The FTC and new paternalism

Administrative Law Review

Volumn 60, Issue 2, 2008, Pages 323-370

  Edwards, Matthew A ^a  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

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EID: 79551574209     PISSN: 00018368     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (514)

1. See infra Part I.
2. Sendhil Mullainathan & Richard H. Thaler, Behavioral Economics, in INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL AND BEHAVIORAL SCIENCES 1094, 1094 (2004) ("Economics traditionally conceptualizes a world populated by calculating, unemotional maximizers that have been dubbed Homo Economicus.").
3. See Herbert Gintis, Beyond Homo Economicus: Evidence from Experimental Economics, 35 ECOLOGICAL EcoN. 311, 312 (2000) (discussing the characteristics of Homo economicus). Homo economicus is also referred to as "Chicago man" in academic literature.
4. See Daniel McFadden, Rationality for Economists?, 19 J. RISK & UNCERTAINTY 73, 76 (1999);
5. Robert A. Prentice, Chicago Man, K-T Man, and the Future of Behavioral Law and Economics, 56 VAND. L. REV. 1663, 1670 (2003).
6. Glen Whitman, Against the New Paternalism: Internalities and the Economics of Self-Control, POL'Y ANALYSIS 563 (Cato Inst., Wash., D.C.) Feb. 22, 2006, at 2.
7. See, e.g., J.D. Trout, Paternalism and Cognitive Bias, 24 LAW & PHIL. 393, 394 (2005) (making "the case for the legitimacy of governmental regulation on behalf of a person's good for selected classes of cognitive bias").
8. This Article will focus on federal unfairness standards. For overviews of state unfairness law, see DEE PRIDGEN, CONSUMER PROTECTION AND THE LAW (2006);
9. JONATHAN SHELDON & CAROLYN L. CARTER, UNFAIR AND DECEPTIVE ACTS AND PRACTICES (6th ed. 2004).
10. For an extraordinarily helpful treatment of this subject, see Russell B. Korobkin & Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics, 88 CAL. L. REV. 1051 (2000) [hereinafter Korobkin & Ulen, Rationality Assumption];
11. see also Thomas S. Ulen, Rational Choice Theory in Law and Economics, in ENCYCLOPEDIA OF LAW AND ECONOMICS 790 (Boudewijn Bouckaert & Geerit De Geest eds., 2000) [hereinafter Ulen, Rational Choice].
12. Korobkin & Ulen, Rationality Assumption, supra note 7, at 1061.
13. See Russell Korobkin, A Multi-Disciplinary Approach to Legal Scholarship: Economics, Behavioral Economics, and Evolutionary Psychology, 41 JURIMETRICS319, 331 (2001) ("The thinnest version of rational choice theory provides that individuals will act to maximize their expected utility, a completely nonfalsifiable proposition standing alone.");
14. Korobkin & Ulea Rationality Assumption, supra note 7, at 1061-62, 1067;
15. see also Robert J. Meyer & Barbara E. Kahn, Probabilistic Models of Consumer Choice Behavior, in HANDBOOK OF CONSUMER BEHAVIOR 85, 88 (Thomas S. Robertson & Harold H. Kassarjian eds., 1991) (observing the tautological nature of utility maximization claims);
16. Tanina Rostain, Educating Homo Economicus: Cautionary Notes on the New Behavioral Law and Economics Movement, 34 LAW & SOC'Y REV. 973, 977 (2000) ("When the content of a rational actor's preferences is left open, however, the theory is too indeterminate to yield many empirically falsifiable predictions.").
17. Robert H. Frank, Departures from Rational Choice: With and Without Regret, in THE LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR 17, 19 (Francesco Parisi & Vernon L. Smith eds., 2005).
18. Christine Jolis, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1488 (1998);
19. see also Colin F. Camerer, Wanting, Liking, and Learning: Neuroscience and Paternalism, 73 U. CHI. L. REV. 87, 91 (2006) [hereinafter Camerer, Wanting, Liking, and Learning] ("If my neighbor thumps his head repeatedly with a ball-peen hammer, do I have no alternative but to infer that hammering his head with a ball-peen hammer is the most fun he can have?").
20. This theory is sometimes referred to as "subjective expected utility." See Korobkin & Ulen. Rationality Assumption, supra note 7, at 1062 n.34 ("The addition of the word 'subjective' merely allows for the probabilities by which the decisionmaker weighs the utilities of uncertain outcomes to be subjective, rather than objective.").
21. Id. at 1063;
22. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW §1.3, at 15 (7th ed. 2007) ("Rationality means little more to an economist than a disposition to choose, consciously or unconsciously, an apt means to whatever ends the chooser happens to have selected, consciously or unconsciously.").
23. For those readers interested in representative utility equations, see Roger G. Noll & James E. Krier, Some Implications of Cognitive Psychology for Risk Regulation, 19 J. LEGAL STUD. 747,751-53 (1990).
24. See ROBERT COOTER & THOMAS ULEN, LAW & ECONOMICS 18 (4th ed. 2004). Cooter and Ulen note that: [T]he preferences of the consumer are subjective. Different people have different tastes.... Economists leave to other disciplines, such as psychology and sociology, the study of the source of these preferences. We take consumer tastes or preferences as given, or, as economists say, as exogenous, which means that they are determined outside the economic system.
25. Id. at 22.
26. Although the actor's self-interest need not be defined solely in terms of wealth maximization, the implication is that the well-being of others is not a concern in the decisionmaking process. See Korobkin & Ulen, Rationality Assumption, supra note 7, at 1064-66.
27. See id. at 1060-61 (explaining differences between thin and thick versions of rational choice theory)
28. (citing DONALD P. GREEN & IAN SHAPIRO, PATHOLOGIES OF RATIONAL CHOICE THEORY: A CRITIQUE OF APPLICATIONS IN POLITICAL SCIENCE 17-18 (1994)).
29. Id. at 1066.
30. For a slightly different list, see Jon D. Hanson & Douglas A. Kysar, Taking Behavioralism Seriously: The Problem of Market Manipulation, 74 N.Y.U. L. REV. 630, 641-42 (1999)
31. (derived from Colin Camerer, Individual Decision Making, in THE HANDBOOK OF EXPERIMENTAL ECONOMICS 587, 618 (John H. Kagel & Alvin E. Roth eds., 1995) [hereinafter Camerer, Individual Decision Making]);
32. see also Colin Camerer et al., Regulation for Conservatives: Behavioral Economics and the Case for "Asymmetric Paternalism", 151 U. PA. L. REV. 1211,1217 (2003) [hereinafter Camerer et al., Regulation for Conservatives] (describing the basic components of rationality).
33. Korobkin & Ulen Rationality Assumption, supra note 7, at 1064 ("Commensurability: actors should be able to compare the utility consequences of all alternatives to each other.").
34. Id. ("Transitivity: if an actor prefers choice A to choice B and choice B to choice C, he should then prefer choice A to choice C.");
35. Ulen, Rational Choice, supra note 7, at 792 ("Transitive preferences are those for which, if some good or bundle of goods denoted A is preferred to another good or bundle of goods denoted B and B is preferred to a third good or bundle of goods denoted C, then it must be the case that A is preferred to C").
36. Korobkin & Ulea Rationality Assumption, supra note 7, at 1064 ("Invariance: the preference between two or more choices should not depend on how the choice is presented or structured, so long as the outcome possibilities are constant.");
37. see also Camerer, Individual Decision Making, supra note 18, at 652 (noting that "different representations of the same choice problem, and different elicitation procedures, should yield the same preference");
38. Hanson & Kysar, supra note 18, at 642 ("[W]here alternative descriptions of the same outcome are formulated, players should express the same preferences regardless of which description is presented.").
39. See Korobkin & Ulea Rationality Assumption, supra note 7, at 1064 ("Cancellation: a choice between options should not depend on features of the options that are identical.");
40. see also Amos Tversky & Daniel Kahneman, Rational Choice and the Framing of Decisions, 59 J. Bus. S251, S252 (1986) (elaborating further on cancellation).
41. Korobkin & Ulen. Rationality Assumption, supra note 7, at 1064 ("Dominance: an actor should never choose an option in which every feature is only as good as the features of a competing option, and at least one feature is not as good.").
42. Camerer et al., Regulation for Conservatives, supra note 18, at 1215;
43. see also Camerer, Individual Decision Making, supra note 18, at 596 (illustrating Bayes's law as a formula).
44. See Korobkin & Ulen, Rationality Assumption, supra note 7, at 1064 ("If an actor fails to follow one or more of these principles, he cannot be making decisions consistent with the expected utility model. Consequently, the predictions of the model are testable, at least at some minimum level.");
45. see also Gregory Mitchell, Why Law and Economics' Perfect Rationality Should Not Be Traded for Behavioral Law and Economics ' Equal Incompetence, 91 GEO. LJ. 67, 81 (2002) [hereinafter Mitchell, Equal Incompetence] ("[W]hen the legal decision theorists say that some legally relevant behavior is supposedly 'nonrational,' 'quasi-rational,' or 'irrational,' they simply mean that a legal actor failed to apply the proper rules or norms for arriving at a judgment or decision, not that the action taken has an irrational purpose or unwise goal.").
46. Owen D. Jones & Timothy H. Goldsmith, Law and Behavioral Biology, 105 COLUM. L. REV. 405,443 (2005).
47. See Jeremy A. Blumenthal, Law and the Emotions: The Problems of Affective Forecasting, 80 IND. L.J. 155, 158 (2005) [hereinafter Blumenthal, Law and Emotions] (noting that the central tenet of the rational decisionmaker and its underlying assumptions are "flawed");
48. Larry T. Garvin, Small Business and the False Dichotomies of Contract Law, 40 WAKE FOREST L. REV. 295, 314 (2005) ("The experimental literature has shown many departures from conventional expected utility theory-enough to warrant the comment that if expected utility theory 'is an empirical, testable theory, then it is, in any conventional sense, untrue.'")
49. (quoting PAUL ANAND, FOUNDATIONS OF RATIONAL CHOICE UNDER RISK 19 (1993)).
50. Edward L. Rubin, Rational Choice and Rat Choice: Some Thoughts on the Relationship Among Rationality, Markets, and Human Beings, 80 CHI.-KENT L. REV. 1091, 1098 (2005).
51. For an overview of behavioral economics, see Colin Camerer & George Loewenstein, Behavioral Economics: Past, Present, Future, in ADVANCES IN BEHAVIORAL ECONOMICS 3 (Colin Camerer et al. eds., 2004) [hereinafter ADVANCES IN BEHAVIORAL ECONOMICS].
52. The extraordinary volume of recent behavioral law and economics (BLE) scholarship makes it difficult to provide a comprehensive list of valuable contributions to the field, but the following sources are good starting points: BEHAVIORAL LAW AND ECONOMICS (Cass R. Sunstein ed., 2000);
53. THE LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR (Francesco Parisi & Vernon L. Smith eds., 2005) [hereinafter LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR];
54. Symposium, Empirical Legal Realism: A New Social Scientific Assessment of Law and Human Behavior, 97 Nw. U. L. REV. 1075 (2003);
55. Symposium, The Legal Implications of Psychology: Human Behavior, Behavioral Economics, and the Law, 51 VAND. L. REV. 1495 ( 1998).
56. See Cass R. Sunstein, Behavioral Law and Economics: A Progress Report, 1 AM. L. & ECON. REV. 115, 115 (1999) ("The last decade has seen an outpouring of work in 'behavioral law and economics;' in the last few years, the outpouring has become a flood.").
57. Scholars have debated the proper term to describe this movement in legal academia. See Blumenthal, Law and Emotions, supra note 27, at 159 (listing names for this movement);
58. Owen D. Jones, Time-Shifted Rationality and the Law of Law's Leverage: Behavioral Economics Meets Behavioral Biology, 95 Nw. U. L. REV. 1141, 1142 n.2 (2001) ("This outpouring of scholarship appears under various names. These include 'behavioral law and economics,' 'law and behavioral science,' 'behavioral analysis of law,' 'behavioral economic analysis of law,' 'the behavioral approach to law and economics,' 'behavioral economics analysis,' and 'law and the "new" psychology.'");
59. Mitchell, Equal Incompetence, supra note 25, at 78-79 (discussing the debate over the terminology and choosing to use the term "legal decision theory").
