin indeed. The excessive default risk of subprime mortgages is not easily fixed with disclosure-based solutions.

Behavioral economists tend to minimize the agency of sellers in framing and manipulating consumer biases and mental short cuts. The emphasis on consumer errors is significant. Oren repeatedly refers to lenders “responding” to consumer misperception and bias. A different characterization ascribes more responsibility to lenders: faced with consumer biases and heuristics, some mortgage originators deliberately manipulate consumer behavior. As he points out, lenders could respond to consumer optimism bias by marketing fixed payment loans and selling their safety compared to teaser-rate or teaser-payment loans. Instead, they chose to push payment deferral and to obfuscate prices, electing the profit-maximizing strategy of exploiting rather than correcting consumer bias. Whether we describe mortgage lenders as responding to consumer errors, on the one hand, or exploiting behaviors, emotional states and cognitive limitations of consumers on the other, will matter considerably when we turn to the normative and prescriptive conclusions to be reached from our better understanding of how the subprime market worked (or didn’t).

[Posted, on Alan White's behalf, by JT]

March 21, 2013 in Books, Commentary, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 20, 2013

Online Symposium on Oren Bar-Gill's Seduction By Contract, Part IIA: Alan White, The New Law and Economics and the Subprime Mortgage Crisis

AlanThis is the second in a series of posts on Oren Bar-Gill's recent book, Seduction by Contract: Law Economics, and Psychology in Consumer Markets.  The contributions on the blog are written versions of presentations that were given last month at the Eighth International Conference on Contracts held in Fort Worth, Texas.  This post is the first of a series within the series contributed by Professor Alan White of the CUNY School of Law (pictured at right).

Oren Bar-Gill’s work on contracts in various consumer markets has contributed importantly to the deconstruction of the dominant law and economics paradigm.  That paradigm has centered around rational choice theory as a description of markets generally and consumer contracts in particular, on norms that are utilitarian, equating aggregate welfare with revealed preferences, and legal prescriptions that begin with deregulation and noninterference by the state.  The law and economics paradigm found expression in the broad deregulation of consumer credit contract terms generally, and mortgage loans particularly, from 1980 until 2008, by Congress, the banking agencies and the courts.  Oren’s application of behavioral economics to consumer credit markets helped pave the way not only for important academic debates but for the change in course for federal regulatory policy that followed the global financial crisis.

In Seduction by Contract, Oren lays out a general behavioral law and economics framework and then applies it in three consumer markets:  credit cards, mortgage loans, and cell phone contracts. I will address the chapter on mortgages, and will consider three aspects, the descriptive, the normative, and the prescriptive, in separate posts.  In this first part, I focus on Oren's descriptive model.  In tomorrow's post, I will suggest three additional points that supplement Oren's account of the subprime market failure.

SeductionThe mortgage chapter begins by describing the contract design features of subprime mortgages that came to dominate the market just before the 2007 foreclosure crisis.  Oren then presents the rational choice model, that would explain whatever mortgage products and pricing that emerged during the run-up to the crisis as an expression of homeowner preferences.  The proliferation of home loans with rapidly escalating payments, negative amortization, and hefty prepayment penalties, would have been a response to consumer choices, so that homeowners and buyers rationally shifted away from fixed-rate amortizing loans in the face of higher home prices and reduced affordability.  Some mortgage borrowers, especially investors, might rationally have speculated on rising prices by taking out loans with below-interest payments gambling that they could resell homes at a profit. 

As Oren points out, the rational choice account is difficult to square with the empirical evidence.  There were investors, but rarely more than 10% to 20% of mortgage borrowers.  Prepayment penalties were contracted for by many borrowers who ended up paying the penalties to refinance or sell, and would have been better off paying a slightly higher rate without the penalty.  Most importantly, the massive default rates, as high as 25% or more for some types of mortgages even before home prices collapsed, reflected the fact that the “affordability” of initial low payments was illusory, and unlikely the result of rational borrowing decisions. 

