Consumer Law

Recent Opt-out and Opt-in News

By Jeff Sovern

by Jeff Sovern

Two recent developments illustrate anew the difference between opt-outs and opt-ins.  As the New York Times reported last month, JPMorgan Chase is bombarding customers with mailings urging them to opt in to over the limit fees on their debit cards.  That's because under rules to take effect this summer, banks won't be able to charge over the limit fees unless depositors opt in.  So, according to the Times, "Chase and other banks are preparing a full-court marketing blitz, which is likely to include filling mailboxes with various aggressive and persuasive letters, calling account holders directly, and sending a steady stream of e-mail to urge consumers to keep their overdraft service turned on."  In other words, the effect of an opt-in is to give companies an incentive to get the attention of consumers and argue that they should depart from the default. 

Opt-outs create a very different incentive.  Take, for example, the Gramm-Leach-Bliley privacy rules.  They permit financial institutions to sell information about consumer  transactions unless consumers opt out.  Financial institutions are obliged to send consumers annual notices of their privacy rights.  Because banks want to sell consumer information, they face incentives to construct privacy notices that fly under the consumers' radar, so consumers don't notice them and opt out.  As a result, regulators had to promulgate detailed rules designed to increase the likelihood that consumers will read the notices.  It appears, however, that those rules have largely failed; my impression is that relatively few consumers have opted out (I wrote about this in the context of transaction costs here).  Last November, regulators promulgated model forms for financial institutions to use; financial institutions using the model forms are deemed in compliance with GLB.  I haven't yet heard of any institutions using the model forms, but if you have, please so indicate in the comments below.  Actually, I'm not sure why institutions selling consumer information would use the model forms. Because they're relatively readable, as opposed to the forms many financial institutions use, the model forms increase the likelihood that consumers will opt out, thus reducing revenue from selling information.  By contrast, not using the model forms increases the risk that a financial institution will be found to have violated GLB--but since there's no private claim under GLB, it's not clear that matters much.

So notice the contrast: opt-outs create incentives that lead to consumers not being aware of their rights, while opt ins give businesses an incentive to try to get consumers to notice.  Opt-ins also result in consumers being exposed to the arguments for departing from the default (as Chase put it "We want [consumers] to make an informed decision."), while opt-outs give businesses an incentive to conceal those arguments.  The argument the other way, of course, is that opt-ins are more expensive.  I wrote about this once upon a time at 74 Washington Law Review 1033 (1999); it's disappointing that nothing has changed.

Full post as published by CL&P Blog on March 29, 2010 (boomark / email).