60. See David A. Hoffman, The "Duty " to Be a Rational Shareholder, 90 MINN. L. REV. 537, 546 (2006) ("Behavioral law and economics undermines the rationality assumption by using data from psychological experiments to radically alter our view of how humans make choices. BLE documents how individuals' choice-making behavior systematically diverges from the predictions of the rational-actor model of human behavior.") (citations omitted);
61. Jonathan Remy Nash, Framing Effects and Regulatory Choice, 82 NOTRE DAME L. REV. 313, 316 (2006) ("Behavioral law and economics seeks to improve the predictive power of traditional law and economics by incorporating behavioral considerations into the model.");
62. Avishalom Tor, The Fable of Entry: Bounded Rationality, Market Discipline, and Legal Policy, 101 MICH. L. REV. 482, 484 (2002) (noting that hallmark of the BLE approach "is the replacement of the perfectly rational actor with a 'boundedly rational' decisionmaker who, apart from being affected by emotion and motivation, has only limited cognitive resources");
63. see also Rostain, supra note 9, at 980 ("The point of this new movement, these writers insist, is not to displace the law and economics model, but to enhance its descriptive and predictive powers by importing insights from cognitive and social psychology and behavioral economics.") (citations omitted). Rostain is skeptical, however, of this goal.
64. See id. at 984 ("Incorporating behavioral insights into legal analysis provides a richer and 'truer' account of human decisionmaking and behavior, but not necessarily one with significant predictive power.").
65. For ease of exposition, this framework is taken from Jolis et al., supra note 11.
66. Id. at 1479;
67. see also Joseph Henrich et al., In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies, 91 AM. ECON. REV. 73 (2001) ("[I]n addition to their own material payoffs, many experimental subjects appear to care about fairness and reciprocity, are willing to change the distribution of material outcomes at personal cost, and are willing to reward those who act in a cooperative manner while punishing those who do not even when these actions are costly to the individual.");
68. Rostain, supra note 9, at 979 ("People are not consistently self-interested, as such theories would hold, but have been shown to have other regarding preferences that are seemingly not reducible to material, or even reputational, interests. Such non-self-interested preferences are reflected in conduct governed by social norms, such as norms of fairness.").
69. See Camerer et al., Regulation for Conservatives, supra note 18, at 1217 (observing that "a substantial body of literature examines how people with self-control problems may fail to carry out their desired course of action")
70. (citing David Laibson, Golden Eggs and Hyperbolic Discounting, 112 Q.J. ECON. 443, 444-45 (1997);
71. George Loewenstein, Out of Control: Visceral Influences on Behavior, 65 ORG'L BEHAV. & HUM. DECISION PROCESSES 272, 272-73 (1996);
72. Ted O'Donoghue & Matthew Rabin, Doing It Now or Later, 89 AM. ECON. REV. 103, 118-20 (1999));
73. Jolis et al., supra note 11, at 1479 ("[P]eople often display bounded willpower. This term refers to the fact that human beings often take actions that they know to be in conflict with their own long-term interests.").
74. See Ole-Jergen Skog, Addiction, Choice, and Irrationality, in LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR, supra note 30, at 135 (arguing that the "central features of addiction cannot be adequately dealt with by theories embedded within the framework of standard rational choice theory"). Herbert Gintis has a slightly different take on addiction: Drug addiction may seem a perfect example of people making choices that are not in their self-interest. However, a much larger fraction of those who try drugs either give them up or maintain their use at recreational levels than become addicted. Therefore drug taking may be a risky behavior the net benefit of which is positive, even though it has a negative payoff for some.
75. Gintis, supra note 3, at 312.
76. Of course, any discussion about poor impulse control can lead to difficult questions over the very nature of happiness and the differences between what we want, need, like, and find pleasurable over the course of our lives. For an excellent discussion of these issues, see Camerer, Wanting, Liking, and Learning, supra note 11. An additional layer of complex issues emerges if we consider these matters over time and question whether people are capable of predicting accurately what will give them future happiness.
77. See generally Blumenthal, Law and Emotions, supra note 27.
78. See Jolis et al., supra note 11, at 1477 ("Bounded rationality, an idea first introduced by Herbert Simon, refers to the obvious fact that human cognitive abilities are not infinite. We have limited computational skills and seriously flawed memories.") (citation omitted);
79. Jones & Goldsmith, supra note 26, at 445 (noting "constraints on the brain's information capacities, wiring, and computing speed");
80. Troy A. Paredes, Blinded by the Light: Information Overload and Its Consequences for Securities Regulation, 81 WASH. U. L.Q. 417, 435 (2003) ("Cognitive capabilities are scarce resources that have to be allocated; because of limited cognitive capabilities, people cannot attend to all the information made available to them and cannot evaluate all their choices perfectly.").
81. But see Gerd Gigerenzer, Is the Mind Irrational or Ecologically Rational?, in LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR, supra note 30, at 39 (2005) (criticizing Jolis, Sunstein, and Thaler for misrepresenting Simon's views).
82. James R. Bettman et al., Constructive Consumer Choice Processes, 25 J. CONSUMER RES. 187,187 (1998).
83. See Jones, supra note 32, at 1150 ("Bounded rationality essentially captures the idea that there are very real, very important constraints on the actual human capacity to gather and process information.");
84. Jones & Goldsmith, supra note 26, at 445 (noting "constraints on time and energy for gathering perfect information").
85. See Jeffrey J. Rachlinski, The Uncertain Psychological Case for Paternalism, 97 Nw. U. L. REV. 1165, 1170-75 (2003) (reviewing the availability heuristic, the representativeness heuristic, anchoring and adjustment, hindsight bias, and self-serving biases, such as overoptimism, overconfidence, and egocentrism).
86. One example is what Herbert Simon referred to as "satisficing." See Herbert A. Simon, Rational Choice and the Structure of the Environment, 63 PSYCHOL. REV. 129 (1956);
87. Herbert A. Simon, A Behavioral Model of Rational Choice, 69 Q.J. ECON. 99 (1955);
88. see also Garvin, supra note 27, at 308-09 (discussing "satisficing");
89. Paredes, supra note 39, at 435-36 (discussing Herbert Simon's work).
90. Simon's work on "satisficing" led to work that explores a variety of non-compensatory decisionmaking strategies.
91. See SCOTT PLOUS, THE PSYCHOLOGY OF JUDGMENT AND DECISION MAKING 102 (1993) ("A compensatory strategy trades off low values on one dimension against high values on another.");
92. Paredes, supra note 39, at 437-40 (surveying decisionmaking strategies including the lexicographic strategy and elimination by aspects).
93. See Mitchell, Equal Incompetence, supra note 25, at 82 ("[W]e must rely on often unconscious mental shortcuts or rules of thumb to assess evidence, draw inferences, and make predictions, because deliberate, careful computations pursuant to rules of procedural rationality simply would be too mentally taxing or time consuming.").
94. For an in-depth discussion of various decisionmaking heuristics and biases, see Korobkin & Ulen, Rationality Assumption, supra note 7, at 1084-1102;
95. see also PLOUS, supra note 43, at 109-88.
96. Korobkin and Ulen point out: The widespread use of heuristics, at least in many cases, is no doubt a quite useful evolutionary adaptation; without such mental shortcuts, the task of making even relatively simple decisions would become so complex that daily life would almost certainly grind to a halt. But the use of heuristics surely results in the widespread failure of decision makers to maximize their expected utility in particular decision situations. Korobkin & Ulen, Rationality Assumption, supra note 7, at 1076 (citation omitted);
97. see also Patricia A. McCoy, Predatory Lending Practices: Definition and Behavioral Implications, in WHY THE POOR PAY MORE: HOW TO STOP PREDATORY LENDING 81, 93 (Gregory D. Squires ed., 2004) ("All consumers... use heuristic principles of one sort or another to simplify their financial decisions. When these principles are sound, they can provide a useful shortcut to financial decision-making. Other choice heuristics, however, can lead to grave and systematic errors in weighing risks and benefits.")
98. (citing Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCIENCE 1124 (1974));
99. Mitchell, Equal Incompetence, supra note 25, at 83 (observing that "over-reliance on, or unthinking use of heuristics can bias judgment and cause errors in decisions").
100. A contrast can be drawn between "'deliberate' choice heuristics," which are simplifying decision strategies that may be adaptive, and "'automatic' judgmental heuristics." See Shane Frederick, Automated Choice Heuristics, in HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE JUDGMENT 548, 549 (Thomas Gilovich et al. eds., 2002) [hereinafter HEURISTICS AND BIASES];
101. Gerd Gigerenzer, Is the Mind Irrational or Ecologically Rational?, in LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR, supra note 30, at 37;
102. Gerd Gigerenzer et al., How Good Are Fast and Frugal Heuristics?, in HEURISTICS AND BIASES, supra note 30, at 559.
103. See supra note 21 and accompanying text.
104. See Camerer, Individual Decision Making, supra note 18, at 652.
105. See Russell Korobkin, The Endowment Effect and Legal Analysis, 97 Nw. U. L. REV. 1227, 1228-29 (2003) [hereinafter Korobkin, Endowment Effect] ("[Individuals tend to prefer the present state of the world to alternative states, all other things being equal.");
106. see also Colin Camerer, Prospect Theory in the Wild: Evidence from the Field, in ADVANCES IN BEHAVIORAL ECONOMICS, supra note 29, at 148, 154 ("Samuelson and Zeckhauser ... coined the term status quo bias to refer to an exaggerated preference for the status quo . . . .").
107. Korobkin, Endowment Effect, supra note 49, at 1228 & n.3 ("[P]eople tend to value goods more when they own them than when they do not.") (crediting Richard Thaler for coining the term "endowment effect" in
108. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. ECON. BEHAV. & ORG. 39, 44 (1980));
109. see also Daniel Kahneman, Jack L. Knetsch & Richard Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem, in ADVANCES IN BEHAVIORAL ECONOMICS
110. (Colin Camerer et al. eds., 2004).
111. Chris Guthrie, Prospect Theory, Risk Preference, and the Law, 97 Nw. U. L. REV. 1115, 1119 (2003) ("[Individuals tend to value losses more heavily than gains of the same magnitude.")
112. (citing Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 ECONOMÉTRICA 263 (1979));
113. Jolis et al., supra note 11, at 1535 & n.182 ("[O]ne of the central features of Kahneman and Tversky's prospect theory is that people evaluate outcomes based on the change they represent from an initial reference point, rather than based on the nature of the outcome itself; also, losses from the initial reference point are weighted much more heavily than gains.")
114. (citing Kahneman & Tversky, supra, at 277-79). Russell Korobkin breaks loss aversion down further based upon various second-order explanations for loss aversion.
115. See Korobkin, Endowment Effect, supra note 49, at 1250-55.
116. Korobkin & Ulen, Rationality Assumption, supra note 7, at 1104-07 (discussing framing);
117. PLOUS, supra note 43, at 64-76 (providing an overview of framing with an emphasis on Tversky and Kahneman's work);
118. Rostain, supra note 9, at 978 ("Contrary to the requirement of description and process invariance, experimental evidence establishes that preferences depend importantly on how choices are described.").
119. But see James N. Druckman, Political Preference Formation: Competition, Deliberation, and the (Ir)relevance of Framing Effects, 98 AM. POL. SCI. REV. 671,683 (2004) ("[F]raming effects depend in critical ways on context. As a result, framing effects appear to be neither robust nor particularly pervasive.");
120. Gregory Mitchell, Taking Behavioralism Too Seriously? The Unwarranted Pessimism of the New Behavioral Analysis of Law, 43 WM. & MARY L. REV. 1907, 1961-63, 2005-11 (2002) [hereinafter Mitchell, Unwarranted Pessimism] (providing a skeptical discussion of framing effects literature).
121. See generally Guthrie, supra note 51 ;
122. Korobkin, Endowment Effect, supra note 49.
123. See, e.g., Jeremy A. Blumenthal, Emotional Paternalism, 35 FLA. ST. U. L. REV. 1 (2007) [hereinafter Blumenthal, Emotional Paternalism];
124. Blumenthal, Law and Emotions, supra note 27;
125. Peter H. Huang & Jeremy A. Blumenthal, Positive Law and Policy, in ENCYCLOPEDIA OF POSITIVE PSYCHOLOGY (Shane J. Lopez ed., forthcoming 2008).
126. Blumenthal, Emotional Paternalism, supra note 54, at 3.
127. See, e.g., Richard A. Epstein & Oren Bar-Gill, Consumer Contracts: Behavioral Economics vs. Neoclassical Economics (NYU Sch. of Law, Working Paper No. 07-17, 2007), available at http://lsr.neUco.org/cgi/viewcontent.cgi?article- 1095&context=nyu/lewp;
128. see also supra note 30 (listing recent symposia dedicated to the implications of behavioral law and economics on public policymaking and legal decisionmaking).
129. See Daniel Kahneman et al., Back to Bentham? Explorations of Experienced Utility, 112 Q.J. ECON. 375, 397 (1997) ("The point of these observations is not to support paternalism, but to reject one of the arguments commonly raised against it. The claim that agents should be left alone because they generally know what is good for them is less secure than is generally assumed in economic discourse.").
130. See Trout, supra note 5, at 394 ("Regulation can be permissible even when it runs counter to that person's spontaneous wishes, particularly when the regulation advances the agent's considered judgments or implicit long-term goals.").
