Interest free loans: why should they be regulated?

In recent days an increasingly popular high-cost short-term credit called 'buy now pay later' (BNPL) is frequently in the news headlines. BNPL is a type of loan that enables consumers to delay the payment; usually 14 to 30 days in full or to spread the cost over several months in installments. The attractive feature of the loan is that it is interest-free. 

This loan is essentially used when consumers buy goods online. The option to defer or slice up payment comes up at check out (for more see here). Unsurprisingly, the product is very popular with younger generations (so-called millennials and Generation Z). However, 'fashion-conscious' shoppers are not the only consumers of this product; it is increasingly being used by those in financial difficulties. On the provider side, BNPL is a world of fintech, many established and newly emerged financial technology companies such as Klarna and Paypal are offering this product, even the highly successful and popular Revolut is currently working on developing their own BNPL. Most recently Amazon teamed up with Affirm to offer BNPL to their customers.

However, as with any credit product, BNPL is not without dangers. Research shows BNPL users might not be fully aware of the potential of this product to contribute to the accumulation of large debt. The seemingly innocent, interest-free feature of the product encourages consumers to spend irresponsibly and beyond their means. BNPL tends to be heavily advertised, often resulting in unplanned and impulsive purchases. Klarna even commissioned a research study into consumers' shopping behavior, providing evidence for partner retailers on 'how to persuade shoppers to make 'emotional' purchases instead of 'logical' ones'. Although free to enter into the contract; for consumers who do not pay back the loan on time or miss a payment, the BNPL product acts as any other loan. It potentially triggers additional fees and charges such as late payment charges, and even (backdated) interest; impacts the consumer's creditworthiness and credit score; and it is subject to debt enforcement and potentially harmful debt collection practices. In the UK around the third of BNPL customers faced these consequences.

Given the nature of these credit products and the way they are sold, there is no question BNPL loans deserve regulatory attention. It is particularly positive that the EU Commission's newly presented Proposal for a Directive on Consumer Credits now proposes to regulate interest-free credit and thus these types of loans. 

Towards clearer Terms and Conditions... again

Be it pre-contractual information in terms and conditions or information on the processing of personal data in privacy policies, the truth is that the way businesses provide information to consumers generally leaves a great deal to be desired. In order to prevent this, and to better inform the informers, the Behavioural Insights Team (BIT) published a ‘Best Practices Guide’ on improving consumer understanding of contractual terms and privacy policies. These evidence-based guidelines are aimed at businesses and focus on ‘how’ to present information, rather than on the ‘what’. 

This study had a dual-focus: consumer comprehension of online contractual terms/ privacy policies and consumer engagement (i.e. the opening of full contractual terms or privacy policies). The study produced interesting, although not surprising, findings. In fact, the shortcomings of the information paradigm have been repeatedly studied and analysed, both at a practical and at a normative level. See, for example, what we previously reported here, here and here.

From the 18 measures tested, 6 proved to be effective, meaning that they showed evidence of increased consumer understanding or increased consumer engagement. The most effective measures are the display of important or unusual terms as Frequently Asked Questions (which increased comprehension in 36%), the use of icons combined with summaries to explain key terms (which increased comprehension in 34%) and telling customers how long it will take to read the policy (which increased opening rates of full terms and policies in 105%). Other effective measures include the use of illustrations and comics to explain step-by-step actions and processes, telling customers when it is their last chance to read information before they make a decision and showing customers the terms in a scrollable text box instead of requiring a click to view them. Also noteworthy is the fact that while BIT’s research showed that reducing a policy’s reading age level did not change comprehension levels for general customers, it showed evidence that such a measure helped people with lower levels of qualifications (increased comprehension by 16.9%).

Funnily enough, considering social media trends, adding emojis to contractual terms is amongst the measures that have no supportive evidence of increased understanding or engagement. Besides, well-known techniques like shortening the terms and conditions, using simpler language or resorting to summaries showed mixed evidence, which means that although they worked in some cases, they did not work in others. For example, presenting key points in a summary table increased comprehension of terms included in the summary, but it also decreased comprehension of terms not included in the summary. These findings show that a mere language simplification-based solution is not enough to fix consumer disinformation: measures such as simple language and summaries must be combined with visualization.