Oren identifies the two essential characteristics of subprime mortgage design as cost deferral and pricing complexity.   He then argues that these features were not the product of rational consumer choice.  Instead, they responded to consumer behavioral biases, especially myopia, optimism, limited financial literacy and the tendency to focus on salient price elements while ignoring non-salient costs.  

This behavioralist description, while it improves on the rational choice model, to my mind leaves out other lender and borrower behaviors that contributed critically to the widespread contract failure.  The departure from rational choice and welfare maximization was far worse in the subprime mortgage market than in credit card and cell phone contracts.  Welfare losses were not limited, as in the case of credit card customers, to paying 3% or 4% more than necessary on balances and a few hundred dollars in excess fees.  Subprime mortgages wiped out families’ entire net worth, evicted them from their homes, and had global external effects that we all know.   A deeper critique of rational choice theory in this context is essential to getting the prescriptive part right, i.e. to evaluating the welfare effects of various regulatory interventions in this market.

[Posted, on Alan White's behalf, by JT]

March 20, 2013 in Books, Commentary, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Recent Article Covering Contractual Aspects of Egg Donation

Sperm-eggWith the help of our former intern, Christina Phillips, we stumbled upon this cover story from Santa Cruz's Good Times magazine.  It is a profile of Racquel Cool, who makes a living as an egg donor.  The article gives background on why Cool decided to become an egg donor and the process through which one registers with various services and gets matched up with couples in the market for viable eggs.

The article also provides the following interesting information about contractual aspects of egg donation:

  • The contracts specify that the payment to the donor is not for the eggs but for her time, effort and discomfort;
  • The payment, appropriately enough, since it is not a payment for the ova themselves, is the same regardless of the number of eggs harvested;
  • The amount one is paid per donation increases if a donation results in a pregnancy;
  • If the donor has a partner, s/he must also consent to the donation;
  • While the practice is frowned upon by the American Society for Reproductive Medicine, donors with especially prized qualities (athletes, Ivy League graduates, etc.) can sell their eggs (that is, their services) at much higher prices.

[JT]

 

March 20, 2013 in True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 19, 2013

Weekly Top Tens from the Social Science Research Council

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

January 18, 2013 to March 19, 2013

RankDownloadsPaper Title
1 422 Choice of Law in the American Courts in 2012: Twenty-Sixth Annual Survey 
Symeon C. Symeonides
Willamette University - College of Law
2 271 Living with 'ADR': Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations 
Thomas StipanowichJ. Ryan Lamare
Pepperdine University School of Law, Pennsylvania State University - Department of Labor Studies and Employment Relations
3 126 Contract Hope and Sovereign Redemption 
Anna Gelpern
American University Washington College of Law
4 126 Computable Contracts 
Harry Surden
University of Colorado at Boulder - School of Law
5 111 Publish and Perish? Handling the Unreasonable Publication Agreement 
Harold Anthony Lloyd
Wake Forest University School of Law
6 109 The Impact of Voidness for Infringement of Article 101 TFEU on Linked Contracts 
Caroline Cauffman
Maastricht University
7 106 Offer and Acceptance in Modern Contract Law: A Needless Concept 
Shawn J. Bayern
Florida State University - College of Law
8 88 A Theory of Preferred Stock 
William W. BrattonMichael L. Wachter
Institute for Law and Economics, University of Pennsylvania Law School, University of Pennsylvania - Law School - Faculty
9 84 Redress for a No-Win Situation: Using Liquidated Damages in Comparable Coaches' Contracts to Assess a School's Economic Damage from the Loss of a Successful Coach 
Richard T. Karcher
Florida Coastal School of Law
10 81 Regulation by Liability Insurance: From Auto to Lawyers Professional Liability 
Tom BakerRick Swedloff
University of Pennsylvania Law School, Rutgers School of Law - Camden