131. Rachlinski, supra note 42, at 1166.
132. Jonathan Klick & Gregory Mitchell, Government Regulation of Irrationality: Moral and Cognitive Hazards, 90 MINN. L. REV. 1620, 1621 (2006) (explaining that under "hard forms of paternalism, . . . the government determines what is best for citizens and accordingly restricts the freedom of citizens to act otherwise");
133. Cass R. Sunstein, Boundedly Rational Borrowing, 73 U. CHI. L. REV. 249, 254 (2006) ("[S]trong paternalism forecloses choice, typically on the ground that all or most people will choose unwisely.");
134. see also Gerald Dworkin, Paternalism, in STANFORD ENCYCLOPEDIA OF PHILOSOPHY, available at http://plato.stanford.edu/entries/paternalism (last visited Jan. 25, 2008) (comparing hard and soft paternalism).
135. For discussions of the many definitions of paternalism, see Blumenthal, Emotional Paternalism, supra note 54, at 5-6;
136. Trout, supra note 5, at 408-13.
137. Whitman, supra note 4, at 2.
138. See Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism Is Not an Oxymoron, 70 U. CHI. L. REV. 1159,1159 (2003).
139. Camerer et al., Regulation for Conservatives, supra note 18, at 1212;
140. see also Gregory Mitchell, Libertarian Paternalism Is an Oxymoron, 99 Nw. U. L. REV. 1245, 1248 n.10 (2005) [hereinafter Mitchell, Libertarian Paternalism] (contrasting both forms of regulation);
141. Sunstein, supra note 60, at 257 (discussing similarities and differences between asymmetrical paternalism and libertarian paternalism).
142. See Klick & Mitchell, supra note 60, at 1621 (noting that under "softer forms of paternalism . . . the government regulates the form in which information and options are presented to citizens and restricts the role of laypersons in the market, legal, and political systems without completely controlling choices");
143. Edward L. Glaeser, Paternalism and Psychology, 73 U. CHI. L. REV. 133, 149 (2006) ("Typical examples of soft or libertarian paternalism include 'debiasing' campaigns, default rules, and other interventions that change beliefs and attitude without impacting formal prices faced by consumers.").
144. See Camerer et al., Regulation for Conservatives, supra note 18, at 1224-30 (discussing use of default rules in insurance contracts and retirement savings accounts).
145. See id. at 1238-47 (discussing the use of cooling-off periods in various contexts, including certain consumer purchases and loans, marriage licensure, and mediated settlements).
146. 15 U.S.C. §§ 1601-1667(f) (2000);
147. see also Camerer et al., Regulation for Conservatives, supra note 18, at 1237-48 (discussing the Truth in Lending Act's purposes).
148. See Oren Bar-Gill, Informing Consumers About Themselves 63-67 (NYU School of Law, Working Paper No. 111, 2007), available at http://lsr.nellco.org/nyu/ lewp/papers/111/ (discussing costs and limits of disclosure);
149. see also Matthew A. Edwards, Empirical and Behavioral Critiques of Mandatory Disclosure: Socio-Economics and the Quest for Truth in Lending, 14 CORNELL J.L. & PUB. POL'Y 199, 217 n.101 (2005) (noting costs incurred by those who must provide mandatory disclosures).
150. Bar-Gill, supra note 69, at 63.
151. See Jolis et al., supra note 11, at 1541 ("[B]ounded rationality pushes toward a sort of anti-antipaternalism-a skepticism about antipatemalism, but not an affirmative defense of paternalism.");
152. see also Stephen J. Choi & A.C. Pritchard, Behavioral Economics and the SEC, 56 STAN. L. REV. 1, 4 (2003) ("[T]he behavioral economics school generally subscribes to an 'anti-antipaternalism.' As any high school English teacher no doubt could translate, this means a belief in the benefit of 'paternalism.'") (citation omitted).
153. See Garvin, supra note 27, at 315 n.80 (2005) (collecting sources critical of BLE);
154. Jones, supra note 32, at 1156-61 (surveying criticisms of BLE).
155. For an argument that BLE scholars have not gone far enough to discredit the rational actor model,
156. see Jon Hanson & David Yosifon, The Situational Character: A Critical Realist Perspective on the Human Animal, 93 GEO. L.J. 1 (2004).
157. Gregory Mitchell has been a leader on this issue. See Mitchell, Unwarranted Pessimism, supra note 52;
158. Gregory Mitchell, Tendencies Versus Boundaries: Levels of Generality in Behavioral Law and Economics, 56 VAND. L. REV. 1781 (2003);
159. Mitchell, Equal Incompetence, supra note 25;
160. see also Hoffman, supra note 33, at 547 n.41 ("Some argue that BLE experiments are flawed in design or execution.");
161. David A. Hoffman, How Relevant is Jury Rationality?, 2003 U. ILL. L. REV. 507, 517 ("Critics of behavioralism's empirical findings argue that isolating decision making in this way is an especially poor way to test human rationality. In laboratories, subjects lack context from which to make decisions-they are given no feedback or opportunity to learn from their mistakes."). For vigorous counterarguments to Mitchell's work,
162. see Prentice, supra note 3.
163. See Choi, supra note 71 (applying behavioral law and economics theory to the SEC and other regulators);
164. Glaeser, supra note 65, at 134 (contending that "there are good reasons why we might think that public decisionmaking is likely to be more flawed than private decisionmaking")
165. See Klick & Mitchell, supra note 60, at 1622-23. For example, the provision of certain types of information to "de-bias" consumers may lead consumers to overestimate whatever risks they face in a particular market transaction.
166. See Richard A. Epstein, Behavioral Economics: Human Errors and Market Corrections, 73 U. CHI. L. REV. 111, 131 (2006) (discussing credit cards).
167. See Blumenthal, Emotional Paternalism, supra note 54, at 61-62 (noting the "classic objection" that "people know their tastes and preferences, and act rationally to achieve them, certainly better than any third party might know or do");
168. Mitchell, Libertarian Paternalism, supra note 64, at 1267-70 (explaining the difficulty for a third party to make judgments about another individual's utility);
169. Eyal Zamir, The Efficiency of Paternalism, 84 VA. L. REV. 229, 237-39 (1998) (discussing and rejecting anti-paternalism arguments based upon the inability of policymakers to assess the well-being of different people).
170. Much of this territory has been covered quite ably elsewhere. See, e.g., Neil W. Averitt, The Meaning of "Unfair Acts or Practices" in Section 5 of the Federal Trade Commission Act, 70 GEO. L.J. 225 (1981);
171. J. Howard Beales III, The Federal Trade Commission's Use of Unfairness Authority: Its Rise, Fall, and Resurrection, 22 J. PUB. POL'Y& MARKETING 192 (2003);
172. David L. Belt, The Standard for Determining "Unfair Acts or Practices" Under State Unfair Trade Practices Acts, 80 CONN. BAR J. 247 (2006);
173. Jean Braucher, Defining Unfairness: Empathy and Economic Analysis at the Federal Trade Commission, 68 B.U. L. REV. 349 (1988) [hereinafter Braucher, Defining Unfairness];
174. Stephen Calkins, FTC Unfairness: An Essay, 46 WAYNE L. REV. 1935 (2000);
175. Dara J. Diomande, The Re-Emergence of the Unfairness Doctrine in Federal Trade Commission and State Consumer Protection Cases, 18 ANTITRUST 53 (2004);
176. Ernest Gellhorn, Trading Stamps, S & H, and the FTC's Unfairness Doctrine, 1983 DUKE L.J. 903;
177. TIMOTHY J. MURIS & J. HOWARD BEALES III, THE LIMITS OF UNFAIRNESS UNDER THE FEDERAL TRADE COMMISSION ACT (1991);
178. David A. Rice, Consumer Unfairness at the FTC: Misadventures in Law and Economics, 52 GEO. WASH. L. REV. 1 (1983);
179. Roger E. Schechter, The Unfairness of Click-On Software Licenses, 46 WAYNE L. REV. 1735 (2000).
180. An excellent judicial review of the FTC's unfairness authority can be found in American Financial Services Ass'n v. FTC, 767 F.2d 957,965-72 (D.C. Cir. 1985).
181. Federal Trade Commission Act, ch. 311, §5, 38 Stat. 717, 719 (1914) (codified at 15 U.S.C. §45 (2000)).
182. A House Report explained the purpose of this open-ended language as follows: "There is no limit to human inventiveness in this field. Even if all known unfair practices were specifically defined and prohibited, it would be at once necessary to begin over again. If Congress were to adopt the method of definition, it would undertake an endless task." H.R. REP. No. 63-1142, at 19(1914).
183. See Robert A. Skitol, How BC and BCP Can Strengthen Their Respective Policy Missions Through New Uses of Each Other's Authority, 72 ANTITRUST L.J. 1167, 1168 (2005) (noting that between 1914 and 1936, "deception and other practices deemed to be 'oppressive' to consumers were common targets of Commission activity even as the Supreme Court flip-flopped over the central issue of whether the agency had authority to reach these practices without a showing of adverse effect on competition or competitors")
184. (comparing FTC v. Gratz, 253 U.S. 421 (1920),
185. and FTC v. Raladam Co., 283 U.S. 643 (1931),
186. with FTC v. R.F. Keppel & Bros., 291 U.S. 304 (1934)). Neil Averitt points out that in most cases, harm to competition accompanied harm to consumers, a fact that case law from this period recognized.
187. See Averitt, supra note 77, at 231-32.
188. 283 U.S. 643 (1931).
189. Calkins, supra note 77, at 1949.
190. Raladam, 283 U.S. at 654.
191. Id. at 649.
192. See Calkins, supra note 77, at 1936 ("Unhappy with a cramped Supreme Court interpretation of this prohibition in FTC v. Raladam Co., Congress in 1938 supplemented this language by declaring that 'unfair or deceptive acts or practices' are also 'unlawful.'") (citations omitted);
193. J.R. Franke & D. A. Bailam, New Applications of Consumer Protection Law: Judicial Activism or Legislative Directive?, 32 SANTA CLARA L. REV. 347, 363 (1992) (viewing the Wheeler-Lea Amendment as a response to the Supreme Court's decision in Raladam);
194. MURIS & BEALES, supra note 77, at 10.
195. Wheeler-Lea Act, ch. 49, § 3, 52 Stat. 111 (1938). As amended, section 5(a)(1) of the Federal Trade Commission Act now provides: "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." 15 U.S.C. §45(a)(1) (2000).
196. FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972).
197. See Beales, supra note 77, at 192 ("Prior to 1964, the commission largely ignored the word 'or' in the amendment and described acts it found offensive as 'unfair and deceptive' without making any attempt to distinguish between 'unfair' on the one hand and 'deceptive' on the other hand.");
198. Schechter, supra note 77, at 1761 ("From the mid-thirties through the early sixties the FTC... did not attempt to distinguish between 'deceptive' practices and those that were 'unfair.' Instead, it would allege an 'unfair-and-deceptive-practice' as if the term constituted a single compound word, defining a unitary phenomenon.")
199. ; see also PETER C. WARD, FEDERAL TRADE COMMISSION: LAW, PRACTICE AND PROCEDURE § 5.01, at 5-2 (1996) (describing how the FTC treated unfairness and deception as a unitary concept).
200. See Teresa M. Schwartz, Regulating Unfair Practices Under the FTC Act: The Need for a Legal Standard of Unfairness, 11 AKRON L. REV. 1, 4-6 (1977) (describing the FTC's first articulation of the unfairness theory in a rulemaking procedure).
201. Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324 (1964) [hereinafter Cigarette Rule].
202. Ironically, even though he later was the intellectual leader of the law and economics movement that contributed to the demise of the Cigarette Rule, "FTC lore holds that the principal author of this document was Richard Posner, then a 25-year-old attorney adviser to Commissioner Philip Elman." Beales, supra note 77, at 193 n.4
203. (citing The Reminiscences of Philip Elman, Oral History Research Office, Columbia University, at 372-73 (1986)).
204. Judge Posner confirmed this fact wim the author via e-mail. E-mail from Richard Posner, Judge, United States Court of Appeals for the Seventh Circuit, to author (May 30, 2007, 02:52:00 EST).
205. Cigarette Rule, supra note 90, at 8355. The Cigarette Rule begins with this guidance: No enumeration of examples can define the outer limits of the Commission's authority to proscribe unfair acts or practices, but the examples should help to indicate the breadth and flexibility of the concept of unfair acts or practices and to suggest the factors that determine whether a particular act or practice should be forbidden on this ground.
