1. Remedy Realities in Business-to-Consumer Contracting
Professor Amy J. Schmitz
Consumer Outreach: MyConsumertips.info (website and app)
SSRN:
 This work by Amy J. Schmitz is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License and is subject to the terms and conditions of that license. The final version of this document is published on the University of Missouri School of Law Scholarship Repository.

2. The tip of the iceberg…
Roughly 1/3 of consumers take any action regarding purchase problems…
but very few of those consumers assert requisite resources to be ‘squeaky wheels’ who get remedies

3. For every 1,000 purchases…
…households in the highest $ status category voice complaints concerning purchases…
…while households in the lowest $ status category voice complaints concerning purchases.

4. The “Squeaky Wheel System”
Few Consumers Proactively Complain
Fail to Realize Our Rights
Inert & Over-Optimistic Rule-Followers
Lack Resources & Patience
Plagued by Socialization & Biases
Face Cultural & Language Barriers

5. The “Squeaky Wheel System”
Companies Grease Squeaky Wheels
Ration Remedies to Contain Costs
Aim to Retain Customers Deemed “Valuable”
Use of Consumer Scores Based on Collected Data & Questionable Algorithms
Seek to Quiet Class Action Claims

6. …Combined With Curbed Class Actions
Judicial Limits on Class Relief
Tougher Standards for Certification
Skepticism Re: Payouts & Attorneys’ Fees
Proliferation of Arbitration Clauses
Strategy to Save Dispute Resolution Costs
Carefully Prevent Publicity & Class Relief

7. Concerning Consequences
Stifled “Informed Minority”
Stymied Market Regulation
Under-Enforcement of Consumer Protections
Contractual Discrimination

8. Who ‘Squeaks’?
58% of those earning over $50,000 vs. 43% of those earning less say they will bargain according to Consumer Reports
71.3% of female vs. 53.4% of male respondents in my survey said they “never” or “rarely” try to negotiate purchase terms

9. The Ayres study found… White female consumers…
…than white male consumers.
Black consumers…
pay 2x greater markup
pay 40% higher prices
…than all other consumers.

10. Consumer Federation of America found…
Upper income black women were 5 times more likely than upper income white men to be saddled with subprime mortgages
“Why would people who could qualify for prime mortgage loans end up with subprime loans?”

11. Benign Business or Bias?
“It’s not in the seller’s best interest to charge one price to all consumers.”
– Professor Stephen Hoch, Wharton School at University of Pennsylvania

12. How fair do you view different contracts?
Amy J. Schmitz, Consumer Survey, Data and Notes (2007 to present) (unpublished survey, data and files held by author) [hereinafter Schmitz, Survey Notes]. I worked with the Institute for Behavioral Science (IBS) at the University of Colorado and Survey Sampling International (SSI) in order to ensure confidentiality and full approval by the Human Research Council at the University of Colorado. The survey was sent to roughly 10,000 Colorado residents over 18 years old in October and November of 2007 in order to ultimately produce a sample of 306 properly completed surveys. Prior to that time, we had dropped from our sample any partial responses or responses that were otherwise faulty due to skipped questions, “flat-lined” responses, and other indications that the respondent “cheated” in some way. Through our attempts to gather more male responses, we learned that women are much more receptive to answering online surveys.
Amy J. Schmitz, Consumer Survey Results (2007 to present) (survey data attached as Appendix due to direct relevance to this discussion) [hereinafter Schmitz, Consumer Survey]. The sample identified as three quarters Caucasian or white and reported varying levels of education, with 43% having Bachelor’s or post-graduate degrees, 44% completing some college but no degree, and the rest having a high school diploma or less. Forty-two percent reported full-time employment, 16 % reported part-time jobs, and the rest reported no employment outside the home. Many did not identify themselves with respect to occupation. Of the 82% of those that reported income, roughly 30% were under $29,999, 30% $30,000-49,000, 19% $50,000-$74,999, 9.6% $75,000-$99,999, and 11.2% over $100,000; see id. at Section 1, Question 5 with respect to cell phone warranties (attached as Appendix).

