Disclosure vs. Regulation

by Jeff Sovern

Last week I had a very interesting conversation with a Ph.D candidate from the University of Amsterdam, Frederik J. Zuiderveen Borgesius, who is researching privacy regulation and behavioral targeting. He asked me if I could refer him to a book that explores when disclosure is an appropriate response to consumer protection problems as opposed to regulation of conduct, such as a prohibition on troublesome behavior.  I realized that I don't know of such a book, or even an article on the issue–something I had never realized before.  Does anyone out there know of such a work?

What makes this particularly embarrassing for me is that it connects to one of the themes of our casebook. The first two chapters focus on information remedies, including disclosure, while the remaining chapters look at conduct regulation.  We ask students to consider why the law takes one approach for some problems and the other in different contexts.  It seems like a natural thing for consumer protection folks to write about, and yet if any of us have, I don't know about it.

My own view is that since the sixties or so, the law has tried to use disclosure in consumer markets and conduct regulation in non-market matters. For example, Truth in Lending tries to make lending markets work better while Magnuson-Moss tries to fix warranty markets.  But when there is no relevant market–such as when consumers try to get credit reports fixed or debt collectors to back off, Congress relies on regulation, in the form of the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, respectively.  But as behavioral economics has made clearer that consumers do not always act rationally, Congress is moving toward regulation even where markets operate.  That latter point is made by my co-author, Dee Pridgen, in her recent paper

And another thought: Mr. Borgesius's primary interest was in disclosure vs. regulation in the privacy context.  It appears that disclosure has not worked very well in privacy, in that consumers seem not to read privacy disclosures.  On the other hand, regulation seems paternalistic and risks regulate something consumers don't want.  What to do?  I wondered whether a middle-ground might work, in which government provides that if businesses want to collect, use, and disclose information about consumers, they should be obliged to give consumers something in return: money, discounts, or something else. Government could establish a floor for what that something could be, and companies and consumers would be free to contract for more than the floor if they wanted.  That way, consumers could continue paying little attention to their privacy, but would still receive something for yielding it. It's just a half-baked idea, and may not taste so good upon more reflection, but maybe it is worth contemplating. 

All of this is another lesson, for me at least, that you can think about something for a quarter-century and still miss the basics. I think we will be hearing more from Mr. Borgesius.


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