206. Id.
207. See William MacLeod et al., Three Rules and a Constitution: Consumer Protection Finds Its Limits in Competition Policy, 72 ANTITRUST L.J. 943, 946-48 (2005) (reviewing the congressional response to the Cigarette Rule, culminating in the passage of the Federal Cigarette Labeling and Advertising Act in 1969);
208. Schechter, supra note 77, at 1762 ("The FTC's effort to promulgate a final cigarette rule eventually foundered in the face of the complicated politics of tobacco, and Congress took direct legislative action to deal with the problem, rather than leaving it to administrative resolution."
209. (citing Federal Cigarette Labeling & Advertising Act, Pub. L. No. 89-92 (1965) (codified as amended at 15 U.S.C. § 1333 (2000)));
210. Schwartz, supra note 89, at 6 (noting that the Act "effectively overruled the Commission's trade regulation rule").
211. Schechter, supra note 77, at 1762.
212. EDWARD F. COX ET AL., THE NADER REPORT ON THE FEDERAL TRADE COMMISSION 66-73 (1969).
213. REPORT OF THE ABA COMMISSION TO STUDY THE FEDERAL TRADE COMMISSION (1969).
214. Sheila B. Scheuerman, The Consumer Fraud Class Action: Reining in Abuse by Requiring Plaintiffs to A liege Reliance as an Essential Element, 43 HARV. J. ON LEGIS. 1, 12 (2006).
215. MacLeod et al., supra note 93, at 943.
216. For discussions of President Nixon's and the FTC's responses to the critiques of the agency, see KENNETH W. CLARKSON & TIMOTHY J. MURIS, THE FEDERAL TRADE COMMISSION SINCE 1970: ECONOMIC REGULATION AND BUREAUCRATIC BEHAVIOR 3-4 (1981);
217. Mark Silbergeld, The Revitalization of the FTC, in KENNETH J. MEIER & E. THOMAS GARMAN, REGULATION AND CONSUMER PROTECTION 115-16 (2d ed. 1995).
218. 405 U.S. 233,244 (1972).
219. Id. at 244 n.5.
220. See Averitt, supra note 77, at 245 n.130 ("Although the Court merely quoted the Commission's statement without expressly assenting to it, the overall context implied approval.");
221. Braucher, Defining Unfairness, supra note 77, at 408 (noting "protracted debate about whether the Supreme Court really approved of the criteria");
222. Calkins, supra note 77, at 1952
223. ("The Cigarette Rule Statement's factors acquired talismanic status when the Supreme Court cited them with apparent approval in FTC v. Sperry & Hutchinson Co.");
224. Rice, supra note 77, at 24-25 ("Close consideration of the [Sperry & Hutchinson] opinion, and the petition and brief in the case, demonstrates that the Commission did not seek the Supreme Court's approbation of the Cigarette Rule test and that the Court's quotation of the test in a footnote to its broad dictum expressed neither approval nor disapproval.") (citation omitted);
225. Schechter, supra note 77, at 1763 ("While not strictly germane to the issue before it, the Court made favorable reference to the FTC unfairness definition in a footnote.").
226. MURIS & BEALES, supra note 77, at 12.
227. Prior to enactment of the Magnuson-Moss Act, the FTC claimed that it had substantive rulemaking authority under section 6(g) of the FTC Act, which gives the Commission authority "to make rules and regulations for the purpose of carrying out the provisions of the FTC Act. 15 U.S.C. §46(g) (2000)
228. . The D.C. Circuit endorsed the FTC's view in National Petroleum Refiners Ass 'n v. FTC, 482 F.2d 672, 697-98 (D.C. Cir. 1973). Nonetheless, the passage of the Magnuson-Moss Act removed all doubt.
229. See Mark E. Budnitz, The FTC's Consumer Protection Program During the Miller Years: Lessons for Administrative Agency Structure and Operation, 46 CATH. U. L. REV. 371, 414-16 (1997) (discussing the history of FTC rulemaking authority);
230. WARD, supra note 88, §13.01, at 13-2 to 13-6 (elaborating on rulemaking authority under FTC Act §6(g)).
231. See WARD, supra note 88, § 13.01, at 13-4 (discussing the more "elaborate procedures" under the Magnuson-Moss/FTC Improvement Act).
232. See Pub. L. No. 93-637, 88 Stat. 2183 (1975) (codified at 15 U.S.C. § 57a(a)(1)(B) (2000)) (providing authority to promulgate "rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce").
233. See Budnitz, supra note 104, at 376 (noting the support of the Nixon administration and Congress for increased FTC activism).
234. See MacLeod et al., supra note 93, at 953-54 (listing twenty-eight major rulemakings in the 1970s). Actually, some of the successful FTC rulemaking efforts in the 1970s began prior to publication of the Supreme Court's opinion in FTC v. Sperry & Hutchinson Co. (decided Mar. 1, 1972) and enactment of the Magnuson-Moss Act (signed into law by President Ford on Jan. 4, 1975). For these rules, it would be erroneous to suggest that they were inspired by those events.
235. See, e.g., Posting of Minimum Octane Numbers on Gasoline Dispensing Pumps, 36 Fed. Reg. 23,871 (Dec. 16, 1971) (codified at 16 C.F.R. pt. 422);
236. Care Labeling of Textile Wearing Apparel, 36 Fed. Reg. 23,883 (Dec. 16, 1971) (codified at 16 C.F.R. pt. 423);
237. Cooling-Off Period for Door-to-Door Sales, 37 Fed. Reg. 22,934 (Oct. 26,1972) (codified at 16 C.F.R. pt. 429).
238. MacLeod et al., supra note 93, at 952-54.
239. See id. at 944 (using the term "Kid Vid" to describe the Children's Advertising rulemaking). Other sources use the term "kidvid" or "Kidvid."
240. See, e.g., J. Howard Beales III, Advertising to Kids and the FTC: A Regulatory Retrospective that Advises the Present, 12 GEO. MASON L. REV. 873, 878 (2004) [hereinafter Beales, Advertising to Kids];
241. Tamara R. Piety, "Merchants of Discontent": An Exploration of the Psychology of Advertising, Addiction, and the Implications for Commercial Speech, 25 SEATTLE U. L. REV. 377, 442 (2001).
242. Children's Advertising, 43 Fed. Reg. 17,967 (Apr. 27, 1978).
243. J. Howard Beales III, Brightening the Lines: The Use of Policy Statements at the Federal Trade Commission, 72 ANTITRUST LJ. 1057, 1065 (2005) [hereinafter Beales, Brightening the Lines];
244. MacLeod et al., supra note 93, at 955 (referring to the Washington Post as "a typically friendly observer").
245. See Editorial, The FTC as National Nanny, WASH. POST, Mar. 1, 1978, at A22 (asserting that flat bans on advertising to children are "a preposterous intervention that would turn the agency into a great national nanny").
246. MICHAEL PERTSCHUK, REVOLT AGAINST REGULATION 70 (1982) (emphasis in original).
247. Mark Budnitz questions this account: The conventional wisdom, which views Pertschuk as the chairman who defied Congress by taking the FTC down the path of increased activism against Congress's wishes, clearly is wrong. Pertschuk was chided for his wide-ranging effort to promulgate trade regulation rules, but most of that activity began when Nixon was President, and it was Congress that had enacted the Magnuson-Moss ... Act, which conferred broad rulemaking authority upon the FTC. Although Pertschuk was vilified by Congress and others for his "kid vid" initiative, Congress itself had recommended FTC action to protect children from television advertisements. The conflicting messages may be more a reflection of the election of a more conservative Congress than a principled objection to the Pertschuk agenda. Budnitz, supra note 104, at 376 (internal citations omitted).
248. See Children's Advertising, 46 Fed. Reg. 48,710 (Oct. 2, 1981) (terminating the Children's Advertising rulemaking process). For a helpful review of the process by which the FTC decided not to pursue the Kid Vid rulemaking,
249. see MacLeod et al., supra note 93, at 956-58 (discussing an FTC Staff Report on Television Advertising to Children (Mar. 14, 1978) and an FTC Final Staff Report and Recommendation (Mar. 31,1981)).
250. See Budnitz, supra note 104, at 371 ("The conventional wisdom is that the Federal Trade Commission... under President Carter's Chairman, Michael Pertschuk, turned the FTC into a renegade agency which engaged in runaway consumer protection, hamstringing business with excessive regulation to such an extent it became known as the 'national nanny.'");
251. Calkins, supra note 77, at 1953-54 (discussing FTC overreaching and congressional backlash); MURIS & BEALES, supra note 77, at 14-15 (noting legislative, press, and business responses to "unfocused unfairness theories").
252. Beales, Advertising to Kids, supra note 110, at 879-80 (internal citations omitted);
253. see also Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 969-70 (D.C. Cir. 1985) (citing Federal Trade Commission Improvements Act of 1980, Pub. L. No. 96-252, 94 Stat. 374 (codified as amended in scattered sections of 15 U.S.C.)) (noting that the congressional response to Kid Vid included enactment of a federal law that "suspended the Commission's controversial rulemaking on children's advertising and placed a moratorium on the initiation of any new rulemakings aimed at regulating commercial advertising as an unfair practice pending congressional oversight hearings");
254. MacLeod et al., supra note 93, at 961 ("The FTC Improvements Act of 1980 ... revoked the Commission's authority to promulgate any rule invoking a theory of unfairness to govern advertising and terminated other proceedings.");
255. Sidney M. Milkis, The Federal Trade Commission and Consumer Protection: Regulatory Change and Administrative Pragmatism, 72 ANTITRUST LJ. 911, 925 (2005) ("The controversy surrounding 'Kid Vid' proved to be a lightning rod, which led eventually to efforts by Congress and the Reagan administration that halted, at least for a decade, consumer activism in the Commission.").
256. See Piety, supra note 110, at 443 ("The FTC that emerged from these disputes was a distinctly chastened one for many years thereafter.").
257. See MacLeod et al., supra note 93, at 953-54 (chart indicating that fourteen of twenty-one rulemakings from 1974 to 1980 were terminated by the FTC);
258. Thomas O. McGarity, Some Thoughts on "Deossifying" the Rulemaking Process, 41 DUKE LJ. 1385, 1389-90 (1992) (observing that "[o]f the nineteen major rules and amendments proposed ... during the latter part of the 1970s... only seven were completed") (internal citations omitted).
259. See S. COMM. ON COMMERCE, SCI., AND TRANSP., 96TH CONG., 2D SESS., UNFAIRNESS: VIEWS ON UNFAIR ACTS AND PRACTICES IN VIOLATION OF THE FEDERAL TRADE COMMISSION ACT (Comm. Print 1980).
260. See Beales, Brightening the Lines, supra note 112, at 1063 ("The Unfairness Policy Statement emerged as the Commission's response to mounting external political pressure. As concerns grew about the breadth of the Commission's authority to declare a practice unfair, the agency faced serious threats to important parts of its consumer protection jurisdiction.");
261. Braucher, Defining Unfairness, supra note 77, at 409 (discussing the Unfairness Policy Statement's political purposes).
262. See Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, S. Comm. on Commerce, Sei., and Transp., Comm. Statement of Policy on the Scope of Consumer Unfairness Jurisdiction (Dec. 17, 1980), reprinted in Int'l Harvester Co., 104 F.T.C. 949, 1070-76 (1984) [hereinafter FTC Unfairness Policy Statement]. In 1982, the FTC reaffirmed the 1980 Unfairness Policy Statement in a letter from Chairman Miller to Senators Packwood and Kasten (Mar. 5, 1982), reprinted in H.R. REP. NO. 99-162, at 28 (1985).
263. Some sources refer to the three part test as the Cigarette Test, due to its original administrative pedigree, see Cigarette Rule, supra note 90, whereas other sources refer to it as the S&H standard because of the Supreme Court's purported endorsement of the Cigarette Test in FTC v. Sperry & Hutchinson.
264. See supra notes 100-02 and accompanying text.
265. See FTC Unfairness Policy Statement, supra note 123, at 1073 ("Unjustified consumer injury is the primary focus of the FTC Act, and the most important of the three S&H criteria. By itself it can be sufficient to warrant a finding of unfairness.");
266. MURIS & BEALES, supra note 77, at 15;
267. Michael M. Greenfield, Unfairness Under Section 5 of the FTC Act and Its Impact on State Law, 46 WAYNE L. REV. 1869, 1874 (2000) (quoting Int 7 Harvester Co., 104 F.T.C. at 1071). The Unfairness Policy Statement also retained the "public policy prong" of the Cigarette/S&H Test, noting that "[i]t may be used to test the validity and strength of the evidence of consumer injury, or, less often, it may be cited for a dispositive legislative or judicial determination that such injury is present." FTC Unfairness Policy Statement, supra note 123, at 1074-75. The FTC made clear, however, that "[t]o the extent that the Commission relies heavily on public policy to support a finding of unfairness, the policy should be clear and well-established."
