357 Final

Three Premises of Consumer Protection

1. Public Interest Theory: without oversight, markets harm consumers
2. laws prevent /minimize harm
3. the benefits of the laws outweigh the costs/unintended consequences

Federal Oversight Agency Regulating Consumer Protection

Agencies: FTC, CFPB, DOJ

* implements over 70 laws, issues advisory opinions and complies industry

Consumer Protection Sanctions

Fines, corrective advertising, contract recission(less contracts with consumers), refunds, damages, public notification of violation

Truth in Lending Act

mandates that lenders disclose debt related costs, borrowers have a 3 day right of recession

Fair Credit reporting Act

free annual credit report, credit rating agencies must correct inaccurate info

Equal Credit Opportunity Act

lenders cannot discriminate against protected classes or ask marital status/family planning, given decision within 30 days and reasoning

Fair Debt Collection Practices Act

debt collectors must identify themselves /notify borrowers of debt resolution options

* can’t use unfair methods to collect debt like threaten, disclose to 3rd party or misrepresent their identity

Fair Credit Billing Act

Limits liability on stolen credit card

Consumer Product Safety

recall/ban harmful products

Food, Drug and Cosmetic Act

effective/safe

Do Not Call Implementation Act

opt out of telemarketing lists

False Advertisement

FTC regulates, looks at claims about a product

* make sure they don’t misrepresent fact, justified reliance

Is Privacy a right? No arguments

Reductionist: privacy isn’t a right, privacy violations better defined by violations of other rights

Feminist: privacy protection shield abuse, and exploitation, particularly against women

Insufficient basis for new rights: privacy is a new thing, too soon to say

Create economic inefficiency: if you can select what data companies can see, they can’t create products tailored to you

Is Privacy a right? Yes arguments

Extension of bodily integrity: people may try to use information about you to influence your decisions

Differentiates relationships: not everyone should know everything about you

Necessary to some trade secrets

Critical to guard against abuse

Privacy

the right t be left alone and the right to seclusion from external interference

Major US privacy laws

Electronic Communications Privacy Act, Health Insurance Portability and Accountability Act

California Consumer Privacy Act

Established rights to know what info a business collects, right to delete info, right to opt out of collection, right to non-discrimination on data preference

* does not apply to gov agencies or NPOS

General Data Protection regulation

applies to firms that conduct business in most of Europe

* applies to personally identifiable data
* requires: transparency, purpose minimalization, security, accuracy, disclosure, storage limitations

Privacy Frontier

the rapid spread of the “Internet of things”, whether or not there is a “right to be forgotten”

* continued prevalence of the third party doctrine (if you sold it you don’t have the right to it) and the nothing to hide principle ( I’m not doing anything wrong”

Why regulate consumer choices?

Regulators and experts believe that government agencies should prompt optimal choice

What regulations of consumer choices are optmal

regulations that minimize internalities and minimize externalities

Three underlying assumptions that we need help making better choices

1. Consumer are defenseless against marketing
2. Consumers have bounded willpower (self control issues)


1. Consumes have cognitive biases (hard for them to overcome the status quo)

How to regulate consumer choices

Regulate by banning a product, limit a product (have bans on when you can consume), force info disclosure, nudge the “better choice”

Nudge Theory

behavioral economic theory that “choice architects” can develop nudges that direct consumers toward optimal choices

Ex: separate menu for dessert, calories rich foods in less convenient locations, reducing default serving size

Nutritional Guidelines

Issued by the USDA, intended to nudge consumers towards a “well balanced” diet, issued nutrition guidelines

Ex: basic 7, just milk, meat , veg and bread diet

Selective Taxation (Pigouvian Taxation)

make bad choices more expensive (tobacco, vaping, alc)

Arguments for sugary drink taxes

1. Contribute to poor health, create negative externalities


1. Higher prices, lower consumption

Arguments against sugary drink tax

1. Consumption has declined yet obesity has not
2. taxes don’t really effect consumption
3. Regressive (impact lower income more)
4. Encourage substitution)


1. Flaw in research

Why do nudges often fail?

