The Strategic Benefits of Balanced Consumer Protection

 

Reigns is an interesting game because you can lose by winning too hard. As the monarch of a fictional country in something like Middle-Ages Europe, you must make decisions that will affect your nation in four areas: food, military, religion, and population. Intuitively, if any area reaches zero, you lose the game. However, you also lose the game if any area does too well. Consumer protection law is an area of law that must be kept in a similar balanced state for optimal results; actually having too much success in consumer protection law is really a loss for everyone.

Consumer Protection: Is There Ever A Downside For Consumers?

The benefits of consumer protection law are pretty apparent. Laws help protect consumers from dangerous and harmful products, and also curb the deception and misinformation from advertising. By imposing regulations and penalties on companies, the law increases the overall safety of goods and services for consumers and creates a means of recourse when harms occur. By codifying requirements around safety and advertising, consumers can trust in a minimal floor of consumer protection, and companies understand the standards to which they are held.

As with most good things, it can be hard to believe that there can be too much consumer protection. Could consumers ever be too safe or too well-informed? I don’t think any American will ever be in danger of such a fate – but to the point at hand, it’s important to understand the downsides of consumer protection law. Compliance with safety regulations comes at a cost. Buying higher quality materials, training employees to a higher level, quality-control checking goods, and other dimensions of complying with consumer protection requirements require time and money. If legal restrictions or regulations ran out of control, companies would struggle to remain compliant. Furthermore, consumer protection provides for monetary penalties (either as government fines or as awarded damages after a lawsuit); fear of these penalties can chill a company’s innovation or expansion, and a single lawsuit could completely destroy a company if the damages were high enough.

Shutting down a single, reckless company or imposing high safety standards doesn’t seem undesirable at all, of course. But shutting down multiple companies for single, harmless infractions, or imposing such high quality standards as to raise prices by tremendous proportions—those things hurt both the company and the consumer. Setting aside any moral arguments about whether strong consumer protection undermines the societal notion of personal responsibility, rampant consumer protection leads to undesirable economic outcomes.

Short Case Studies

An example of well-balanced consumer protection comes from a ruling in New Jersey last month. A New Jersey consumer protection law allowed consumers to bring claims against a company for certain violations contained in documents like End User License Agreements. A court dismissed two cases under this law because there were no harms that resulted from the violations in question. The result is that consumers still have recourse if they are harmed, but companies are free to draft their documents how they like and will only be penalized if consumers are actually harmed.

A new question in consumer protection is whether software developers should be held liable for bugs in software. This question becomes more pressing as software becomes a functional part of the lives of consumers in everything from cooking and hygiene to medical care and construction. The disproportionate amount of expertise held by developers and the complexity of the product in question are reminiscent of one of the earliest subjects of consumer protection law: automobiles. Perhaps crafting new laws for software liability should begin with considering the reasoning behind regulations on manufacturers and sellers of cars in the mid-20th century.

It will be important to bear these principles of balanced consumer-protection in mind in the future, as questions will only continue to become more complicated. A lawsuit against Niantic poses several questions, such as responsibility for placing digital content on private property. In August, a New Jersey resident filed against the developers of Pokemon Go because players kept asking if they could go into his backyard to catch a pokemon. Plenty of other controversies from Pokemon Go have raised questions, but this one includes both liability for digital content and using that digital content to influence consumers to behave in ways which (hypothetically) could become illegal (e.g., if the players started trespassing or started harassing the plaintiff).