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

January 18, 2013 to March 19, 2013

RankDownloadsPaper Title
1 271 Living with 'ADR': Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations 
Thomas StipanowichJ. Ryan Lamare
Pepperdine University School of Law, Pennsylvania State University - Department of Labor Studies and Employment Relations
2 126 Computable Contracts 
Harry Surden
University of Colorado at Boulder - School of Law
3 109 The Impact of Voidness for Infringement of Article 101 TFEU on Linked Contracts 
Caroline Cauffman
Maastricht University
4 106 Offer and Acceptance in Modern Contract Law: A Needless Concept 
Shawn J. Bayern
Florida State University - College of Law
5 81 Regulation by Liability Insurance: From Auto to Lawyers Professional Liability 
Tom BakerRick Swedloff
University of Pennsylvania Law School, Rutgers School of Law - Camden
6 79 Tailoring a Consent Inquiry to Fit Individual Employment Contracts 
Lisa J. Bernt
Northeastern University School of Law
7 77 A Particle of Freedom: Natural Law Thought and the Kantian Theory of Transfer by Contract 
Helge Dedek
McGill University - Faculty of Law
8 68 No Contract? 
Oren Bar-GillOmri Ben-Shahar
New York University (NYU) - School of Law, University of Chicago Law School
9 67 The Principle of Proportionality and European Contract Law 
Caroline Cauffman
Maastricht University
10 66 A Legal Overview of Utah's H.B. 148 – The Transfer of Public Lands Act 
Donald J. Kochan
Chapman University School of Law

 

[JT]

March 19, 2013 in Recent Scholarship | Permalink | TrackBack (0)

The Mystery of the Elvis Dumervil Contract Mix-up

Elvis Kool Dumervil, the star defensive end for the Denver Broncos, has been in the news recently based on an alleged mix-up involving a contract renegotiation with the team. I have read multiple reports and still cannot figure out exactly what happened from a contractual formation standpoint. But here's my current understanding and analysis...

Dumervil's contract with the Broncos, like most NFL player contracts, had an "opt out" of sorts for the Broncos.  Under the contract, the Broncos could either pay Dumervil $12 million to play next season--and have that entire amount count against the team's salary cap--or cut him ("cut" being the sports term for "fire") and only have a portion of his salary count against the team's cap.  Without getting into too much detail, each team has a maximum amount of money it is allowed to pay in player salaries per year, subject to various adjustments.  If the Broncos were able to reduce how much Dumervil's salary would count against their team's cap, they conceivably would have been able to spend more money to sign other players and improve their team; hence their interest in keeping the cap number down.

To avoid a bad salary cap consequence and still keep Dumervil, the Broncos sought to renegotiate a middle ground.  They offered to keep versus cut Dumervil but for a reduced salary amount of $8 million.  According to various reports, that offer was only open until 1pm MDT on Friday, March 15th.  The Broncos set that deadline because they faced a deadline of their own set by the NFL.  Specifically, the only way the Broncos could avoid the full salary cap hit of $12 million under NFL rules was to cut Dumervil by 2pm MDT (or show that they had re-signed him to a different deal).  If they cut him prior to 2pm MDT, they'd only take a $5 million hit; if they cut him anytime after 2pm MDT, they'd take a $12 million hit.

In the early afternoon of March 15th, Dumervil reportedly rejected the Broncos' $8 million offer over the phone (thereby terminating the Broncos' offer, most likely).  However, Dumervil  later told the Broncos that he had changed his mind. The Broncos then renewed their $8 million offer but specified that Dumervil could accept only by faxing his acceptance to them prior to the NFL's 2pm deadline.  When the Broncos did not receive a fax from Dumervil by that time, they cut him.  Dumervil's agent has said that the fax was sent to the Broncos at 2:06pm due to some delay in getting a fax from Dumervil.

