Sunday, May 15, 2011
Follow-up: Free Marketer Supports Consumer Financial Protection Bureau
Shortly after posting Free Marketer Supports Consumer Financial Protection Bureau I came across this report of a new Supreme Court decision. This case involved a class action against ATT regarding their practice of charging customers taxes on cell phones that were advertised as being free. In this case the conservative majority of the court ruled that a class action suit could not be pursued because ATT’s agreement with the customers specified that the customers had to utilize arbitration individually to pursue their claims. Judge Breyer observed in his dissent, "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? . . . ‘The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.’"
Now that the Supreme Court has barred even class action suits, individuals who lose relatively small amounts of money have no recourse against corporations who write impenetrable agreements that are designed to prevent consumers from recouping their losses. There is a need for government to intervene on behalf of consumers by law or regulation to make sure that consumers at least understand the risks and have a reasonable opportunity for redress.
It is a market failure when the costs of understanding a contract and seeking redress for breach are vastly larger than the amounts at issue, so that consumers have no reasonable action to take. In such cases it is reasonable for the government to represent the consumers as a group ensuring that the agreement terms be clear and that there is an opportunity to pursue reasonable redress if the agreement is breached (for example, by means of a class action suit).