* “choice architects have biases too
* special interest groups distort the process (rent seeking)
* Research to justify nudges are usually flawed

Food and Drug Administration gets power from

Food and Drug Cosmetic Act (1938)

Drug Efficacy Amendment (1962)

both still exist today

Drug/ Vaccine Preliminary Steps

1. Firm develops or discovers a compound
2. Firm conducts animal testing for safety and efficacy


1. Firm submits application to FDA, which may or may not approve

Human Testing Steps

Phase 1 trials: 20-80 people, safety

Phase 2: 100s of people, efficacy

Phase 3: 1000s of people, safety and efficacy

Covid vaccine got emergency authorization (had to come back to FDA for approval after)

Concluding steps of drug and vaccine approval

1. Firm applies for FDA approval
2. FDA reviews data and drug labeling and inspects production facilities
3. FDA decided whether to grant approval or not

Criticism of the drug and vaccine approval steps

1. It takes too long and adds cost to drugs
2. reduces the number of new drugs
3. overall efficacy doesn’t mean group specific efficacy


1. draws time and resources from food safety

Food safety

Mostly falls to FDa and USDA, with additional oversight from other federal agencies

FDA criticized for lack of emphasis on food safety (reactive rather than proactive)

Recent FDA failures

1. inadequate regulation of water used to grow produce
2. Inadequate attention to heavy metals in baby foods
3. little action on “forever chemicals” (compounds in a lot of things that take forever to breakdown)
4. Insufficient or slow action on nutrition issues

Root causes of FDA failures

1. Leadership usually has medical expertise, not food
2. Bureaucrats have personality conflicts/are risk averse (afraid of making policy decisions)
3. Little congressional accountability
4. Congress emphasizes drugs and tobacco, not food


1. Ignoring outside critics

FDA reform

1. Split FDA into two agencies
2. Refocus drug regulation on safety, not efficacy (or keep efficacy but improve clinical trial diversity)
3. additional congressional oversight
4. More state and local oversight

Bootleggers and Baptists for Alcohol regulation

Bootleggers: advocates motivated by economics (gain money from prohibition)

Baptists: advocates motivated by morality (better for society)

Alcohol Regulation

Following the end of prohibition (1920-1933), regulation largely devolved to state/local governments

Three regulation on production and sale of alcohol

Three tier system, dram shop laws, retail licensing

Three regulation on consumption

Sunday laws, legal drinking age, taxes

Three Tiered System

Places barriers in the supply chain

Tier 1: Production (breweries, wineries, etc)

Tier 2: Distribution (private firms or state agency)

Tier 3: Retail (stores, bars, restaurants, etc)

* still exists because distributors make a lot of money

Dram Shop laws

clarifies civil liability of retailers that serve customers that later harm a third party

* overserve by shop then can sue, owner of social can be held responsible too
* depending on the state it can be a strict liability or negligence tort

Retail Licensing

1. State/local mandate that retailers have a license
2. Most jurisdictions limit the total # of licenses
3. Some ban certain retailers from selling some beverages

Sunday Laws

state/local restrictions on days and times when consumers can legally purchase alcohol

* cali can’t buy between 2-6am

Legal Drinking age

Federal government budged state regulation with the National minimum drinking age act (1984) → if states don’t increase age, they lost 10% of highway funding

* age 21, arbitrary number
* Some exceptions such as drinking at home with parents

Taxes for Alc / Do they work

Federal state and some local taxes increase alcohol price to encourage lower consumption (higher in europe than the US)

* People who barely drink may drink less
* Do not reduce heavy drinking
* MrEncourage substitution and illicit transactions

More effective options for alc regulation

1. Sobriety checkpoints (do work to reduce drunk driving, expensive, law enforcement, slows traffic)
2. Increased vehicle insurance premiums (impacts lower income individuals)
3. Targeted public health campaigns


1. stricter high school grad requirements

Why don’t states reform alc regulation

1. Voters don’t support it
2. Paternalism
3. Rely on bad science
4. Poor understanding of risk of alc consumption

Fantasy Sports

Create own fantasy with real players and get points based on how they do in their games in real life