When the story first broke, some media outlets were reporting that a fax machine malfunction was to blame. Thus, many commentators initially expressed frustration that a bungled or late transmission via fax, a now-outdated device, could have such a significant impact. When I heard those reports, it seemed that the media outlets, like some first-year law students, were overemphasizing the need for a writing and deemphasizing the parties' actual intent.  As we teach our students, a signed writing often is not required; contracts are formed all the time without that formality. Subject to the statute of frauds and other exceptions, a contract can be formed without a writing, faxed or otherwise.  And, unless the offeror limits the form of acceptance to a signed and faxed writing, the acceptance may be communicated in any reasonable manner.  In sum, it is intent of the parties that controls. Thus, if the Broncos really wanted to sign Dumervil to a new $8 million deal (that could be completed within 1 year of its making) based on his verbal agreement, no rule of contract law would have prevented it. In other words, if Dumervil truly had communicated his acceptance to the Broncos, the absence of a faxed signature from Dumervil would not prevent contractual formation unless: (i) the Broncos had stated that acceptance could only be via fax or similar writing; or (ii) the contract was one that could not be performed within a year or otherwise subject to the statute of frauds. We would need more facts to analyze both of those issues.

Of course, another possibility outside of traditional contract law (and the proverbial elephant in the locker room) is that the NFL likely has its own rules regarding contractual formation under its collective bargaining agreement or through some other mechanism. That's the part of the mystery about which I have no information at this point. Some reports seem to indicate that the NFL's rules somehow prevented contractual formation and that the Broncos are seeking a change of heart from the NFL. Perhaps someone more familiar with the NFL's rules can comment on that.  In the meantime, I think Bronco fans can stop blaming general contract law and continue blaming the Broncos and the NFL.  At least for now.

[Heidi R. Anderson]

March 19, 2013 in Celebrity Contracts, In the News, Sports | Permalink | Comments (0) | TrackBack (0)

Online Symposium on Oren Bar-Gill's Seduction By Contract, Part I: Credit Cards

AlittwinThis is the first in a series of posts on Oren Bar-Gill's recent book, Seduction by Contract: Law Economics, and Psychology in Consumer Markets.  The contributions on the blog are written versions of presentations that were given last month at the Eighth International Conference on Contracts held in Fort Worth, Texas.  This post is contributed by University of Texas Law Professor Angela Littwin.

I am currently teaching a seminar on credit cards, so I was thrilled to present on the work of a major thinker in the field. If there’s one person whose name is synonymous with the behavioral economics of credit cards, it’s Oren Bar-Gill. His work has been influential within the academy and outside of it. The recent federal overhaul of credit card law, The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), was heavily influenced by law and behavioral economics. (Here’s another CARD Act link for those who want a summary instead of the whole statute.) Credit cards are also a great topic for Contracts, because with credit cards, contract design is the entire game. 

The credit card chapter in Seduction by Contract is very successful. If you want a primer on exactly what the trouble is with credit cards, this chapter is perfect place for you. The crux of Bar-Gill’s argument is that credit card issuers use complexity and cost deferral to seduce consumers into borrowing more in the short-term than they would prefer in the long-term. He illustrates how specific credit card pricing features play into the imperfect rationality of optimism-biased consumers. He concludes by discussing the recent CARD Act and with policy proposals centered on use disclosure. 

Convincing people that credit card contracts are complex is an easy sell. One way Bar-Gill does so is by simply listing all the of types fees consumers can pay (i.e., overlimit fees or application fees). There are nineteen of them. And this number doesn’t even include types of interest. I can also add that in my seminar, we have a day in which I ask the students to find and read a credit card contract. Student routinely say that this is the hardest reading they have done in law school.

SeductionWhat’s even more interesting than the complexity itself is the purpose of it. Credit card issuers use complexity as a way of shielding their pricing model from consumers. Issuers provide benefits through short-term, more salient product features (like teaser rates and rewards) and assess costs through long-term, less salient product features (like late fees and default interest rates). This pricing structure enables – or rather requires – issuers to compete for consumers via deception.

Bar-Gill’s policy proposal, use disclosure, addresses this deception directly. Use disclosure would require credit card issuers to give consumers information on how they use their credit cards. The CARD Act does some of this, but Bar-Gill proposes taking it further. Under Bar-Gill’s proposal, consumers would receive an electronic file that they could take to a new issuer or an intermediary, like Bill Shrink, to get a new total-cost credit card quote. Use disclosure seems like a great way to encourage consumer behavioral learning. My one critique is that consumers would have to learn the hard way. I think that many consumers would have to get in real trouble with credit cards before the behavioral learning would take place.