268. Id. at 1076. The FTC subsequently backed off from this view, when "in 1982 a unanimous Commission . . . clarified that the use of public policy is not an independent basis for finding unfairness." MURIS & BEALES, supra note 77, at 18 (citing Letter from FTC to Hon. Robert Packwood and Hon. Robert Kasten at 8 (Mar. 5, 1982), reprinted in H.R. REP. NO. 98-156, pt. 1, at 27, 32-33 (1983));
269. see also Paul Sobel, Unfair Acts or Practices Under CUTPA-The Case for Abandoning the Obsolete Cigarette Rule and Following Modern FTC Unfairness Policy, 11 CONN. BJ. 105, 118 (2003) (discussing the FTC's shifting treatment of public policy). Congress later codified the FTC's stated limitation on the use of public policy.
270. See infra note 163.
271. Int 7 Harvester Co., 104 F.T.C. at 1070-76.
272. See id. at 1073 ("First of all, the injury must be substantial. The Commission is not concerned with trivial or merely speculative harms.").
273. See id. ("[T]he injury must not be outweighed by any offsetting consumer or competitive benefits that the sales practice also produces.").
274. See id. at 1074 ("[T]he injury must be one which consumers could not reasonably have avoided.").
275. See SHELDON & CARTER, supra note 6, § 4.3.2.2, at 193-94 ("Substantial injury must not be trivial or merely speculative harm, but will usually involve monetary harm or unwarranted health and safety risks. Emotional or other subjective harm alone will not ordinarily make a practice unfair, although invasion of privacy may be a substantial injury.") (internal citations omitted);
276. Jean Braucher, Delayed Disclosure in Consumer E-Commerce As an Unfair and Deceptive Practice, 46 WAYNE L. REV. 1805, 1858 (2000) ("The essence of 'substantialness' is monetary harm.");
277. Schechter, supra note 77, at 1770 (discussing injury requirement and noting that "the concept of 'injury' in the law of unfairness is surprisingly underdeveloped").
278. FTC Unfairness Policy Statement, supra note 123, at 1076.
279. Id. The Commission made clear that it "has therefore never relied on the third element of S&H as an independent basis for a finding of unfairness, and it will act in the future only on the basis of the first two."
280. Id.
281. See PRIDGEN, supra note 6, § 9:5, at 569 ("The notion of immorality or lack of ethics (a more intuitive understanding of unfairness) plays no role in this legal construct. Instead, the discipline of economics looms large as the guiding light of the FTC's new unfairness doctrine.");
282. Thomas B. Leary, Unfairness and the Internet, 46 WAYNE L. REV. 1711, 1713 (2000) (noting that the Cigarette Rule gave "primacy to moral and ethical concepts, and to precedent" whereas the newer standard "gives primacy to economic factors, and introduces the notion of consumer responsibility") .
283. See Int'l Harvester Co., 104 F.T.C. at 1061 ("The Commission does not ordinarily seek to mandate specific conduct or specific social outcomes, but rather seeks to ensure simply that markets operate freely, so that consumers can make their own decisions."); PRIDGEN, supra note 6, § 9:5, at 568-69 ("Indeed, the entire consumer unfairness doctrine now appears to be based solely on the idea of consumer sovereignty, i.e., that consumers must be able to make their own decisions in the marketplace, free of unfair impediments.").
284. Neil W. Averitt & Robert H. Lande, Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law, 65 ANTITRUST L.J. 713, 715 (1997) (internal citation omitted). According to Averitt and Lande, consumers are sovereign when they have "the power to define their own wants and the opportunity to satisfy those wants at prices not greatly in excess of the costs borne by the providers of the relevant goods and services."
285. Id. at 716. For more on the concept of consumer sovereignty,
286. see G. PETER PENZ, CONSUMER SOVEREIGNTY AND HUMAN INTERESTS 13-14 (Cambridge Univ. Press 1986) (discussing alternative definitions of "consumer sovereignty");
287. W.H. Hutt, The Concept of Consumers' Sovereignty, 50 ECON. J. 66,66 (1940) (defining "consumer sovereignty" as "the controlling power exercised by free individuals, in choosing between ends, over the custodians of the community's resources, when the resources by which those ends can be served are scarce");
288. Joseph Persky, Consumer Sovereignty, 7 J. ECON. PERSP. 183, 184 (1993).
289. Averitt & Lande, supra note 135, at 716 ("The concept of consumer sovereignty goes so far as to embody at least some implicit notions about the proper relationship between the individual and the state. It is part of the Western world's answers to the prescriptions of Marxism.").
290. See Simona Borti & Sheena S. Iyenger, The Dark Side of Choice: When Choice Impairs Social Welfare, 25 J. PUB. POL'Y & MARKETING 24, 25-26 (2006) (discussing theoretical connections between the benefits of choice and rational choice theory).
291. Joel Waldfogel, Does Consumer Irrationality Trump Consumer Sovereignty?, 87 REV. ECON. & STAT. 691,691 (2005).
292. The early years of the Reagan presidency were heady times for those sympathetic to the Chicago school law and economics movement. The academic leader of the movement, Richard Posner, was appointed to the U.S. Court of Appeals for the Seventh Circuit, along with another prominent law and economics scholar, Frank Easterbrook.
293. See NEIL DUXBURY, PATTERNS OF AMERICAN JURISPRUDENCE 358 (Clarendon Press 1995). In addition, Reagan issued Exec. Order No. 12,291, which mandated cost-benefit analysis in administrative rulemaking. Exec. Order No. 12,291, 46 Fed. Reg. 13,193 (Feb. 19, 1981) ("Regulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society."). Exec. Order No. 12,291 did not technically apply to the FTC, since the FTC is an independent agency.
294. See Elena Kagan, Presidential Administration, 114 HARV. L. REV. 2245, 2277-78 (2001);
295. Angel Manuel Moreno, Presidential Coordination of the Independent Regulatory Process, 8 ADMIN. L.J. AM. U. 461, 494-97 (1994).
296. See Spencer Weber Waller, The Language of Law and the Language of Business, 52 CASE W. RES. L. REV. 283, 303 n.86 (2001) (noting that Miller, who was "an economist sympathetic to Chicago school economics . . . was the first economist to serve on the Commission itself and the first non-lawyer in thirty years"
297. (citing MARC ALLEN EISNER, ANTITRUST AND THE TRIUMPH OF ECONOMICS 213 ( 1991 ))).
298. See CLARKSON & MURIS, supra note 99.
299. See MEIER & GARMAN, supra note 99, at 118 ("Miller recruited numerous economists to the FTC so that he could rely on others with similar views to implement policy. Included among the personnel was Timothy J. Muris, a longtime FTC critic, to head the Bureau of Consumer Protection.") (internal citation omitted); Budnitz, supra note 104, at 383;
300. MacLeod et al., supra note 93, at 962 (observing that two of Miller's top policy appointees had doctorates in economics and that Timothy Muris, his Director of the Bureau of Consumer Protection, was a lawyer whose work drew on economic theory). Muris later became Chairman of the Federal Trade Commission under President George W. Bush. See Looking Back on the Muris Years in Consumer Protection: An Interview with Timothy J. Muris, 18 ANTITRUST 9 (2004) [hereinafter Muris Interview].
301. See Budnitz, supra note 104, at 377-81 (discussing Miller's approach and his confirmation testimony). Miller discusses his tenure at the FTC and the Reagan administration's regulatory philosophy in JAMES C. MILLER III, THE ECONOMIST AS REFORMER: REVAMPING THE FTC, 1981-1985 (1989).
302. Letter from James C. Miller HI to Hon. John D. Dingell (Sept. 21, 1984), in FTC REVIEW (1977-84): A REPORT PREPARED FOR THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE HOUSE COMMITTEE ON ENERGY AND COMMERCE 273 (Comm. Print 1984) [hereinafter FTC Review] (asserting that it was "very difficult . . . to make headway when someone in authority sees his role as resident saboteur"). For a scholarly treatment of the Miller years at the FTC,
303. see Budnitz, supra note 104.
304. See FTC REVIEW, supra note 144, at 242.
305. See id. at 275-394, 280 (criticizing Pertschuk's report as consisting of "errors, mischaracterizations, and outright lies").
306. Id. at 280.
307. The rule was initially proposed in 1975. See Credit Practices Rule, 40 Fed. Reg. 16,347-50 (Apr. 11, 1975) (codified at 16 C.F.R. pt 444);
308. MacLeod et al., supra note 93;
309. see also Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 962-63 (D.C. Cir. 1985) (reviewing the history of Credit Practices rulemaking);
310. Braucher, Defining Unfairness, supra note 77, at 412-13 (describing the history and content of the Credit Practices Rule).
311. See Am. Fin. Servs. Ass'n, 767 F.2d at 963 ("On July 20, 1983, the Commission tentatively adopted, by unanimous vote, the revised proposed rule. The final rule was published on March 1, 1984, to become effective March 1, 1985." (citing Credit Practices Rule, 49 Fed. Reg. 7740 (Mar. 1,1984) (codified at 16 C.F.R. pt. 444))). Although the vote was unanimous, Commissioner Pertschuk suggested that the two conservative members of the Commission, Chairman Miller and Commissioner Carol Crawford, vote in favor of the proposed rule despite their opposition because they faced defeat. See Pertschuk Report, in FTC Review, supra note 144, at 160-61 (describing the initial opposition to the rule that ultimately led to the unanimous vote of the commissioners).
312. See 16 C.F.R. § 444.1-444.4 (2007) (banning certain practices in connection with consumer credit contracts); see also 16 C.F.R. §444.5 (state exemptions to Credit Practices Rule). For background of the Credit Practices Rule,
313. see PRIDGEN, supra note 6, §9:20, at 710-13;
314. SHELDON & CARTER, supra note 6, §5.1.3.1, at 278-79.
315. See 16 C.F.R. § 444.2(a), (a)(1) (deeming it an unfair act or practice for a lender or retail installment seller "to take or receive from a consumer an obligation that . . . [constitutes or contains a cognovit or confession of judgment . . . or other waiver of the right to notice and the opportunity to be heard in the event of suit").
316. See id. § 444.2(a), (a)(2) (deeming it an unfair act or practice for a lender or retail installment seller "to take or receive from a consumer an obligation that . . . [constitutes or contains an executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer" with the exception of "a security interest executed in connection with the obligation").
317. See id. § 444.2(a), (a)(3) (deeming it an unfair act or practice for a lender or retail installment seller "to take or receive from a consumer an obligation that . . . [constitutes or contains an assignment of wages or other earnings," with certain exceptions);
318. see also id. § 444.2(a)(3)(i)-(iii) (listing exceptions to the prohibition on wage assignments).
319. See id. § 444.2(a), (a)(4) (deeming it an unfair act or practice "to take or receive from a consumer an obligation that . . . [constitutes or contains a nonpossessory security interest in household goods other than a purchase money security interest").
320. Id. § 444.4(a) (deeming it an unfair act or practice for a creditor to levy "any delinquency charge on a payment, which payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period, when the only delinquency is attributable to late fee(s) or delinquency charge(s) assessed on earlier installment(s)").
321. See Braucher, Defining Unfairness, supra note 77, at 414 n.311 (explaining pyramiding); PRIDGEN, supra note 6, § 9:20, at 712 (defining "pyramiding" as "any method of accounting that results in the assessment of multiple late charges based on a single late payment");
322. SHELDON & CARTER, supra note 6, §5.1.3.1, at 278-79.
323. See 16 C.F.R. § 444.3(a)(2) (deeming it an unfair act or practice for a "lender or retail installment seller . . . to obligate a cosigner unless the cosigner is informed prior to becoming obligated . . . of the nature of his or her liability as cosigner");
324. id. § 444.3(c) (mandating the form of notice disclosing the obligation of liability to a cosigner);
325. see also id. § 444.3(a)(1) (deeming it a deceptive act or practice "for a lender or retail installment seller . . . to misrepresent the nature or extent of cosigner liability to any person").
326. See Credit Practices Rule: Statement of Basis and Purpose and Regulatory Analysis, 49 Fed. Reg. 7740 (Mar. 1, 1984) (describing the purpose and legal basis of the rule);
327. see also Beales, supra note 77, at 194-95 (indicating that market imperfections led to consumer injuries);
328. Braucher, Defining Unfairness, supra note 77, at 418-21 (reviewing evidence of market failure for consumer credit remedies);
329. id. at 418 ("The FTC's two fundamental questions can be summed up as follows: (1) does use of a practice result from market failure; and (2) would prohibiting the practice result in a net benefit?").
330. PRIDGEN, supra note 6, § 9:20, at 713.
331. Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957 (D.C. Cir. 1985).
332. See id. at 962 (finding that the rule was justified).
333. See id. at 991 (Tamm, J., dissenting) (arguing that the FTC's decision exceeded its statutory authority and that the rule was not justified).