Federal Wire Act (1961)

banned interstate (between states) and foreign data transmission for placing a bet, info about betting, funding/paying (possible finds/incareration)

Do the laws passed apply to gambling or only sports

2002 Circuit Court Ruling Sports

2011 DOJ opinion Sports

2018 DOJ opinion, sports and maybe other bets

2019 Circuit Court Ruling Sports

unclear how these apply to internet gambling

Professional and Amateur Sports Protection Act (1992)

banned bets involving amateur or professional athletes

(exceptions, state run games in NV, DE, OR, MT → horse racing, dog racing)

Unlawful internet gambling Enforcement act (2006)

created penalties for firms that transfer money involved in internet betting → targeted banks, internet wagers, banks don’t accept charges(exceptioms: state lotteries, fantasy sports because at the time it wasn’t popular)

Recent Developments of regulating gambling

2011: NJ voters approved sports betting

2012: NJ sued to overturn PASPA

2018: SC overturned PASPA

But: the decision governs intrastate sports gambling, interstate remain illegal

Legal and Regulatory Issues around gambling

high taxes and fees likely to keep many gambling markets underground

* started targeting universities

Native American Impact of gambling

SC affirmed tribes right to permit gambling on tribal land in 1987

* expanded by the indian gambling regulatory act (1988)
* tribal gambling occurs in 29 states, 22/29 legalized sports betting after 2018

Pre WW2 Regulating Tobacco

Little federal regulation, state/local had rules, military smoked, women saw it as female independence

1965: Cigarette Labeling + Advertising Act

Mandated a label - “Caution: Cigarette smoking may be hazardous to your health”

1970: Public Health cigarette smoking act

banned cig ads on TV/radio and required label “warning: the surgeon general has determined that cigarette smoking is dangerous to your health” → could still ad on billboards, radio

1984: Comprehensive Smoking Education ACt

mandated new labels on packages that rotated quarterly

2009: Family Smoking Prevention and Tobacco Control Act

1. gave FEDA authority to regulate tobacco
2. added new advertising restrictions
3. banned flavored cig (except methanol)


1. applied stricter regulatory standards to new tobacco products

Other Tobacco Regulations/restrictions

* more explicit warning labels (certain size, may mandate image/text)
* age requirement
* ban a location (you can’t smoke there)
* taxation (regressive, highest in NY, DC)

Impact of tobacco regulations

Messaging/age requirement reduced consumption and helped prevention

* taxes likely reduced consumption in past but have little/no impact today (inelastic demand)

Unintended consequences of tobacco regulations

Stigmatizing tobacco discourages smokers from seeking routine healthcare

* high prices facilitate illicit tobacco markets/smuggling
* lower tobacco use raises life expectancy so more money spent

Electronic cigarettes

2007: FDA attempted to ban imports

2009: federal court struct it down

2010: FEDA could regulate tobacco

2016: first set of regulations arrived

Rules: surround age requirement, vans on certain flavors, taxes

Panic over electronic cigs for nothing?

1. vaping is a safer alternative to cigarettes
2. some prominent anti-vaping studies should have been retracted


1. banning/restricting vaping pushes some users back to tobacco products

18th/19th century marijuana regulation

Hemp grown, marijuana unregulated

Late 19th century marijuana regulation

states begin drug regulation → treated marijuana like other prescription drugs

Early 20th century marijuana regulation

Bootleggers (alc, illegal marijuana businesses), baptists (religious groups )

Marihuana Tax Act (1937)

applied a federal tax and required registration to dispense/use

* only legal if you paid a tax and had a registration (stamp to show it was paid)

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Controlled Substance Act 1970

classified marijuana as an illegal Schedule 1 drug (no accepted medical use, high potential abuse or addiction)

What states and cities regulate in terms of marijuana

* licenses for growers
* rules for home cultivation (problems with enforcement, creates crime)
* Land use and distancing (where you can grow and sell)
* Environmental restrictions
* Legal age
* Impaired driving
* Taxation