13. How fair do you view different contracts?

14. How fair do you view different contracts?

15. How fair do you view different contracts?
Only Gym Memberships Seen As Less Fair Than Remedies

16. What terms are important to you when you have a complaint?%

17. How often do you try to change contracts or terms?
71.3% of Female
vs.
53.4% of Male
Respondents

18. “Some people just won’t ask out of fear of rejection.”
Socialized Silence?
“Some people just won’t ask out of fear of rejection.”
– Professor Stephen Hoch, Wharton School at University of Pennsylvania

19. From the 182 who even tried to change purchase terms, only 16% (29 of total 306) were “frequently” or “nearly all the time” successful in getting terms changed.

20. The few successes mainly related to price – and not disclaimers or arbitration.%

21. Access to Remedies Via F2F Arbitration?
Judicialized & Lengthy Procedures
High Filing, Administration & Travel Costs
Hindered Access to Small Claims Redress
Power Imbalances & Repeat Player Advantage

22. CFPB’s Findings Re Arbitration
Less Than 2% Would Hire Attorneys
Less than 1% Would Seek Legal Proceedings
Only 25/yr AAA Consumer Cls $1000 or less
Only 2 AAA Class Arbitrations in 3 Years

23. What is your level of agreement with the following statements regarding terms?

24. Consumers are aware that it is wise to read contracts…
What is your level of agreement with the following statements regarding terms?
Consumers are aware that it is wise to read contracts…

25. …but feel powerless in negotiations…
What is your level of agreement with the following statements regarding terms?
…but feel powerless in negotiations…

26. …and do not turn to contracts when troubles arise.
What is your level of agreement with the following statements regarding terms?
…and do not turn to contracts when troubles arise.

27. We’ve Given Up . . .
Do Not Read Contracts – Especially Regarding Remedies
Do Not Trust Contracts – Especially Regarding Settlements
Do Not Care About Terms – Especially Regarding Arbitration
Do Not Negotiate Contracts – Especially If Disempowered
Do Not Rely on Terms – Especially When Complaints Arise

29. Types of ODR (Online Dispute Resolution)
Problem Diagnosis
An automated process that provides buyers and sellers key information and sets reasonable expectations
Direct Negotiation
A tool that enables disputants to communicate directly through a web forum in an attempt to reach agreement
Mediation
A process in which an impartial third party joins the discussion between the disputants to help them find resolution
Evaluation
The endpoint for ODR, where a neutral hears both sides of the dispute and then renders decision that is binding on both sides

30. ODR Innovation: eBay Court
Example provided by Colin Rule at Modria, an ODR provider

31. Example Process for Consumers
Consumers go to a central ODR website via a linked trustmark featured on merchants’ websites.
Merchants earn the right to post the trustmark by opting into the system and depositing funds to be used for consumer reimbursements.
Lender garners good will and avoids further cost
Lender offers and Consumer takes a remedy
Consumer chooses
Consumer reports issue
Lender responds
Parties settle or pursue next steps
Online mediation
Mass complaints trigger regulatory and consolidated actions, and deceptive practices are reported
Next steps: Online arbitration
Selects the business, explains problem, requests resolution

32. Why ODR?
Requires an End-Game
Adds Online Neutrals to Assist Resolutions
Backed by Enforcement Mechanisms
Eases Public Costs With Private Development

33. Build on Other Complaints Processes
No Data on Who Uses Chargebacks
Limitations of CFPB’s Promising Process
Littwin: slightly higher ed/income & Black consumers vs. general census in the CFPB sample studied
No data collected beyond age & service status
Unclear relief: “From December 1, 2011 through October 6, 2014, companies granted monetary relief in 9.2% of cases and non-monetary relief in 12.7%.”
Online Preference (85% vs. 15% by phone)

34. Key Considerations for ODR
Clear Contract and Website Notice
Simplicity/Crafted for ALL Consumers
Accessible Guides & Demos
Free/Low Consumer Costs

35. ODR Considerations… Consumer Choice & Control
Trustmark to Promote Security & Fairness
Trigger Mechanism for Regulatory Action
Timely & Enforceable Decisions

36. Seeking Solutions Address Contract Discrimination & Market Failures
Aid Access to Remedies for ALL Individuals
Advance Enforcement of Consumer Protections
Augment Efficiency & Fairness for Companies & Consumers

37. Thank you!
Your comments are welcome! I invite your collaboration and debate! You also may blog on my Consumer Outreach website and app (Google Play Store):