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 unfair terms control cannot do: CJEU in Barclays (C-280/13)

While last week we endeavoured to give our readers a timely and informative account of Kásler, which might become a very relevant case in the subject of unfair terms control, on the same day the CJEU also delivered another decision in the field, Barclays Bank SA v Sara Sánchez García, C-280/13.

This case, rather than producing knowledge on the working of unfair terms control under Directive 93/13, reminds us of the limits beyond which the Directive cannot reach. It also shows how, after cases such as Aziz, Spanish courts have tried to use the Directive as a means to address social issues to which national legislation doesn't seem to give an (equitable) answer.

In Barclays, Ms Sánchez and her husband concluded a secured loan- using as security the house they lived in. When they stopped paying the due installments, they ended up with their house being acquired by the bank and a remaining outstanding debt of over 100 000 euros (out of the 153 000 they had borrowed).  

This was made possible by a combination of Spanish legal provisions (allowing inter alia, the vesting of property by the creditor for half of its value were the property auctioned in vain) and a contractual term in favour of the bank, which again was explicitly authorised by Spanish law.

Of such provisions, under which it was impossible to consider Barclay's behaviour as an abuse of rights, the Juzgado de primera instancia of Palma de Mallorca asked the Court of Justice whether they, or their effects, were contrary to the Directive and "the principles of EU law concerning consumer protection".

But "statutory and regulatory provisions" of national law are explicitly excluded from the Directive's scope (see art 1(2) thereof). The Court (para 41) recalls that, as concerns such provisions, "it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts".

The fact that the Directive, by excluding them from its scope, regulates the "position" of national contractual rules also puts them beyond the reach of general principles (of EU consumer law? para 44), following the prevalence of lex specialis.

In other words, EU law and the CJEU can be of no help to ms Sánchez and other Spanish consumers in a position similar to hers and her husband's.    

Dwelling in possibility

As a follow-up to the previous post, those of you interested in the design of an adequate system of remedies might like to know about the following upcoming seminars:

- A workshop on 'A new architecture for consumer law' organised in Florence on 18 and 19 January (for which Hans Micklitz's paper on the topic will serve as a starting point)

- A seminar with Christian Joerges in the Dialogue Series of the project 'The Architecture of Postnational Rulemaking' (based on his recent work on 'Europe's Economic Constitution in Crisis')

While looking for inspiration for a paper of my own that has to deal with some foundational issues of European private law, furthermore, I took the time to read up on some more comprehensive views on legal analysis, and concepts and roles of the law. As Zadie Smith once wrote: 'Other people’s words are the bridge you use to cross from where you were to wherever you’re going'. Some people's words that crossed my path (and mind) these days were those of Herbert Hart, a third edition of whose 'The Concept of Law' recently appeared (with an excellent introduction by Leslie Green), Neil Komesar, who wrote a beautiful paper reflecting on his work on comparative institutional analysis, and Melvin Eisenberg, contemplating on 'Basic Contract Law' and teaching.

Seduction by Contract

NYU Professor Oren Bar-Gill just published a book on the legal, economic and psychological aspects of consumer contracts. The introduction to the book, entitled 'Seduction by Contract', is available on SSRN and may be summarised as follows:

'Consumers routinely enter into contracts with providers of goods and services. These contracts are designed by sophisticated sellers to exploit the psychological biases of consumers. They provide short-term benefits, while imposing long-term costs – because consumers are myopic and optimistic. They are excessively complex – because complexity allows sellers to hide the true cost of the product or service from the imperfectly rational consumer. Using both general theory and detailed case studies, this book explains the costs – to consumers and society at large – imposed by seductive contracts, and outlines a promising legal policy solution: Disclosure mandates. Simple, aggregate disclosures can help consumers make better choice. Comprehensive disclosures can facilitate the work of intermediaries, enabling them to better advise consumers. Effective disclosure would expose the seductive nature of consumer contracts and, as a result, reduce sellers’ incentives to write inefficient contracts.'

The transcript of a recent interview with Professor Bar-Gill on the subject matter of this book can be found here.