Bankruptcy

Gathering Your Private Information for Private Gain

By Mechele Dickerson

Professor Elizabeth Warren?s (Harvard) paper, Balance of Knowledge, questions why academics do interdisciplinary work at all. But, she easily answered that question.

She noted the role that empirical data played during the BAPCPA discussions. She mentioned both the influence of the now-discredited $400 bankruptcy tax and also the study conducted by Creighton Law School Professors Marianne Culhane and Michaela White and how the Culhane/White study caused Congress to narrow the scope of the means test. She also discussed the way data has been used in the current mortgage policy debates. Professor Warren mentioned as well that Congress appears to be warming to the idea that empirical data has value, since credit card bills currently pending in Congress all have provisions that require credit card companies to make more data publicly available.

Professor Warren gave yet another reason academics should be involved in interdisciplinary empirical legal research. She posits that, if you consider the amount of research private industry (including Bank or America, the other major credit card companies, mortgage companies, payday lenders, etc.) conduct each year, academics are actually well behind the curve on interdisciplinary empirical research. She reminded us that private industry hires economists, mathematicians, neuroscientists, psychologists and others to help them design their tests, conduct the experiments, and then help them interpret the data they gather.

Professor Warren suggests that the research the private industry conducts is dangerous, as it is gathering private information for private gain. And, this private information will be used to exploit consumer error, not just to build better products (the ostensible purpose for most marketing research). For example, she argues that many products that are offered to consumers (like low introductory rates, cards that let you transfer balances for zero interest rates) are all designed to exploit consumer errors that will harm many of them down the road (when interest rates increase, or when you are hit with very high late fees).

Professor Warren fears that, at some point, everyone in America will have a credit product that is specially designed to his own weaknesses based on past errors that are likely to occur on into the future. The only way policymakers can rebalance the shift of power creditors now have is to have more and accurate data.

The Hon. Bruce Markell, a United States bankruptcy judge who sits in Las Vegas, summed up Professor Warren?s paper with 4 words, and 4 exclamation points: Wake up and be relevant!!!! Judge Markell charged those of us in attendance to do something with the knowledge we?ve gained at this conference. He questioned why academics haven?t been asked by private industry to participate in industry research and suggested it?s because academics tend to accept that data have ambiguities. In contrast, private industry wants data to accomplish a specific goal and for that reason would be less inclined to value most academic research.

He stressed that, notwithstanding the nature of our research, academics must package their data in ways to make their research relevant or risk having their data ignored by policy makers.

Full post as published by Credit Slips on May 05, 2008 (boomark / email).