Controversy over individual and public health impacts marijuana

Research tends to:

* exaggerate risk
* conflate internalities and externalities
* interpret correlation as causation (a lot of research twisting the story)

State and local regulations disadvantage legal marijuana growers and sellers

* taxes and fees
* age and time restrictions on sales
* local bans
* no interstate sales
* high labor cost, fees for distributors

Efforts to help those disproportionately impacted by the “war on drugs” have fallen short

* lack of access to capital (banks don’t want to deal with it)
* smaller growers can’t compete with larger firms

FDA has not issued safety regulations for food and supplements w/ CBD (despite legalization in 2018)

immediate focus has been products that children and animals may ingest accidentally

Deregulation

the termination or reduction of rule(s) that apply broadly or that affect a specific industry

Methods of deregulation

Eliminating rules: could decrease jobs

Reducing sanctions: stop taking regulation as seriously

non-enforcement: no vote needed, agency decides to stop enforcing rules

(requires congressional authorization or legitimation through regulatory process)

Why deregulate?

Follows recognition of regulation’s:

* inefficency
* ineffectiveness
* disparate impact(s)
* licensing shown to have impacts on lower paying jobs

(also eliminate regulator capture and increase competition)

Airline Deregulation

repealed federal authority to determine flight schedules, routes and passenger fares

Benefits of airline deregulation

1. cheaper fares
2. more routes
3. more efficient
4. expansion of air travel to broader customer base
5. new airlines

drawbacks of airline deregulation

1. bankrupt airlines and mergers
2. crowded airports
3. more flight delays
4. higher GHG emissions
5. wage pressure for workers

45 yrs later; some interest in re-regulation

New oversight on fares and routes

* antitrust action to block airline mergers
* high speed rail?

Financial deregulation

authorized by the Gramm-Leach Bliley Act which repealed sections of the glass Steagall act (deregulated because they wanted to modernize)

* allowed mergers between commercial banks, investment banks and insurance companies
* led to significant market consolidation

Criticisms of financial deregulation

1. reduced competition
2. Created too big to fail and moral hazard
3. caused/worsened the 2007-2008 financial crisis

Defenses of financial deregulation

1. Most firms did not merge and failed anyways
2. crisis occurred in countries that never deregulated
3. Cheap capital facilitated risky investments and the crisis

Back to deregulation

It’s rare because:


1. ideological opposition
2. perverse incentives (politicians don’t want to flip flop)
3. Rent seeking
4. Paternalism
5. status quo bias

Case Study Buying a Vehicle

All states have franchise laws that regulate the process to buy a new vehicle

those laws are generally more restrictive now

They include dealership purchase mandates, rules on closing a dealership and territory restrictions

Case against dealership mandates

* manufacturers rarely ship direct to consumers
* dealers help consumers find the right vehicle
* dealers help w/finance paper work and orientation

Case for regulation of dealership mandates

* dealers exploit info gap with consumers
* dealers increase prices
* direct - to - consumer model creates a more efficient supply chain

Case study right to repair laws

Manufacturer tries to keep as much control over the product as possible (makes it hard for people to get parts to repair on their own)

Case against right to repair regulations

* Consumer safety
* protect firms’ IP (patents)

Case for more right to repair

* Reduced repair outlets = higher prices for repairs
* possible antitrust issues (price gouging)
* rules are too consequential

Corporate Personhod

is a corporation a legal person that has some/all rights/responsibilities of a natural persons

14th Amendment

equal protection under law, guaranteed due process

The Dictionary Act

first law

All federal laws that come after this law mentioning person includes corporations/business

Implied consent for consumers/employees vs businesses

for consumers and employees: does transacting with a business imply consent to their practices even those you disagree with?

* you could have gone someplace else?

For businesses: does entering the market imply consent of laws and regulations even those you disagree with?

* can you deny service?

Trait/Behavior Severability

Are a person’s traits and beahvior severable

* Trait: what a person is (involuntary)
* Behavior: what an individual does (voluntary)