The study – which was commissioned by the UK Government – also demonstrates how regulators are well-aware of the consumer disinformation problem. However, it is rare to see a legislative instrument (both at national and EU level) incorporating explicit measures dealing with these (or with similar) findings. The only recent exception at EU level is the General Data Protection Regulation, which explicitly calls for ‘standardized icons’ and visualization as a means to increase transparency in the pre-contractual stage. This study is another reminder of the need for lawyers to work with information designers in order to increase and improve visualization of their terms and conditions.

Finally, it is important to stress that even though the effective measures led to an increase in consumer understanding and consumer engagement, the final numbers did not go above 58% and 34%, respectively. In other words, according to this study, around 40% of consumers still do not understand terms and conditions, while 66% of consumers do not open the full policies, even after the tested measures are implemented. This means that in order to reach an almost complete comprehension of pre-contractual information – or to guarantee that everyone understands what they are binding themselves to - we need additional solutions and new approaches.

Public call for information on online choice architecture for consumers

The Dutch Authority for Consumers and Markets (ACM) has published a call for information on online choice architectures for consumers. The questionnaire may be found on this website, with the deadline for submitting information being set at August 16. The gathered information is to be used in preparation of the 'Guidelines regarding online choice architectures'. Through these guidelines ACM intends to advice traders, which online behavioural persuasive practices could e.g. be assessed as unfair (deceptive or coercive) commercial practices, and which examples of online persuasion could be seen as exemplary.

In the news

Some of the interesting reads we found in the news from last week:

Five misleading pricing tactics to avoid in sales (V. Crowe in Which?) - warns which pricing offers may be misleading considering the rulings of the UK's Advertising Standards Agency from last year

How Airbnb's Tech Is Impacting People's Fundamental Human Rights (L. Coulman in Forbes) - more specifically the right to housing

Blue Planet has "huge impact" on shopper behaviour, finds report (L. Wells in Talking Retail) - Waitrose study shows more sustainable behaviour patterns of consumers and what impacts them

Behavioural study on transparency of online platforms - let's try this again

Aside the New Deal for consumers, parts of which we have already commented on (see POLITICO publishes draft Commission proposal on collective redress for European consumers), and which we will keep on discussing in the coming days further, the Commission has also published today an interesting behavioural study on the transparency of online platforms (executive summary may be found here, the whole final report - here). Admittedly, I have not yet read the 206 pages long final report fully, but having studied the executive summary and checked a thing or two in the final report, here are some of my thoughts on the study.

The study focused on the possibilities of improving transparency of online platforms (such as Airbnb or Amazon) due to their potential for 'posing significant risks to consumer protection and market competition'. However, out of the three examined areas (criteria for ranking and presentational features of search results; presenting identity of contractual parties; quality controls on consumer reviews and ratings) only the first one could be presented as more unique for online platforms than other websites. Generally, establishing the identity of a counterparty online (regardless of the use of a platform) and the quality of the controls they use (rankings, endorsements) is problematic for most internet users. The question then is whether the Commission intends to extrapolate the findings from the online platform study to other online websites and consumer protection whilst using them.

The geographical scope of the study was limited to 4 countries (Germany, Poland, Spain and the UK); some of the biggest European countries in terms of population and size. Can we expect the results to then be representative for the EU?

Further methodological evaluation of the study is probably best left to the experts, but I do wonder e.g. whether the names chosen for restaurants and hotels that were being compared have been consulted with communication specialists as to not biasing consumers at the get-go.

In any case, the overall finding of the study: that online transparency is clearly in the interests of consumers - is hardly surprising or new. I guess it is always good to receive a confirmation thereof though. The study suggest that to achieve greater transparency:

- criteria used to order search results should be apparent to consumers and it should be possible to re-order search results using a range of criteria;

- consumers' awareness of the identity of contractual parties and their understanding of legal implications should be raised;

- platforms should be encouraged to implement quality controls for improved authenticity and greater number of reviews.

Again, hardly groundbreaking suggestions. It would be more noteworthy if the Commission indicated specifically how these objectives could be achieved (should we not start finally talking e.g. about particular font sizes and information placement?). Moreover, these suggestions could be misused by online platforms and traders. E.g. it is relatively easy (technically speaking) to introduce a search criteria 'popularity' to a platform, but what does it signify? The amount of clicks on a particular link or the amount of transactions concluded with the given product/service provider? It the clicks counted, it would not be surprising if a particular product or service was 'popular' because it was listed first when the measurement started. There are ample opportunities then to still not provide transparent information to consumers even by following the Commission's recommendations.

