A Comment on an American Tort Reform Association CPA Roundtable Event

by Jeff Sovern

Back in April, the American Tort Reform Association had a roundtable discussion about UDAP statutes with FTC Commissioner (and former George Mason professor) Joshua Wright, Joanna Shepherd-Bailey of Emory, Peter Holland of Maryland Law School, and Cary Silverman of Shook Hardy & Bacon. You can watch it here. Given the host, you can probably imagine that the speakers, other than Peter, were not sympathetic to UDAP statutes.  I wanted to address two of the arguments.

Professor Shepherd-Bailey argued that UDAPS statutes provide for multiple incentives to consumers, in the form of statutory damages, treble damages, and attorney's fees, and seemed to call for elimination of some of those incentives on the ground that fewer were needed. From a theoretical law-and-economics perspective, the statutes may indeed appear to provide for more incentives than needed.  But as a practical matter, that seems not to be the case.  An extensive literature, sparked by Best & Andreasen's classic article, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 Law & Soc. Rev. 701(1977), demonstrates that very few consumers do anything about defective products, much less sue.  Accordingly, existing incentives seem inadequate in the real world, rather than excessive. Sometimes, theory can lead people astray.

Second, one of the speakers (I'm not sure who as I listened to the roundtable while driving), argued that private claims under UDAP statutes should be limited because public agencies can enforce the statute.  Public agencies can and do enforce UDAP statutes, but are not able sufficiently to deter unfair and deceptive practices.  Sometimes that's because they lack resources (of course, industry often supports legislators who want to starve regulators of funds, as with the CFPB).  Other times, regulators don't get the job done because their focus is elsewhere or they are captured by the entities they are supposed to regulate. Here are two examples: while Congress gave the Federal Reserve the power to act against unfair and deceptive mortgages practices back in 1994–well before the subprime disaster–the Fed did not use that power until after the Great Recession hit years later. And while the Office of the Comptroller of the Currency was supposed to ensure the safety and soundness of national banks, when states enacted laws to prevent predatory lending, the OCC ruled that those laws were preempted as to its client banks.  The result of those actions, along with plenty of others, was that national banks made bad mortgage loans and needed bailouts.  Not a great argument for letting the agencies protect us by themselves. Don't get me wrong: agencies have an important role to play in protecting consumers, but so do private litigants.

Disclosure: My law school recently received a grant from the American Association for Justice for me and others to conduct research, though the research is not about private UDAP claims.

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