This is why my only disappointment with the chapter is that Bar-Gill stopped with use disclosure. I wanted to see him explore the CARD Act in more detail and offer more policy ideas. So I’ll end this blog post as I ended my talk, with a plug to read his paper with Ryan Bubb, Credit Card Pricing: The Card Act and Beyond (Cornell L. Rev., 2012), which addresses both of those points and more.

[Posted, on Angela Littwin's behalf, by JT]

March 19, 2013 in Books, Commentary, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, March 18, 2013

Online Symposium on Oren Bar-Gill's Seduction By Contract

Seduction-by-contract-cover
For those of you who missed the discsussion Oren Bar-Gill's book at the Eighth International Conference on Contracts held in Fort Worth, TX last month, we will be providing a written version of the panel over the next week or so.  As we did at the conference, each commentator on the book will address a different substantive chapter (the introductory chapter sets out the model that informs the three substantive chapters).  Professor Bar-Gill will then weigh in with his responses at the end.  

The participants are as follows:

Littwin_angela_lg (1)Professor Angela Littwin will address Seduction by Contract's chapter on credit cards.   Professor Littwin studies bankruptcy, consumer, and commercial law from an empirical perspective. Most recently, she has written about pro se filers in bankruptcy and the relationship between consumer credit and domestic violence. She was one of the principal investigators on the 2007 Consumer Bankruptcy Project, which has been the leading study of consumer bankruptcy for the past 25 years.

Professor Littwin received her undergraduate degree from Brown University and graduated from Harvard Law School in 2002. After law school, she clerked for the Honorable Rosemary Barkett of the U.S. Court of Appeals for the Eleventh Circuit and founded ROAD (Reaching Out About Depression), a community-organizing project for low-income women. Prior to her appointment at the University of Texas School of Law, she was a Climenko Fellow and Lecturer on Law at Harvard Law School. 

Professor Littwin teaches bankruptcy, secured credit, and a seminar on the regulation of credit cards at the University of Texas School of Law, where she has been on the faculty since 2008.

Here recent publications include:

  • Escaping Battered Credit: A Proposal for Repairing Credit Reports Damaged by Domestic Violence, 161 University of Pennsylvania Law Review 363 (2013);
  • Coerced Debt: The Role of Consumer Credit in Domestic Violence, 100 California Law Review951 (2012); and
  • The Do-It-Yourself Mirage: Complexity in the Bankruptcy System, in Broke: How Debt Bankrupts the Middle Class at 157 (Katherine Porter, ed., Stanford: Stanford University Press, 2012).

Professor Littwin's post can be found here.

White (1)

Professor Alan White, who will comment on the book's chapter on mortgages, joined the faculty at the CUNY School of Law in 2012. He teaches consumer law, commercial law, bankruptcy, comparative private law and contracts. He is a nationally recognized expert on credit regulation and the residential mortgage market. Professor White is a past member of the Federal Reserve Board’s Consumer Advisory Council, a member of the American Law Institute, and is currently serving as reporter for the Uniform Law Commission’s project on a Residential Real Estate Foreclosure statute. He is quoted frequently in the national media, including the New York Times, the Wall Street Journal and the Washington Post, in connection with his research on the foreclosure crisis. He has published a number of research papers and articles on housing, credit and consumer law issues, and testified before Congress and at federal agency hearings on the foreclosure crisis, bankruptcy reform and predatory mortgage lending.

Before becoming a full-time teacher, Professor White was a supervising attorney at the North Philadelphia office of Community Legal Services, Inc., and was also a fellow and consultant with the National Consumer Law Center in Boston and adjunct professor with Temple University Law School and Drake University School of Law. His legal services practice included representation of low-income consumers in mortgage foreclosures, class actions, bankruptcies, student loan disputes, and real estate matters. Mr. White received his B.S. from the Massachusetts Institute of Technology and his J.D. from the New York University School of Law.