Temptation of subscriptions

In the UK the organisation Citizens Advice conducted a study of consumers subscribing to various services and discovered that on average consumers pay ca 160GBP over a period of three months for unwanted services. These would include subscriptions to gyms, insurance, online streaming, TV channels - that would not end up being used. The message to consumers is to be aware of their usage habits and not to be too easily tempted to conclude yet another service at a seemingly attractive price, with an easy subscription process. Reading contract terms before signing up is always a good idea. A simple subscription process makes consumers easily sign in, but the sign-out process may be more complex and conditional. Citizens Advice reports on 9 out of 10 consumers being initially refused cancellation, in practice. This indicates the need for more inquiry into the terms and conditions of these services providers and the fairness of their provisions on terminating the contract. Still, even if termination is possible, consumer behaviour biases mean we tend to overestimate our future behaviour (how many times we will make use of the gym subscription, for example) and may be unlikely to timely cancel a contract we don't benefit from. An attractive price still may mean paying money for something that we end up not using at all, which profits service providers not consumers. 

New Commission study on insurance services

On 27^th October the European Commission published a study on consumers’ decision making in insurance services. Insurance services are particularly important due to the size of the market (with non-life premiums rising to € 343bn in 2015, according to Insurance Europe) as well as for ensuring financial stability.

The study focused on non-life insurance products purchased domestically and cross-border, with cross-border purchases being key for the internal market. The methodology of the study combined a systematic literature review, market data collection and stakeholder interviews along with behavioural experiments both online and in the laboratory. The use of behavioural experiments shows the increasing influence and status of behavioural economics in EU policy making, as the results of the study are meant to inform the European Commission’s Consumer Financial Services Action Plan. 

The study produced some interesting findings. For example it highlighted that consumers are more likely to engage with the information provided when it is presented in a concise, salient and user-friendly way. However, the real challenge lies in pointing out exactly the strategies that would make the presentation of the info user-friendly, and the study provides some insights on that. For example, separating sections using boxes and presenting text in two columns, using icons to indicate the subject of each section, and using traffic light coloured ticks as bullet points to indicate risks covered and not covered. Weight is placed on national authorities frequently monitoring the provision of information and harmonising the rules on provision of information where possible. Price comparison websites, another informational aspect, can be helpful for consumers but the study raised concerns as to their impartiality and independence.

Another key finding of the study is the negative effect of pressure in the decision making of consumers, with pressure selling being particularly prevalent in car rental and add-on insurance. Pressure selling makes consumers make sub-optimal decisions or buy products they do not need. Beyond improving enforcement, what is suggested could help with pressure selling is better information, especially underlining the existence of alternatives and presenting the product in a balanced way. Timing is key for addressing pressure, as well as for processing information. Allowing consumers time to reflect on their decisions and to modify them at a later date can prove to be helpful, according to the results of the study. However, there is the issue of how much consumers make use of such measures and what can be done for addressing pressure selling ex ante.

As most behavioural studies, this one also points out that consumers tend to be passive, they prefer the familiar and do not devote sufficient time and effort in comparing alternatives in the market. Consumers have a low awareness and understanding of contract terms. Behavioural biases play a role in consumers buying excess that is too low for their needs or choosing not to buy insurance at all. The image of the consumer painted in this study is at odds with the that of the average consumer as used in CJEU case law, a consumer who is expected to be ‘reasonably well-informed, observant and circumspect’.

In relation to cross-border shopping for non-life insurance the study found that although there is some interest for it, there are barriers preventing consumers from cross-border purchases, including low awareness of the possibility for cross-border purchases, language barriers and the complexity of the market, as well as regulatory differences and concern over problem solving. Harmonisation is key for promoting cross border purchases and it is one of the suggestions made, especially for harmonising definitions and contract formats.

Though the study itself calls for further research and collection of more data, it is a welcome systematic effort to study the European insurance market with robust methodology and concrete suggestions. It remains to be seen how much it will influence EU policy when it comes to taking concrete measures.

Camera, Camera, on the Wall...

The latest issues of INsights #18 contains a short article by Joasia Luzak 'Camera, Camera, on the Wall...' which introduces to the general public a previous joint publication by P. Lewinski, J. Trzaskowski and J. Luzak 'Face and Emotion Recognition on Commercial Property under EU Data Protection Law' published in Psychology & Marketing, vol. 33, issue 9, pp. 729-746. If you are interested in issues of privacy and how new technologies may challenge it, it's worth it to give it a read.

