BROADENING CONSUMER LAW: COMPETITION, PROTECTION, AND DISTRIBUTION.

• Author: van Loo, Rory

INTRODUCTION 212 I. THE MAGNITUDE OF OVERCHARGE 219 A. The Theory: Behavioral and Informational Overcharge 219 B. The Evidence: Overcharge Related to Consumer Protection 220 C. Summing Consumer Overcharge 227 II. THE DISTRIBUTIONAL. IMPACT OF OVERCHARGE 231 A. Spending on Overcharge 231 B. Earning Income from Overcharge 235 C. Summary of Inequality and Overcharge 239 III. CONSUMER LAW'S POTENTIAL TO REDUCE OVERCHARGE 242 A. Assessing Whether Consumer Law Works 242 B. Political Economy 250 IV. TOWARD MACRO CONSUMER LW 251 A. Monitoring Overcharge 251 B. Making Distribution an Explicit Goal 256 CONCLUSION 260 INTRODUCTION

Leaders of both major U.S. political parties and multinational CEOs are looking for solutions to economic inequality. (1) Concern stems not only from an egalitarian impulse, and the imperative of reducing poverty, but from the belief that growing inequality is a threat to societal stability. (2) Leading proposals seek redistribution through tax law, (3) in accordance with the "dominant position in tax law and policy" that redistribution should occur through taxes because--though taxes still cause inefficiency--taxes are seen as less inefficient than most legal rules. (4)

This Article explores another path to large-scale redistribution that--unlike increasing taxes--does not require legislation and readily improves efficiency: consumer law. (5) In particular, many consumer protection and antitrust laws reduce the prices that people pay by removing overcharge. (6) In an informal but intuitive sense, overcharge is the difference between actual prices and prices that would exist absent some act identified as anticompetitive--such as a monopolistic merger or deceptive sales practice. (7) For instance, consumer protection laws have recently stopped Amazon and Facebook from charging children up to thousands of dollars in fees for in-app purchases while playing video games, and made it more difficult for banks to steer borrowers toward high-priced loans. (8) Although the field often focuses on goals other than lowering prices, many consumer laws nonetheless lower overcharge in diverse ways, including by addressing monopoly power, preventing deception, and removing entry barriers that get in the way of full competition.

At first glance, consumer law seems an unlikely solution to be left out of distributional conversations. Scholars broadly recognize that consumer law can reduce inequality by reducing both the prices that lower income consumers pay and the profits that wealthier business owners receive. (9) Consumer law has also in recent years captured the public spotlight, between Wells Fargo opening millions of fake accounts in customers' names, and a renaissance in antitrust driven by the dominant position of technology firms such as Amazon, Facebook, and Google. (10) Moreover, the economic significance of consumer markets is undeniable. Consumers spend about $14 trillion annually on everything from laundry detergent at Walmart, to internet services from Comcast, to a new Honda Civic from the local auto dealer. (11) Since consumer spending makes up two-thirds of GDP, consumer law may be the single most significant area of economic regulation. (12)

Nonetheless, consumer law risks being underestimated as a tool for distribution in three main ways. First, policy makers and scholars possess limited awareness of how much consumers overpay--and thus whether the total is large enough to matter for inequality. Those who quantify consumer-protection-related overcharge tend to study single instances of a particular company charging many of its customers a small amount, such as Verizon deceptively inserting fees of about $10 into the monthly bills for unauthorized ring tones. (13) In contrast with the microeconomic lens of consumer law, macroeconomic tax tools dominate federal policymaking on distributional issues. Widespread alarm about inequality stems from data suggesting that the top one percent of households now earn about twenty percent of all income, a figure that has increased dramatically since 1980 by an amount that gives them between one and two trillion dollars more annually than they would earn if the numbers had held constant. (14) It is not immediately clear to policymakers and scholars looking for ways to move over a trillion dollars around how a few dollars of overcharge per gasoline purchase, or even a few billion dollars rolled up in a given market, is worthy of attention. The observation that "[l]aw and economics should be called law and microeconomics" is particularly apt for consumer law. (15)