334. For an overview of the economic and empirical research,
335. see Peter V. Letsou, The Political Economy of Consumer Credit Regulation, 44 EMORY L.J. 587 (1995);
336. see also James R. Barth et al., Benefits and Costs of Legal Restrictions on Personal Loan Markets, 29 J.L. & ECON. 357 (1986);
337. Peter M. Juzwiak, Mr. Micawber Revisited: A Critique of the Credit Practices Rule, 64 S. CAL. L. REV. 417 (1991);
338. Robert E. Scott, Rethinking the Regulation of Coercive Creditor Remedies, 89 COLUM. L. REV. 730 (1989);
339. Daniel J. Villegas, Regulation of Creditor Practices: An Evaluation of the FTC's Credit Practice Rule, 42 J. ECON. & Bus. 51(1990);
340. William C. Whitford, The Appropriate Role of Security Interests in Consumer Transactions, 7 CARDOZO L. REV. 959 (1986).
341. See 15 U.S.C. § 45(n) (2000) (providing that the Commission has no authority to declare unlawful acts or practices on the basis of unfairness "unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition").
342. See id. (permitting considerations of public policy along with other evidence, but not allowing them to serve as a primary basis in determining whether an act or practice is unfair).
343. State consumer laws that protect against unfair practices are beyond the scope of this Article. I would note, however, that the FTC Act serves both formally and informally as a model for state consumer protection laws.
344. See generally Greenfield, supra note 125 (describing the impact of the FTC's rules on states). At the same time, many states have not adopted the newer approach to unfairness embodied in the Unfairness Policy Statement and the revision of the FTC Act, but instead have continued to use the arguably more liberal Cigarette Rule.
345. See Matthew A. Edwards, The Law, Marketing and Behavioral Economics of Consumer Rebates, 12 STAN. J.L. Bus. & FIN. 362, 404 n.223 (2007) [hereinafter Edwards, Consumer Rebates] (indicating that "most states" have not adopted the FTC's definition of unfairness).
346. See Beales, supra note 77, at 195.
347. See id. at 197-200 (citing instances in which the FTC utilized its unfairness authority);
348. Diomande, supra note 77, at 54 (discussing the expanded use of the FTC's unfairness authority in the 1990s);
349. Panel Probes Revival of Unfairness Doctrine in FTC or States' Consumer Protection Cases, 86 ANTITRUST & TRADE REG. REP. (BNA) 352, 352-53 (Apr. 9, 2004) [hereinafter Revival of Unfairness] (summarizing the Consumer Protection Committee program at the 52nd Annual Spring Meeting of the American Bar Association's Section of Antitrust Law in Washington, D.C.).
350. See FTC v. Winward Mktg, Ltd., No. 1:96-CV-615F, 1997 WL 33642380, at *2 (N.D. Ga. Sept. 30, 1997) (unpublished) (enjoining a company from marketing based on findings of its participation in false, deceptive, misleading, and unfair marketing and banking practices).
351. See FTC v. Verity Infi, Ltd., 335 F. Supp. 2d 479, 498-99 (S.D.N.Y. 2004) (holding that the "defendants' practice of billing line subscribers for Internet services that they neither used, nor authorized use of, constituted an unfair trade practice in violation of Section 5(a) of the FTC Act"), aff'd in part and vacated in part, 443 F.3d 48 (2d Cir. 2006).
352. See FTC v. Westby, No. 03-C-2540, 2004 WL 1175047, at *2 (N.D. Ill. Mar. 4, 2004) (unpublished) (defining spoofing as the practice of disguising an e-mail to make the e-mail appear to come from an address from which it did not originate);
353. see also Amended Complaint for Injunctive and Other Equitable Relief, FTC v. Westby, No. 03-C-2540, 2004 WL 1175047, at *3 (N.D. Ill. Mar. 4, 2004), available at http://www.ftc.gov/os/2003/09/marriedcomp.pdf (defining spoofing).
354. See generally Susan P. Crawford, First Do No Harm: The Problem of Spyware, 20 BERKELEY TECH. L.J. 1433, 1465-66 (2005) (discussing the FT'Cs response to spyware);
355. see also FTC v. Seismic Entm't Prods., Inc., No. 04-377-JD, 2004 U.S. Dist. LEXIS 22788, at *15-16 (D.N.H. Oct. 21, 2004) (finding that the public's interest in preventing unauthorized access to consumers' computers by an internet marketing company to be of grave concern).
356. See Diomande, supra note 77, at 54 (referring to " mousetrapping" as "the misuse of pop-up windows to post advertisements on the Internet");
357. Complaint for Permanent Injunction and Other Equitable Relief ¶ 26, FTC v. Zuccarini, No. 01-CV-4854, 2001 WL 34131412 (E.D. Pa. Apr. 9, 2002) (explaining that when consumers attempted to close a browser window, they found "themselves in yet another new window and viewing yet another of Defendant's advertisements-a practice commonly referred to as 'mousetrapping'"). Although the final court order did not use the term "mousetrapping," it did describe the underlying conduct.
358. See FTC v. Zuccarini, No. 01-CV-4854, 2002 U.S. Dist. LEXIS 13324, at *3 (E.D. Pa. Apr. 9, 2002).
359. See Alan M. White & Cathy Lesser Mansfield, Literacy and Contract, 13 STAN. L. & POL'Y REV. 233, 259 (2002) ("The FTC has not issued a substantive consumer-contract regulation since the 1984 Credit Practices Rule. Recent rules tend to emphasize disclosures or the avoidance of misrepresentations and to regulate abusive conduct, rather than regulating substantive terms.").
360. See PRIDGEN, supra note 6, § 12:13, at 1004-05 (citing the rulemaking in response to the Telephone and Dispute Resolution Act of 1992, the Telemarketing Act in 1994, the Comprehensive National Energy Policy Act of 1992, and amendments to the Fair Packaging and Labeling Act).
361. The FTC Funeral Industry Practices Rule, which became effective in 1984, is one exception. See PRIDGEN, supra note 6, §9:14, at 590-91 (discussing 16 C.F.R. §453.2 (1985)). For an economic analysis of die FTC Funeral Rule,
362. see Fred S. McChesney, Consumer Ignorance and Consumer Protection Law: Empirical Evidence from the FTC Funeral Rule, 7 J. L. & POL. 1 (1990).
363. See 16 C.F.R. § 310 (2007). For discussions of the administrative and legislative history of the Do Not Call Registry, see Joseph Dean Findley, The Do-Not-Call Registry and Its Overwhelming Support: This Time Congress Really Means It, 5 WYO. L. REV. 605 (2005);
364. R. Michael Hoefges, Telemarketing Regulation and the Commercial Speech Doctrine, 32 J. LEGIS. 50 (2005);
365. Douglas C. Nelson, The Do-Not-Call Implementation Act: Legislating the Sound of Silence, 16 LOY. CONSUMER L. REV. 63 (2003).
366. 15 U.S.C. §6101(2000).
367. See U.S. Security v. FTC, 282 F. Supp. 2d 1285, 1294 (W.D. Okla. 2003) (holding that the FTC lacked authority to create the Do-Not-Call Registry),
368. rev'd sub nom. Mainstream Mktg. Servs., Inc. v. FTC, 358 F.3d 1228, 1251 (10th Cir. 2004), cert. denied, 543 U.S. 812 (2004).
369. See Act to Ratify the Authority of the Federal Trade Commission to Establish a DoNot-Call Registry, Pub. L. No. 108-82, 117 Stat. 1006 (2003) (codified at 15 U.S.C. § 6102 (Supp. V 2005)).
370. Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992,16 C.F.R. pt. 308 (2004).
371. Children's Online Privacy Protection Rule, 16 C.F.R. pt. 312 (2004).
372. Telephone Disclosure and Dispute Resolution Act, Pub. L. No. 102-556, 106 Stat. 4181 (1992) (codified in pertinent part at 15 U.S.C. §§ 5711-5724 (2000)); Children's Online Privacy Protection Act, 15 U.S.C. §§ 6501-6506 (2000).
373. In a piece published in 2000, Stephen Calkins made the following observation about the congressional codification of the FTC Unfairness Statement: The Supreme Court has not spoken. No new court of appeals has weighed in. No opinion of the Commission addresses FTC Act Section 5(n). The Commission has not based any new Trade Regulation Rule on the unfairness authority. New initiatives and new thinking are reflected only in consent orders and complaints (a couple of which have led to District Court decisions). In part due to the dearth of binding precedent, the law of FTC unfairness remains indeterminate. Calkins, supra note 77, at 1960 (citations omitted);
374. see also supra notes 163-64 and accompanying text (discussing adoption of FTC Act §5(n)).
375. See supra Part I.
376. See supra Part I.
377. See Muris Interview, supra note 142, at 10 ("There really was a Reagan Revolution in antitrust and consumer protection. As I like to say, my side won.").
378. Id.
379. See supra notes 163-64 and accompanying text.
380. See generally Symposium, More Than Law Enforcement: The FTC 's Many Tools-A Conversation with Tim Muris and Bob Pitofsky, 72 ANTITRUST L.J. 773 (2005) (detailing the nonlitigation role of the FTC).
381. Robert Pitofsky, Past, Present, and Future of Antitrust Enforcement at the Federal Trade Commission, 72 U. CHI. L. REV. 209,213-14 (2005) (citations omitted).
382. Timothy Muris, Principles for a Successful Competition Agency, 72 U. CHI. L. REV. 165, 176 (2005).
383. Michael A. Salinger, Pauline M. Ippolito & Joel L. Schrag, Economics at the FTC: Pharmaceutical Patents Dispute Settlements and Behavioral Economics, 31 REV. INDUS. ORG. 85, 85 (2007). The mission of the FTC's Bureau of Economics is outlined at http://www.ftc.gov/be/about.shtm (last visited Apr. 24, 2008).
384. For more information, see http://www.ftc.gov/be/consumerbehavior/ (last visited Apr. 29, 2008).
385. See also Salinger et al., supra note 192, at 98 (discussing the conference).
386. For the sake of brevity and focus, this Article only deals with the FTC's unfairness authority, though the FTC's prohibition on deceptive practices might also be fertile ground for the new paternalism.
387. See Salinger et al., supra note 192, at 99-100.
388. See Edwards, Consumer Rebates, supra note 165, at 362-63 (noting that the total rebate offer volume now ranges from four to ten billion dollars per year and describing the important role rebates play in the high-end electronics industry).
389. See id. at 363 (observing that "despite their popularity, few marketing practices have received as much negative press as rebates").
390. These complaints are examined in greater detail in Edwards, Consumer Rebates, supra note 165, at 363.
391. For a discussion of various types of state legislation on rebates,
392. see id. at 396-98.
393. See id. at 399-400 (discussing various FTC enforcement actions against rebate offerors).
394. One might also press a per se unfairness claim against consumer rebates based upon the price discriminating effect of rebates. The argument proceeds as
395. See Yuxin Chen, Sridhar Moorthy & Z. John Zhang, Price Discrimination After the Purchase: Rebates As State-Dependent Discounts, 51 MGMT. Sci. 1131, 1131 (2005);
396. Chakravarthi Narasimhan, A Price Discrimination Theory of Coupons, 3 MARKETING SCI. 128 (1984) (discussing coupons as price-discrimination devices);
397. see also Edwards, Consumer Rebates, supra note 165, at 376 n.63 ("[O]ne might argue that (1) it is inherently wrong to sell the same good to different consumers at different prices, or (2) the ability of a firm to price discriminate demonstrates that the firm possesses unlawful market power.");
398. Alexei M. Marcoux, Much Ado About Price Discrimination, 9 J. MKTS. & MORALITY 57, 58 (2006) (arguing that price discrimination is not inherently unfair). These arguments, while interesting, do not necessarily involve behavioral exploitation, and thus will be bracketed here.
399. This behavioral law and economics of consumer rebates is covered in greater detail in Edwards, Consumer Rebates, supra note 165, at 376-95. The following treatment is
400. merely used to illustrate the challenges that behavioral issues raise under FTC unfairness law.
401. Jeff Sovern, Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 WM. & MARY L. REV. 1635, 1639 (2006) [hereinafter Sovern, Transaction Costs].
402. John G. Lynch, Jr. & Gal Zauberman, When Do You Want It? Time, Decisions, and Public Policy, 25 J. PUB. POL'Y & MKTG. 67, 71 (2006) ("Some people may believe that knowingly offering a rebate that a substantial percentage of consumers are unlikely to redeem (though they believe otherwise) is an unfair competitive practice. However, the FTC appears to operate under a definition of unfairness that makes this outcome unlikely ....").
403. To date, not a single judicial opinion has held that consumer rebates are per se unfair under §5 of the FTC Act. Just as important, the FTC has never advocated this position (though some consumer rights advocates have gone so far as to suggest that all rebates should be paid at the point of purchase). Nevertheless, even though the concept of unfairness has not been extended in this manner, rebates provide an interesting test of the current FTC unfairness standard. This topic was addressed in Edwards, Consumer Rebates, supra note 165, at 403-06. The following treatment of this issue is an expansion and refinement of that discussion.