Consumer vulnerability study published by the Commission

Yesterday the Commission published a study examining the incidence of consumer vulnerability across the EU28 and Iceland and Norway. It identifies the main reasons behind this vulnerability and what can be done about it. A special focus is on the challenges consumers face in the online environment, as well as in the finance and energy sectors. Many consumers show some signs of vulnerability, putting them at a higher risk of suffering negative outcomes in the market and making them more susceptible to certain marketing practices.

The key finding is that the incidence of vulnerability is the highest when consumers face complex advertising or when they have problems comparing deals because of market-related or personal factors, giving them difficulties getting informed, comparing, accessing and choosing between offers. Presenting offers in a simpler and clearer way significantly improves consumers' ability to select the best deals and to exercise their right to choose other alternatives.

If you are interested, take a look at the Commission's factsheet and final report here. 

Press digest

Consumer Products & Sustainability

Some of the recent press articles express concerns that some of popular consumer products will be soon disappearing from the market if they do not meet new European requirements on efficiency and sustainability set by the Ecodesign Directive. (Europe's ban on 'wasteful' gadgets - doest it cost or save?) 

Another article points out to the decreased life span of consumer electronic products, where wasteful consumption of goods may result from the consumer's need to update their products to newer, better versions more often (Lifespan of consumer electronics is getting shorter, study finds). 

You may also read in recent press more about the problems of marketing of sustainable products. While some researchers discovered that consumer care about e.g. environmental impact of their purchases, this often still doesn't influence their purchasing behaviour. Could this be explained by the fact that consumers don't see what's in it for them to change their decision-making to reflect sustainability trends? (The problem with sustainability marketing? Not enough me, me, me)

Customer service & consumer information

Interesting findings of two studies on customer service in the UK have been discussed in Forbes by Adrian Swinscoe (Is Customer Service Going to Get Worse Before It Gets Better?). Tentative conclusions that could be drawn from this article are that while customer services seems to be improving, the improvement may be too slow for the dramatic raise in consumer expectations as to what level of customer service they should be receiving.

Speaking of customer services, some banks are considering to start texting their customers that it may be in their interest to switch a financial service provider, lower balance levels, avoid overdraft charges, etc. This may be the result of the reported inefficiency of bank statements that consumers currently receive. (British watchdog tells banks to text time-poor customers)

Are the European institutions looking for a way out from the promises they have made to deliver roaming-free phone services to Europeans in 2015? This is the subject of an article discussed in Deutsche Welle (Europeans free to 'roam if you want to' - but without phones, without data).

Conference: Where is law going if not behavioral?

Last Thursday and Friday, many of this blog's authors got together at the European University Institute in Florence to take part in the conference 'Where is law going if it is not going behavioral?'. In my presentation I gave an overview on the different groups of supporters and critics of behavioral analysis of law and offered three explanations to the question of why behavioral analysis of law polarizes so strongly. Many of the workshop's speakers highlighted the fact that behavioral analysis of law is not sufficiently distinguished from the political concept of libertarian paternalism and the regulatory tool of nudging, which causes confusion. In contrast to the US, behavioral analysis of law is only at its beginnings in Europe. Hopefully, the conference has given a boost to this development!

Press digest

Cloud computing

New research suggests that 72% of European cloud users still are not able to answer any questions as to where their data is being transferred to, which means that even if they have been informed about this by their cloud service providers, this information clearly has not reached them. (see Many cloud systems 'not meeting EU data protection rules')

Mobile banking and mobile advertising

The European Banking Authority is consulting its new guidelines for providing more security to online payments market. The new guidelines of the European Banking Authority so far correspond to the rules of the EU Payment Services Directive. The question is whether it makes sense to adopt them as such as of August 2015 or whether to strengthen them already in the anticipation of the new PSD2. (New payment security guidelines to apply to online retail from August 2015) A brief summary of a current EU regulatory landscape with respect to mobile banking and payments may be found here: FCA thematic review - mobile banking and payments September 2014.

 Another article presents well how the use of smartphones influences modern advertising strategies. (3 Truths About Mobile Advertising In The Era Of Hyper-Connectivity)

 

Morality & consumers

The Archbishop of Bukavu and President of the Provincial Assembly of Bishops of Bukavu and Kindu addresses the European Parliament and other European institutions to guarantee that the resources used in consumer goods are not linked to human right violations and conflicts. (EU must give assurances on the morality of trade in natural resources)

Consumer behaviour

Interesting article on what went wrong with the consumer culture/ consumer image. (Viewpoint: How the consumer dream went wrong) Another survey shows us that at least in the US trust of consumers in using their credit cards have diminished recently; is it turn to popularize fingerprint-protected credit cards? (Data Breaches Are Affecting Consumer Behaviour and Trust in Credit Cards...)

