Current Issue

  • Volume 71,
  • Number 3 -
  • December 2021

Articles

Error-Resilient Consumer Contracts
Danielle D’Onfro
PDF

When firms contracting with consumers make mistakes, people get hurt. Inaccurate billing, misapplied payments, and similar problems push lucky consumers into Kafkaesque customer service queues—and unlucky ones off the financial cliff. Despite significant regulatory interventions, firms contracting with consumers continue to struggle to accurately bill customers, update accounts, and process payments. Firms largely rely on technology, especially databases and software, to discharge these servicing obligations. This technology must accommodate firms’ innovations in their contracts, shifting governmental regulations, and consumers’ unpredictable behavior. Given the complexity of servicing, even when firms invest significantly in technology, it will inevitably produce mistakes. When firms skimp on their servicing technology, errors that harm consumers become even more likely. And even if it were possible to build perfect servicing technology, the costs that firms would pass on to consumers may outweigh the benefits. The challenge, then, is how to reduce customer harm, accepting that perfect servicing is neither possible nor desirable.

This Article argues that structural improvements to consumer contracts can make them more resilient to errors. Far from being new, these structural improvements have long been recognized in contract theory. But the resulting theoretical insights have not been applied to modern consumer financial contracts. Specifically, modularity and formalities improve resilience by mitigating the complexity of servicing, regulation, and consumer behavior. While mitigating complexity may reduce errors ex ante, the bigger payoff is in simplifying customer redress if and when errors occur. Intervening in the structure of consumer financial contracts is an underappreciated tool for achieving substantive consumer protection.

Insider Giving
S. Burcu Avci, Cindy A. Schipani, H. Nejat Seyhun & Andrew Verstein
PDF

Corporate insiders can avoid losses if they dispose of their stock while in possession of material nonpublic information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective, yet it faces lax reporting requirements and enforcement. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. This “insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that insider giving is not limited to officers and directors. Large investors appear to regularly receive material nonpublic information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company common stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating—investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.

Notes

Valuing Injunctive Relief Under the Class Action Fairness Act
Sadie J. Kavalier
PDF

Injunctive relief class actions afford victims of mass harms a chance to sue collectively and enjoin an actor’s conduct. While the moral value of these suits may be monumental for litigants, one procedural question remains murky: how should courts value the amount in controversy to determine whether the suit qualifies for federal diversity jurisdiction?

Historically, federal courts adopted one of two approaches. The “Plaintiff’s Viewpoint approach” values the amount in controversy strictly from any monetary benefit to the plaintiff(s). The “Either Viewpoint approach” values the amount in controversy as the higher of any monetary benefit to the plaintiff or the cost to the defendant of implementing the injunction. Naturally, the more inclusive Either Viewpoint approach tends to result in successful removal more often than the Plaintiff’s Viewpoint approach. For defendants, removal to federal court can be an incredible asset to a class action litigation.

In 2005, the Class Action Fairness Act (“CAFA”) effectively opened federal courts’ doors to a broader array of class action suits than federal diversity jurisdiction previously allowed. Despite this expansion, some federal district courts have continued to apply the more restrictive Plaintiff’s Viewpoint approach even in cases removed under CAFA. This Note argues that CAFA’s text, legislative history, and underlying policy concerns require using the Either Viewpoint approach uniformly in CAFA class actions and suggests a congressional amendment to require this approach.

Your Voice Gave You Away: the Privacy Risks of Voice-Inferred Information
Emma Ritter
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Our voices can reveal intimate details about our lives. Yet, many privacy discussions have focused on the threats from speaker recognition and speech recognition. This Note argues that this focus overlooks another privacy risk: voice-inferred information. This term describes non-obvious information drawn from voice data through a combination of machine learning, artificial intelligence, data mining, and natural language processing. Companies have latched onto voiceinferred information. Early adopters have applied the technology in situations as varied as lending risk analysis and hiring. Consumers may balk at such strategies, but the current United States privacy regime leaves voice insights unprotected. By applying a notice and consent privacy model via sector-specific statutes, the hodgepodge of U.S. federal privacy laws allows voice-inferred information to slip through the regulatory cracks. This Note reviews the current legal landscape and identifies existing gaps. It then suggests two solutions that balance voice privacy with technological innovation: purpose-based consent and independent data review boards. The first bolsters voice protection within the traditional notice and consent framework, while the second imagines a new protective scheme. Together, these solutions complement each other to afford the human voice the protection it deserves.