A second major challenge for understanding the importance of consumer law to inequality is uncertainty and ambiguity about the distributional impact of overcharge. Legal scholars generally agree that "market power accrue[s] primarily to shareholders and the top executives, who are wealthier on average than the median consumer." (16) However, consumer law's emphasis is on the micro-level harms to consumers, rather than the macro-level implications of those harms. Moreover, even for those who would recognize a relationship between inequality and consumer law, there is an open question about the magnitude of consumer law's impact on inequality. After all, middle-income households also have ownership stakes in large companies, most notably through their retirement accounts. (17) In other words, even if consumer law could reduce overcharge significantly, would it reduce the amount of inequality significantly?

A final challenge remains even for those recognizing the magnitude and inequality implications of overcharge: the widespread belief that taxes are a better option. The preference for taxes is largely about efficiency, (18) but even once that intellectual barrier is overcome there remains another, less well understood internal obstacle. High-profile scholarship has cast doubt on the effectiveness of consumer market regulations. The most prevalent policy tool, mandated disclosure, leads to "unintended consequences that often harm the very people it intends to serve." (19) Another approach, changing the default fees imposed on consumers unless they approve, has proven ineffectual because businesses can convince people to opt in to harmful practices--making what were supposed to be sticky beneficial defaults "slippery." (20) These critiques yield valuable insights, but contribute to an influential and ultimately incomplete narrative of consumer market regulation's "spectacular" failures. (21)

This Article addresses that underestimation by piecing together disconnected micro-level, and discipline-specific research that collectively illuminates consumer law's macro-level impact on inequality. Along the way, it also fills several gaps crucial to the big-picture analysis. Most notably, there has been far less attention paid to consumer protection's aggregate impact on inequality compared to antitrust. Unlike consumer protection scholars, antitrust scholars have taken a broader lens of their field across the entire economy, concluding that "[a] revived antitrust movement could play an important role in reversing the dramatic rise in economic inequality." (22)

The same basic reasoning underlying that view on antitrust applies to consumer protection laws, the violation of which can also bring considerable profits to large companies. (23) If consumers save one hundred dollars annually on their cellphone plans due to better consumer protection, that outcome has similar distributional effects as if they saved one hundred dollars through better antitrust enforcement. (24) To move toward a more comprehensive view of consumer law's potential to reduce inequality that includes consumer protection--not just antitrust--this Article undertakes the first synthesis of consumer-protection-related overcharge studies scattered across various markets, including cellphones, food, and insurance. (25) The limited empirical research suggests that the elimination of consumer-protection-related overcharge would plausibly pul over a trillion dollars back into consumers' pockets. (26)

In terms of the impact of that overcharge on consumption inequality, this Article contributes a more comprehensive treatment of the literature and an original analysis of the data. The poor and less educated are particularly susceptible to some predatory business practices, while households outside of the lop one percent of earners own a disproportionately smaller percent of businesses. For these and other reasons, the preliminary data indicate that consumer overcharge has a potentially large enough regressive impact to account for a great portion of the trillion-dollar increase in inequality that has caused so much concern.

Finally, this Article shows how consumer law offers a potentially appealing alternative to taxes. As a threshold issue, consumer law does not lit into the categoiy of distortionary laws that has contributed to legal scholars' historical overwhelming preference for lax law for distributional goals. (27) Consumer laws that address overcharge can make markets more competitive, and thus remove or prevent distortions. (28) As a result, in theory consumer law offers greater appeal than solely using the tax code to address inequality, because tax increases on the wealthy are seen as inefficient and a drag on the economy (or a distortion). (29) Reducing consumer overcharge is a win-win policy option because it can improve both equality and efficiency.

But consumer law must still work effectively to provide such benefits and be seen as a legitimate alternative to tax law. To address the lack of attention to consumer law effectiveness, (30) this Article reviews the evidence showing that well-designed consumer regulation can significantly reduce overcharge. (31)

As a result of consumer law's magnitude, distributional impact, and effectiveness, consumer law should be considered alongside tax law as a distributional tool. (32)

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