Press digest

Telecommunication

The European Commission announces not to further regulate fixed telephone lines, since the market moved towards mobile and online telecommunication. (Europe says goodbye to fixed line regulation, hello to mobile era)

Tobacco Products Directive

UK e-cigarette manufacturer, Totally Wicked, challenges the validity of art. 20 of the Tobacco Products Directive at the CJEU, claiming that e-cigarettes should not be regulated as "tobacco related products" if they don't contain tobacco. (E-cig manufacturer wins right to challenge Brussels in EU courts; Totally Wicked vs. the EU's tobacco directive; First e-cig TV adverts from next month)

EU Data Protection and ePrivacy rules

Worries are being expressed about strengthening existing data protection rules even when businesses do not seem to be able to hold to currently existing ones (EU set to strengthen data protection laws). Data Protection Authorities across the EU are currently stepping up enforcement of the compliance with the existing EU data protection rules, by conducting a widespread cookie sweep (Are you ready? The EU "Cookie Sweep" is upon us). Other sources report widespread non-compliance of cloud-based storage service providers with the existing EU data protection rules (Most cloud apps flout EU data protection rules - study).

Tourism sector

TUI Travel argues in the UK for more support to be given to the reform of the Package Travel Directive and the Regulation No 261/2004 on air passenger rights. (TUI Travel calls on UK government to support the travel and tourism sector at home and abroad)

Competition

European booksellers plead with the European Commission and BEUC to set up investigation into the monopoly position of Amazon in the online book market, which harms European consumers by depriving them of a rich and diversified online book offering. (Booksellers raise Amazon monopoly concerns with European Commission)

Health claims

The new rules on food labelling (EU Regulation 1169/2011 on food information to consumers) are to enter into force as of December 2014 (nutrition information as of December 2016). Especially the sport nutrition sector may have to invest time and money to adjust the labels of their products to the new rules. While this regulation forces producers to be very specific in listing ingredients of their products, it may be even more difficult for the producers to justify placement of easy claims on how certain products may boost energy etc. (which are also regulated by Regulation 1924/2006). (Claim, set and match)

Consumer behaviour

Two new survey results have been published showing us growing trends of consumer online shopping habits. (UK leads European online shopping; Northern European web shoppers spent €1,780 each in 2013) In the meantime, Facebook sets up a new division - Facebook IQ - to try to understand consumer behaviour better... (Facebook forms new unit to study consumer behaviour).

Consumers' choice and innovation in retail food sector

The European Commission published last week the results of a retail food study. The study "The economic impact of modern retail on choice and innovation in the EU food sector" has been jointly prepared by Ernst & Young, Cambridge Econometrics Ltd. and Arcadia International and for anyone interested in this sector and its developments it has a fascinating amount of data spread out on ca 450 pages (more than 300 shops analysed in 9 Member States with 23 product categories and for a period of time 2004-2012). What we can gather from the European Commission's press release is that there was a worry expressed by the traders active in the food supply chain that large retailers imposed detrimental conditions on their suppliers (a reason to adopt CESL?) and the latter ones were not able to invest in new products, which could lead to the reduction of choice and innovation in food products for EU consumers (Commission publishes results of retail food study). The main results as we could hear are:

• consumer choice continuously increases (more shops, products, brands, package sizes);
• number of innovations reaching consumer each year decreased since 2008 by 6.5%;
• most innovations nowadays concern the packaging;
• range of choice/innovation is related to the size and types of shops and the economic environment (e.g. whether the local area is high or low on unemployment, GDP per capita etc.), as well as to the turnover in a product category;
• more competition among shops leads to the introduction of more choice/ innovation;
• in moderately concentrated retail markets, retailers' stronger bargaining power in comparison with the supplier did not point to the reduction of choice and innovation in food products.

The last presented finding suggests that the assumption that led to this study might have been incorrect, so that the need to grant suppliers more protection in EU law might not necessarily be related to consumer protection. We will need to see what are the responses to this study (allowed to be submitted before 30 January 2015).

A "nudge unit" for Germany

Over the past years various governments have introduced so-called “nudge units”, by which they pay tribute to the challenging task of translating behavioural insights into policy-making and law-making. Behavioural economics as a discipline is characterized by research identifying how people, for instance consumers, really act. It shows how they can systematically deviate from rational behavior. Such insights are generally established by interdisciplinary work involving psychologists, sociologists, lawyers and economists. 