404. See id. at 367 (discussing categories of consumers in a rebate promotion).
405. See Sovern, Transaction Costs, supra note 202, at 1684 (concluding that those who intend to redeem but fail to do so "experience a distortion of their demand function").
406. See Edwards, Consumer Rebates, supra note 165, at 369-70 (elaborating on the concept of breakage).
407. A way around this conclusion is to say that the redeemer in that case enjoys nonpecuniary benefits from redeeming a rebate, such as the satisfaction brought about by the rebate redemption process. Thus, any consumer who is deprived of the pleasure of successfully redeeming a rebate suffers harm. The use of a non-economic measure for consumer harm, however, creates additional utility measurement and comparison problems.
408. Jeff Sovern argues that even successful redeemers incur transaction costs: Even consumers who obtain the rebate incur transaction costs that do not benefit society because they must comply with the requirements for the rebate. If the seller simply offered the product at a reduced price, consumers would not have had to fulfill any requirements to obtain the reduced price. Accordingly, the rebate comes at a dearer price than necessary. Sovern, Transaction Costs, supra note 202, at 1685.
409. See Matthew A. Edwards, Price and Prejudice: The Case Against Consumer Equality in the Information Age, 10 LEWIS & CLARK L. REV. 559, 562-70 (2006) (discussing economic price discrimination).
410. See Edwards, Consumer Rebates, supra note 165, at 372-73 (noting that a firm can learn how much consumers spend, which products are purchased together, and shopping patterns from rebates).
411. Presumably other scholars will have different opinions as to who is harmed by rebates; in any event, the discussion serves to show that the concept of consumer injury is not as straightforward in this context as one might presume. Fortunately, the FTC has a staff of expert economists who are far better trained to untangle these issues.
412. See FTC Unfairness Policy Statement, supra note 123.
413. Id. at 1074 (internal citation omitted).
414. Carol T. Crawford, Unfairness and Deception at the FTC: Clarifying the Commission's Role and Rules, 54 ANTITRUST L.J. 303, 308 (1985) (internal citations omitted).
415. The exact percentages are difficult to determine. For a discussion of rebate redemption rates, see Edwards, Consumer Rebates, supra note 165, at 367-69 (summarizing available data on rebate redemption rates, but cautioning that "reliable rebate redemption rates are difficult to obtain") (internal citation omitted).
416. 15 U.S.C. § 45(n) (2000).
417. See Edwards, Consumer Rebates, supra note 165, at 405 (suggesting that this approach could lead to the argument that even "an honestly and efficiently managed rebate promotion is unlawful" due to "behavioral economics," but acknowledging that "[regulators or courts might be skeptical of such a claim since many consumers do indeed redeem rebates and avoid the harm being addressed here");
418. Lynch & Zauberman, supra note 203, at 71-72 ("Consumers who follow the redemption protocol receive the benefit, and they might point out that those who do not could have easily avoided the financial loss. However, it is highly predictable that in the aggregate, consumers will have low redemption rates.") (internal citation omitted).
419. Int'l Harvester Co., 104 F.T.C. 949, 1066 (1984) (discussing safety hazards posed by gasoline-powered tractors) (internal citation omitted);
420. see also Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1365 (11th Cir. 1988) (adopting the FTC's position that "'[c]onsumers may act to avoid injury before it occurs if they have reason to anticipate the impending harm and the means to avoid it, or they may seek to mitigate the damage afterward if they are aware of potential avenues toward that end'" (
421. quoting Orkin Exterminating Co. v. FTC, 108 F.T.C. 341, 366 (1986))).
422. Jacqueline J. Kacen & Julie Anne Lee, The Influence of Culture on Consumer Impulsive Buying Behavior, 12 J. CONSUMER PSYCHOL. 163, 163 (2002) ("Impulsive consumer buying behavior is a widely recognized phenomenon in the United States .... [I]t has been suggested that purchases of new products result more from impulse purchasing than from prior planning.");
423. see also Sharon E. Beatty & M. Elizabeth Ferrell, Impulse Buying: Modeling Its Precursors, 74 J. RETAILING 169, 169 (1998) (noting that "[i]mpulse buying is a pervasive aspect of consumers' behaviors");
424. Kathleen D. Vohs & Ronald J. Faber, Spent Resources: Self-Regulatory Resource Availability Affects Impulse Buying, 33 J. CONSUMER RES. 537 (2007) (discussing research on impulse buying);
425. Kwon Jung & Clement Lim, Impulse Buying Behaviors on the Internet 1-2 (KDI Sch. of Pub. Pol'y & Mgmt., Working Paper No. 06-09, 2006), available at http://ssrn.com/abstract=953851(reviewing literature on impulse buying).
426. Robert A. Prentice, "Law &" Gratuitous Promises, 2007 U. ILL. L. REV. 881, 922
427. (quoting Dennis W. Rook & Robert J. Fisher, Normative Influences on Impulsive Buying Behavior, 22 J. CONSUMER RES. 305, 306 (1995)) (internal citations omitted).
428. Neil Weinstock Netanel, Cyberspace 2.0, 79 TEX. L. REV. 447, 476-77 (2000) (book review) (internal citation omitted);
429. see also Robert G. Harris & Thomas M. Jorde, Antitrust Market Definition: An Integrated Approach, 72 CAL. L. REV. 1, 27 n.78 (1984) ("[M]any retail enterprises exploit human impulsiveness by ... designing the arrangement of products in the store to increase the incidence of 'impulse buying.'");
430. Paula B. Mays, Determining the Likelihood of Confusion in Ex parte Examination: A Trademark Examining Attorney's Perspective, 89 J. PAT. & TRADEMARK OFF. SOC'Y 207, 211 (2007) ("[M]ost grocers arrange the store aisle to encourage impulse shopping. Candy is placed near the checkout counter along with shocking magazines with such covers as 'Movie Star has alien baby.' Cereal is placed strategically and colorfully displayed in order to attract attention and encourage on-the-spot purchases.").
431. See Sovern, Transaction Costs, supra note 202, at 1638-39 (arguing that "the transaction costs generated by rebate offers permit manufacturers effectively to charge me unrebated price to most consumers," because "instead of simply paying less for the item from the beginning, as would be true with a sale item, consumers must fill out a form, gather proofs of purchase, and send them to the manufacturer").
432. See Camerer, Wanting, Liking, and Learning, supra note 11, at 91 n.11, 92
433. (citing Kent C. Berridge & Terry E. Robinson, Parsing Reward, 26 TRENDS IN NEUROSCIENCES 507, 510-12 (2003));
434. see also Kent C. Berridge, Pleasure, Pain, Desire, and Dread: Hidden Core Processes of Emotion, in WELL-BEING: THE FOUNDATIONS OF HEDONIC PSYCHOLOGY 525, 527 (Daniel Kahneman, Ed Diener & Norbert Schwarz eds., 1999) ("If an event was pleasant, it should be remembered as pleasant, expected to be pleasant, and desired again. But it appears that the three types of utility often diverge for outcomes in real life."). Put another way, Ben is experiencing a tension between his experienced utility and his decision utility.
435. See Camerer, Wanting, Liking, and Learning, supra note 10, at 90 (noting four types of utility: "experienced utility (the hedonic sensation at the time of consumption that Jeremy Bentham had in mind); remembered utility; forecasted utility (a forecast of experienced utility); and finally, the familiar notion of decision utility (numbers an observer could use to rank an agent's revealed preferences)")
436. (citing Kahneman et al., supra note 57, at 376-77;
437. Daniel Kahneman, New Challenges to the Rationality Assumption, 150 J. INSTITUTIONAL & THEORETICAL ECON. 18, 21 (1994)).
438. See generally Richard A. Posner, Are We One Self or Multiple Selves?: Implications for Law and Public Policy, 3 LEGAL THEORY 23 (1997).
439. See Stephen M. Bainbridge, Precommitment Strategies in Corporate Law: The Case of Dead Hand and No Hand Pills, 29 J. CORP. L. 1, 5 (2003) ("The ... phenomenon of multiple selves posits that individuals do not have a single utility function, but rather multiple competing utility functions. Because each self orders preferences differently, there is an ever-present risk that the self predominating at a given moment may make decisions not in the complete individual's best interest.");
440. Korobkin & Ulen, Rationality Assumption, supra note 7, at 1123 ("Each individual, at any given point of time, might not be the unitary, coherent set of preference orderings imagined by rational choice theory. Rather, each individual may be viewed as a collection of competing preference orderings. If so, then there may be a collective action problem in aggregating the contemporaneous preferences of these multiple selves.").
441. Finally, we should note that even if a consumer is harmed by a form of behavioral exploitation, under current unfairness law the harm must be weighed against everyone who benefited from the practice. In the case of placement of certain goods at checkout and impulse purchases, the harm to consumers who make ill-advised purchases must be weighed against the benefits that convenient product placement makes for other consumers. See Camerer, Wanting, Liking, Learning, supra note 11, at 92 (qualifying the wanting-learningliking framework's promotion of regulatory paternalism with the precondition that intervention "not cause other harms").
442. See Whitman, supra note 4, at 4.
443. A lucid, recent survey of the payday lending business can be found in Michael A. Stegman, Payday Lending, 21 J. ECON. PERSP. 169, 169-75 (2007).
444. Ronald J. Mann & Jim Hawkins, Just Until Payday, 54 UCLA L. REV. 855, 861-62 (2007) (internal citation omitted);
445. see also Brian A. Glasser & Eric B. Snyder, Payday Lending-The Litigation and Legislation That Regulate It, 1 11 TH ANNUAL CONSUMER FIN. SERV. LITIG INST. 423, 427 (2006) ("A payday loan is a transaction where a consumer borrows against his or her next paycheck. Typically, the consumer provides a recent pay stub as well as a personal check for the loan amount, plus fees, dated for the next payday, when the loan comes due.");
446. Steven M. Graves & Christopher L. Peterson, Predatory Lending and the Military: The Law and Geography of "Payday " Loans in Military Towns, 66 OH. ST. L.J. 653, 660 (2005) (defining payday loans as "high interest rate, rapidly compounding loans meant to tide over cash-short borrowers until their next paycheck").
447. One author sums it up: Critics argue that payday lenders target unsophisticated, cash strapped, and vulnerable people, charge outrageous and usurious fees, and often lead to a cycle of renewal that results in massive magnification of a relatively modest loan amount. Proponents counter that the industry provides a necessary and desirable financial service to a disenfranchised segment of the population ignored or underserved by mainstream banks, and that increased fees directly correspond only to the increased risks that arise from lending to borrowers with an unfavorable credit history.
448. Chad A. Cicconi, A Role for Payday Lenders, 123 BANKING L.J. 235, 235 (2006) (internal citation omitted);
449. see also Michael Bertics, Note, Fixing Payday Lending: The Potential of Greater Bank Involvement, 9 N.C. BANKING INST. 133, 134 (2005) (arguing that "[t]he payday lending market is currently functioning at an equilibrium that is harmful to consumers," and that "the entry of banks into the payday lending market could solve this problem by enhancing the competitive market forces within the industry");
450. Charles A. Bruch, Comment, Taking the Pay Out of Payday Loans: Putting an End to the Usurious and Unconscionable Interest Rates Charged by Payday Lenders, 69 U. CIN. L. REV. 1257, 1259 (2001) (contending that "new federal legislation should be enacted to bring interest rates charged by payday lenders into conformance with traditional limits of usury and unconscionability");
451. Carmen M. Butler & Niloufar A. Park, Mayday Payday: Can Corporate Social Responsibility Save Payday Lenders?, 3 RUTGERS U. J.L. & URB. POL'Y 119 (2005);
452. Creóla Johnson, Payday Loans: Shrewd Business or Predatory Lending?, 87 MINN. L. REV. 1, 25-97 (2002) (surveying numerous deceptive and exploitive payday lending practices);
453. Mann & Hawkins, supra note 230, at 857 ("The high interest rates that payday lenders charge have generated a flurry of critical proposals, ranging from calls to end payday lending altogether to proposals for additional disclosures by payday lenders.");
454. Aimee A. Minnich, Rational Regulation of Payday Lending, 16 KAN. J.L. & PUB. POL'Y 84 (2006);
455. ELIZABETH RENUART & KATHLEEN E. KEEST, THE COST OF CREDIT §7.5.5, at 293 n.439 (3d ed. 2005).
456. See Pearl Chin, Payday Loans: The Case for Federal Legislation, 2004 U. ILL. L. REV. 723, 727 (characterizing typical payday borrowers as "vulnerable customers who do not have access to information or to credit alternatives that would allow comparison shopping");
457. Scott A. Hefner, Payday Lending in North Carolina: Now You See It, Now You Don 7, 11 N.C. BANKING INST. 263, 267 (2007) ("The payday lending industry has been charged with targeting minorities, low-income earners, military personnel and the elderly.") (citing Press Release, Office of N.Y. State Att'y Gen., New York Sues to Stop Illegal Payday Lending Scheme (Sept. 24, 2003), http://www.oag.state.ny.us/press/2003/sep/sep24a-03.html;
458. Johnson, supra note 231, at 99 (concluding "that payday loan customers are primarily lowto-moderate income consumers who have personal checking accounts").
