Tuesday, September 16, 2014
This is the second in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Steven J. Burton is the John F. Murray Professor of Law at the University of Iowa, where he currently teaches Contracts and a Seminar on Advanced Problems in Contract Law.
I begin with a disclosure: I have been a skeptic about statutory disclosure requirements in my field, contract law, for many years. In More than You Wanted to Know: The Failure of Mandatory Disclosure, Omri Ben-Shahar and Carl E. Schneider marshal an impressive array of empirical evidence, coupled with cost-benefit analysis, to argue that the costs of “mandatory” disclosure as such are substantial while the benefits are close to nil. But their advocacy has not moved me to a conviction that mandatory disclosure laws generally should be repealed, as they conclude (p. 183). In particular, certain disclosure requirements in contract law probably should be retained.
There are two reasons for my skepticism about their conclusion. First, Ben-Shahar’s and Schneider’s arguments do not distinguish mandatory disclosures of various kinds. Thus, Miranda warnings, informed consent to medical treatment, mandatory disclosure of contract terms, and other mandatory disclosures, generally should fall for the same sufficient reasons.
The problem, they argue, is that mandatory disclosures fail to achieve their singular goal—to lead “disclosees” to make good decisions about unfamiliar and complex choices when interacting with sophisticated parties (pp. 34-5, 54). Such disclosures communicate hardly anything to disclosees. Such disclosures do not fit the way people organize their lives and make choices, cannot simplify complex ideas, and cannot overcome problems of illiteracy and inumerasy. “Disclosurites,” as they call supporters of mandatory disclosure in various contexts, expect people to do something they cannot and rationally do not want to do. And, they suggest, there is no way to cure these deficiencies.
I think, however, that some disclosure requirements serve other goals, which Ben-Shahar and Schneider do not discuss. Abolishing some such requirements would have legal consequences that others would not have. Absent informed consent, for example, surgery probably would constitute a battery; however, repealing TILA would not have similar consequences. I don’t know enough about disclosure requirements outside of contract law to say for sure. But I would prefer that they had addressed the legal consequences of nondisclosure in various areas.
The second and similar reason for my skepticism is that, with respect to contract law, Ben-Shahar and Schneider do not distinguish common law disclosure requirements from statutory requirements, such as the unwieldy TILA. In the common law context, disclosure of contract terms is necessary if parties are to be obligated in accordance with those terms. Otherwise, disclosees do not meaningfully consent to the boilerplate terms of many kinds of contracts, especially consumer contracts. Without meaningful consent, or some appropriate alternative basis of contract, disclosees should not be bound by those terms. By contrast, no such consequence would follow from repealing statutory requirements.
Ben-Shahar and Schneider do not address the problem of obligation. Again, they would do away with mandatory disclosure, as such, in almost all circumstances (p. 183). They would, it appears, bind consumers to contract terms even when the consumer did not have an opportunity to look at them: They conclude, “[t]he right to read boilerplate before a purchase . . . can be discarded and only a few eccentrics will notice” (p. 194). This goes beyond Judge Easterbrook’s controversial opinion in ProCD v. Zeidenberg. That case requires that a party have access to the terms after a purchase and an opportunity to return the merchandise for a refund if the terms are unacceptable. Ben-Shahar’s and Schneider’s data and arguments would apply as well to terms disclosed after a purchase. They seem compelled by their own reasoning to endorse binding consumers to a merchant’s hidden terms. The open door to abuse is evident.
Lest this seem a strained reading of the book, consider their alternative. Rather than mandating disclosure of information that consumers do not want, Ben-Shahar and Schneider would leave matters to the market. They believe that information intermediaries, like Consumers Union and numerous websites, will supply the information that consumers want, not more, not less (pp. 185-90). And, they believe, mandatory disclosure is not needed for intermediaries to get the information they need to offer “advice” in the form of ratings, rankings, scores, grades, labels, warnings, and reviews. People, they think, want opinions, not data (p. 185).
Yes, but. . . . Consumers and others surely should not be bound by hidden contract terms just because advice and opinions are available in the marketplace. There would be no basis for an obligation to abide by such terms, even if the information market is more efficient than mandated disclosure: We do not have a general obligation to do the efficient thing. Or would Ben-Shahar and Schneider endorse Karl Llewellyn’s view that consumers and others should be bound by the few dickered terms but not by the accompanying boilerplate? I don’t know. I don’t think so. But I should know after reading this book. I would prefer that they had addressed the problem of contractual obligation flowing from nondisclosure.
Ben-Shahar and Schneider might respond that worrying about obligation is idle nonsense when disclosure has so little effect. Their focus, however, is on disclosure at the time of contract formation. I suggest that obligations created at that time matter at the time for performance, when a dispute may arise. A consumer, for example, then may complain to a merchant about something the consumer believes to be awry. The merchant may point to the applicable term(s) in the contract. If the terms were fair and available, and the merchant relies on them appropriately, the consumer may go away disappointed while accepting that she had taken a risk by not reviewing the terms beforehand. If the terms were unavailable, however, the consumer is more likely to be angry. She might feel with justification that she was being treated callously.
And maybe she was. She may continue by disputing, suing, and bad-mouthing the merchant, even when the merchant’s hidden terms were fair and fairly applied. This would not be good for either, whether or not the merchant was dealing sharply. If that were all there were to it, some merchants would disclose terms voluntarily. If some would not, however, the consequences would not be good for other consumers and merchants, either. The fabric of retail contracting would be frazzled. So, there may well be an externality here that justifies requiring disclosure sufficient to create an obligation.
Obligations are not idle. They have benefits, and the costs of omitting them could be significant. Helping consumers make better decisions is not the only goal of disclosure requirements. In my opinion, further analysis is in order.
I conclude that, in their zeal, Ben-Shahar and Schneider have overgeneralized. But this should not detract from the important contribution their book undoubtedly makes. They have brought together in one place much that had been scattered, and they have synthesized the data impressively. That alone sheds much light on disclosure requirements in general. I believe they have established that such requirements are not easy solutions to what often are complex problems. When it comes to repeal, however, each requirement should be considered carefully, one by one, especially with respect to goals it may pursue apart from helping disclosees to make more informed decisions.