Following the U.S. (“Social and Behavioral Sciences Team”) and Great Britain (“Behavioural Insights Team”) also the German Chancellery is currently in the process of setting up such an interdisciplinary team to apply empirical evidence from behavioural economics in public policy making.

Even more than you wanted to know

New additions have been added to the virtual symposium on Ben-Shahar's and Schneider's book on mandatory disclosure. They include contributions by:

VII. Nancy Kim

VIII. Florencia Marotta-Wurgler

IX. Daniel Schwarcz

X. Jeff Sovern

XI.A David Vladeck

More than you wanted to know - a virtual symposium

On ContractsProf Blog, a virtual symposium is currently taking place on the book 'More than you wanted to know' by Omri Ben-Shahar and Carl E. Schneider. 

The book, of which we posted a summary earlier, addresses the problem of lacking effectiveness and potential harmfulness of mandatory disclosure rules in consumer contract law. 

Contributions to the virtual debate so far include an introduction of the authors and blog posts by:

I. Aditi Bagchi

II. Steven Burton

III. Ryan Calo

IV. Robert Hillman

V. Ethan Leib

VI. Lauren Willis

Yale-Humboldt Consumer Law Lecture

Last Friday one of the authors of the blog attended the first Yale-Humboldt Consumer Law Lecture. The lecture aims at encouraging the exchange between U.S. and European lawyers in the field of consumer law and is organised by Professor Susanne Augenhofer from Humboldt University in Berliln. For the first lecture she invited three distinguished professors from Yale Law School: Alan Schwartz, Roberta Romano and Daniel Markovits. 

In his presentation on 'Regulating for Rationality' Alan Schwartz argued that even though experimental results in psychology and behavioral economics have shown that consumers do not always act as the model of homo oeconomicus would suggest, regulators should retain the rationality premise. As long as there is no general psychological theory on how laboratory results are likely to translate into market results, regulators should stick with disclosure regulation.

Roberta Romano gave a lecture on 'The Consumer Financial Protection Bureau (CFPB) and the Iron Law of Financial Regulation'. She showed that the CFPB was created in the midst of a financial crises and pointed at the risks of such crisis-driven legislation. She suggested to sunset legislation, so that all provisions must be reviewed and reenacted after a fixed time period. Furthermore, she encouraged small scale experimentation and flexibility in implementation. 

Daniel Markowits ('Sharing Ex Ante and Sharing Ex Post') argued that understanding fiduciary law requires a model besides contract. He showed that the core duties of the two relations differ. In contract law it is good faith, in fiduciary law it is fidelity or loyalty and care. Another difference is that contract partners share ex ante while fiduciaries share ex post.

Another interesting event will take place in Berlin on October 20th. Oren Bar-Gill (NYU, Harvard) will be talking about 'The Future of Consumer Law'. Looking forward to that!

What you don't negotiate can't hurt you?

Lawrence Solum's Legal Theory Blog pointed our attention to an interesting new paper by Tess Wilkinson-Ryan presenting 'A psychological account of consent to fine print'. The abstract reads as follows:

'The moral and social norms that bear on contracts of adhesion suggest a deep ambivalence. Contracts are perceived as serious moral obligations, and yet they must be taken lightly or everyday commerce would be impossible. Most people see consent to boilerplate as less meaningful than consent to negotiated terms, but they nonetheless would hold consumers strictly liable for both. This Essay aims to unpack the beliefs, preferences, assumptions, and biases that constitute our assessments of assent to boilerplate. Research suggests that misgivings about procedural defects in consumer contracting weigh heavily on judgments of contract formation, but play almost no role in judgments of blame for transactional harms. Using experimental methods from the psychology of judgment and decision-making, I test the psychological explanations for this disjunction, including motivated reasoning and reliance on availability heuristics. Many commentators have argued that even though it is true that disclosures are probably ineffective, they “can’t hurt.” I conclude with a challenge to that proposition — I argue that the can’t-hurt attitude may lead to overuse of disclosures that do not affect consumer decision-making, but have implicit effects on the moral calculus of transactional harms.'

Informed consent online

Jennifer Golbeck, director of the Human-Computer Interaction Lab at the University of Maryland, talked at TED about the need to protect our data better online and how this could be achieved. For anyone interested in improved disclosures and privacy issues this is an interesting talk: The curly fry conundrum: Why social media "likes" say more than you might think.