459. See Graves & Peterson, supra note 230, at 657-58. Government intervention took the form of a 36% interest rate cap on loans to military members.
460. See also John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, 120 Stat. 2083 (to be codified at 10 U.S.C. §987).
461. See Renuart & Keest, supra note 231, §7.5.5.1, at 293 n.439
462. (citing Uriah King et al., Race Matters: The Concentration of Payday Lenders in African American Neighborhoods in North Carolina, Qr. for Responsible Lending (2005), available at http://www.responsiblelending.org/pdfs/rr006-Race- Matters-Payday-in-NC-0305.pdf).
463. For reviews of the conflicting demographic data regarding payday borrowers, see Minnich, supra note 231, at 88.
464. The controversial study at the heart of these discussions is Gregory Elliehausen & Edward C. Lawrence, CREDIT RESEARCH CTR., PAYDAY ADVANCE CREDIT IN AMERICA: AN ANALYSIS OF CUSTOMER DEMAND (2001), available at http://www.cfsa.net/downloads/analysis-customer-demand.pdf.
465. Cf. Richard J. Thomas, Note, Rolling over Borrowers: Preventing Excessive Refinancing and Other Necessary Changes in the Payday Loan Industry, 48 WM. & MARY L. REV. 2401, 2403-07 (2007) (assessing the study's legitimacy in light of its alleged flaws, which include its sponsorship by one of the industry's trade associations, and a small sample size of clients who all borrowed at the same time of year).
466. One expert on payday lending states: Researchers have conducted several surveys of the characteristics of payday loan customers and their findings are broadly consistent. All payday loan customers have bank accounts, for this is what makes them eligible for the service. The vast majority is employed and has a household income between $15,000 and $60,000. The customers tend to be young adults; most are under forty years old. Most have children in the household. A strong majority has a high school education; about half have some higher education. Somewhat more than half are women. About half carry major credit cards.
467. John P. Caskey, Fringe Banking and the Rise of Payday Lending, in CREDIT MARKETS FOR THE POOR 17, 18-19 (2005).
468. Stegman, supra note 229, at 173.
469. I put "high" in quotation marks because I am not sure how to determine whether a price for something is high, though I suspect that I share the visceral reaction held by many people that these loans are high-cost.
470. Stegman, supra note 229, at 170;
471. see also Caskey, supra note 236, at 18 ("Given the short maturity of the loans and the size of the finance charge relative to the size of the loan, the annual percentage rate on payday loans commonly falls between 350 and 1,000 percent.");
472. Graves & Peterson, supra note 230, at 661 (average payday loan rates range from 364% to 550%);
473. Renuart & Keest, supra note 231, at 295 (calculating the translation of payday loan fees "into annual percentage rates typically not less than 390% and averaging close to 500%, though advocates and credit code enforcement agencies have noted rates of 1300% to 7300%"). Though loans at these rates seem intuitively outrageous and hard to defend, some commentators argue that it is not fair to express payday loan fees in the form of annual percentage rates.
474. Compare Mann & Hawkins, supra note 230, at 903-04 (noting that "studies suggest that requiring APR disclosures on payday loans is ineffective" and claiming that "[i]nterest-rate disclosures are misleading because the amount of the fee charged generally does not depend on the number of days until the borrower's payday"),
475. with Lynn Drysdale & Kathleen E. Keest, The Two-Tiered Consumer Financial Services Marketplace: The Fringe Banking System and Its Challenge to Current Thinking About the Role of Usury Laws in Today's Society, 51 S.C. L. REV. 589, 603 (2000) (arguing that APRs enable consumers to comparison shop for credit),
476. and Christopher L. Peterson, Usury Law, Payday Loans, and Statutory Slight of Hand: Salience Distortion in American Credit Pricing Limits, MINN. L. REV. (forthcoming 2008) (manuscript at 34-35, http://ssrn.com/abstract=1000041) (explaining why the use of the APR is appropriate for payday loans).
477. See infra notes 244-45 and accompanying text.
478. Or, if one believes that APRs are misleading in this context: Who would choose a $235, two-week loan with a $20 fee? Of course, in some cases, factors other than cost might come into play, such as the reputation of the lender, the level of customer service, and other contract terms, such as late payment penalties.
479. Mann and Hawkins explain: In sum, the best case against payday lending is that the market is plagued by cognitive failures, unlikely to be well policed by competitive forces, and likely to generate external costs borne by the rest of society. It is simply not plausible, the argument goes, that a person of ordinary capacity would sensibly decide to borrow money at a rate of 400 percent, using a loan that, in most cases, is likely to remain outstanding for months, if not years. In assessing the weight of this problem, it bears noting that those who will be harmed by the market failure are systematically likely to be far from the top of the distribution of income and wealth.
480. Mann & Hawkins, supra note 230, at 884;
481. see also id. at 881 ("Like most consumer financial transactions, payday lending transactions tax the cognitive capabilities of the typical customer in ways that lead to market failures of one sort or another.").
482. See Edwards, Consumer Rebates, supra note 165, at 391-92 (suggesting that people fall prey to overconfidence when making predictions about their own abilities to produce desirable outcomes, or engaging in unfamiliar activities).
483. The precise extent of payday loan rollovers is much debated. See Mann & Hawkins, supra note 230, at 864-65 (discussing competing evidence on mis issue).
484. See Chin, supra note 232, at 729-30 (offering "examples of borrowers who found themselves buried under a mountain of debt because of multiple rollovers" and concluding that "[w]ith multiple rollovers generating the bulk of revenue for payday lenders, the industry has every incentive to keep its customers in a perpetual cycle of debt");
485. Drysdale & Keest, supra note 239, at 605 ("Much of the concern about short-term fringe lending arises over the question of whether it is, at best, a 'debt treadmill' or at worst, a downward spiral.");
486. Aaron Huckstep, Payday Lending: Do Outrageous Prices Necessarily Mean Outrageous Profits?, 12 FORDHAM J. CORP. & FIN. L. 203, 207 (2007) ("Payday loan rollovers and renewals nearly always play a role in real-life examples of payday lending gone bad.");
487. Mann & Hawkins, supra note 230, at 896 ("Many commentators-and a good number of legislators-operate on the assumption that proof that a substantial number of payday loan customers are frequent users self-evidently demonstrates the impropriety of the business."); [B]orrowers, who often find their funds insufficient the next month to cover both their normal expenses and repayment of the payday loan, are forced to refinance, or "roll over," the loan for an additional fee. This cycle may continue until the borrower has refinanced so many times that the total cost of the payday loan far exceeds any late fees or returned check charges that the borrower would have faced had she not taken the loan. This refinancing trap is the most serious consumer interest concern in payday lending.
488. Thomas, supra note 235, at 2409.
489. See Stegman, supra note 229, at 176.
490. See Richard Hynes & Eric A. Posner, The Law and Economics of Consumer Finance, 4 AM. L. & ECON. REV. 168, 170 (2002) ("In a perfectly competitive market the interest rate will reflect the time value of money, inflation, and the risk of default.");
491. see also Matthew A. Edwards, supra note 69, at 205-06 (discussing the traits of an efficient credit market);
492. Jinkook Lee & Jeanne M. Hogarth, The Price of Money: Consumers' Understanding of APRs and Contract Interest Rates, 18 J. PUB. POL'Y & MKTG. 66, 66 (1999) ("In a perfectly efficient financial market, the price of a loan is a function of its risk.").
493. See Gregory Elliehausen, Consumers ' Use of High-Price Credit Products: Do They Know What They Are Doing? 20-22 (Networks Fin. Inst., Working Paper No. 2006-WP-02, 2006), available at http://ssrn.com/abstract=921909 ("Many high-price credit customers have characteristics that make qualifying for credit difficult.").
494. Id. at 29 ("Nearly two-thirds of payday loan customers obtained their most recent new advance (not renewal) because of an unexpected expense or shortfall in income. Only 11.9% used a payday loan for a planned expenditure.").
495. Drysdale & Keest, supra note 239, at 591 (referring to the subprime consumer credit market as the '"fringe banking' sector").
496. See id. (distinguishing the fringe banking sector from the "'prime' consumer credit market," comprised of "purchase money home mortgages and the secondary mortgage market, home equity loans, credit cards, automobile loans and leases that finance the American Dream for most of the middle- and upper-economic quintiles");
497. Elliehausen, supra note 248, at 2-9 (describing types of loans within the fringe banking sector).
498. This was the conclusion of the authors of an FDIC working paper. See Mark Flannery & Katherine Samolyk, Payday Lending: Do the Costs Justify the Price? 1, 21 (FDIC Ctr. Fin. Res., Working Paper No. 2005-09, 2005), available at http://papers.ssrn.com/so13/papers.cfm? abstract-id=771624 (concluding that "[t]o a great extent, the 'high' APRs implied by payday loan fees can be justified by the fixed costs of keeping the stores open and the relatively high default losses suffered on these loans");
499. Huckstep, supra note 245, at 204 ("[D]espite the common belief, payday lending firms do not always make extraordinary profits.").
500. Elliehausen, supra note 248, at 34.
501. See Stegman, supra note 229, at 176 (counseling that "the preferred policy choices will vary according to whether payday loans are viewed as a tolerable high-cost form of emergency short-term credit, or whether they are viewed as a loan at triple-digit annual interest rates").
502. It is well beyond the scope of this Article to review possible solutions for payday lending abuses. The payday lending literature has many suggestions.
503. See, e.g., Mann & Hawkins, supra note 230, at 905-10 (proposing simplified payday loan disclosures and measures to encourage participation in the market by large and reputable lenders).
504. See Lee & Hogarth, supra note 247, at 66 (noting the difficulty of accounting for "price-quality trade-offs" when analyzing the pricing of other products does not exist in "the credit arena, in which the 'product' is money").
505. See Butler & Park, supra note 231, at 123 (detailing social costs of the payday lending business, including "bad credit ratings, lower savings rates, less home ownership, bankruptcies, an increase in the number of people depending on welfare, and the costs of preventing and deterring criminal behavior");
506. Mann & Hawkins, supra note 230, at 884 (discussing effects of individuals' financial distress on society as a whole).
507. See Johnson, supra note 231, at 25 (identifying "payday lending practices that deceive and exploit consumers by means that are quintessentially unfair to consumers and also often illegal");
508. Mann & Hawkins, supra note 230, at 866 (noting the possibility that "mom-and-pop" payday loan providers "operate under the radar in more or less chronic violation of applicable laws governing usury and debt collection");
509. id. at 870 (stating that fraud and illegal lending are also common in the Internet payday lending sector).
510. Although clearly, a failure to adhere to the Truth in Lending Act's mandatory disclosure provisions could exacerbate any cognitive or emotional impediments to effective comparison shopping for credit. See Butler & Park, supra note 231, at 123 (discussing how failure to disclose material payday loan terms impedes comparison shopping);
511. Johnson, supra note 231, at 37-48 (discussing payday lender violations of the Truth in Lending Act).
512. In his comments on an earlier draft of this Article, Jeff Sovern noted that the issue seems to be a "burden of proof question-how sure must the FTC be before it decides to regulate based upon BLE? I think that Sovern's observation hits a key issue on the head, and this Article has aimed to show that the FTCs institutional history of unfairness theory is likely to make the burden of proof steeper than an uninformed observer would guess. I leave it to others to determine whether this ought to be the case.
513. See Salinger et al., supra note 192, at 103. Michael A. Salinger was the director of the Bureau of Economics (BE) from 2005-2007.
514. See also Press Release, FTC, Economics Director Michael Salinger to Leave FTC: Michael P. Baye Named New Director of the Bureau of Economics (June 28, 2007), http://www.ftc.gov/opa/2007/06/bedirect.shtm. Pauline Ippolito is currently a deputy director at the BE; Diagram, FTC, Federal Trade Commission: Bureau of Economics, http://www.ftc.gov/be/be-org-chart.pdf. Joel L. Schräg is an economist at the BE; FTC, Bureau of Economics, Conference on Behavioral Economics and Consumer Policy: Participant Biographies, http://www.ftc.gov/be/ consumerbehavior/docs/bios.pdf. Of course, the paper bears the usual caveat that the "views expressed... do not necessarily reflect those of the Federal Trade Commission or any individual Commissioner."