His recent publications include:

  • Losing the Paper – Mortgage Assignments, Note Transfers and Consumer Protection, 24 Loyola Consumer Law Journal 468 (2012)
  • Credit and Human Welfare: Lessons from Microcredit in Developing Nations, 69 Washington & Lee Law Review 1093 (2012)
  • The Impact of Federal Pre-emption of State Anti-Predatory Lending Laws on the Foreclosure Crisis, 31 Journal of Policy Analysis and Management 367 (2012) (with Lei Ding, Carolina Reid and Roberto Quercia)
  • The Impact of State Anti-Predatory Lending Laws on the Foreclosure Crisis, 21 Cornell Journal of Law & Public Policy 247 (2011) (with Lei Ding, Carolina Reid and Roberto Quercia)
  • State Anti-Predatory Lending Laws and Neighborhood Foreclosure Rates, 33 Journal of Urban Affairs 451 (2011) (with Lei Ding, Carolina Reid and Roberto Quercia)

Alan's first post is here.

Alan's second post is here.

Alan's third post is here.

Alan's fourth post is here.

KimProfessor Nancy Kim will address Seduction by Contract's chapter on cell phone contracts.  

Our readers are likely familier with Professor Kim, who joined the faculty of the California Western School of Law in fall 2004.  She has also taught as a visiting faculty member at The Ohio State University, Moritz College of Law, Rady School of Management at the University of California, San Diego and Victoria University in Wellington, New Zealand. 

Prior to joining the faculty at California Western, Professor Kim was Vice President of Business and Legal Affairs of a multinational software and services company. She has worked in business and legal capacities for several Bay Area technology companies and was an associate in the corporate law departments at Heller, Ehrman, White & McAuliffe in San Francisco and Gunderson, Dettmer in Menlo Park. 

While in law school, Professor Kim was Associate Editor of the California Law Review and Associate Editor of the Berkeley Women’s Law Journal. After graduating from law school, she was a Women’s Law and Public Policy Fellow at Georgetown University Law Center and a Ford Foundation Fellow at UCLA School of Law. Professor Kim is a member of the State Bar of California and a past recipient of the Wiley W. Manuel Award for pro bono services for her work with the Asian Pacific American Legal Center. 

Professor Kim currently serves as Chair-elect of the section on Contracts and as a member of the executive committee of the section on Commercial and Related Consumer Law of the American Association of Law Schools.  She is a contributing editor to the Contracts Law Prof Blog, the official blog for the AALS Section on Contracts. Her scholarly interests focus on culture and the law, contracts, women and the law, and technology. 

Her book, Wrap Contracts: Mass Consumer Contracts in an Information Society is due out later this year.  Some of her publications can be found here

Nancy's first post is here.

Nancy's second post is here.

Bar-GillFinally, Oren Bar-Gill will respond to the comments on his book.  Oren Bar-Gill is a Professor of Law and Co-Director of the Center for Law, Economics and Organization, New York University School of Law, where he has taught since 2005.  

Professor Bar-Gill’s scholarship focuses on the law and economics of contracts and contracting.   Before joining the faculty at NYU, he was at Harvard University, where he was a Fellow at the Society of Fellows, as well as an Olin Fellow at Harvard Law School.  Professor Bar-Gill holds a B.A. (economics), LL.B., M.A. (law & economics) and Ph.D. (economics) from Tel-Aviv University, as well as an LL.M. and S.J.D. from Harvard Law School. Bar-Gill served in the Israeli JAG, from 1997-1999, where he participated in criminal, administrative and constitutional proceedings before various courts including the Israeli Supreme Court and the IDF Court of Appeals.

A list of his publications can be found here.

Professor Bar-Gill's contribution to our forum can be found here.

We look forward to a lively exchange, and we hope readers will feel free to weigh in.

[JT] 

March 18, 2013 in About this Blog, Books, Conferences, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)