48 Pages Posted: 4 May 2007 Last revised: 16 Apr 2008
Consumer fraud presents a continual puzzle. We have significant enforcement and education mechanisms, yet we continue to endure ever-evolving consumer fraud. I contend that the incidence of consumer fraud can be reduced through creative, efficient, non-traditional instruments of deterrence.
This article proposes a plan for re-approaching consumer protection through selection of a protected group and a concentrated reallocation of resources. Specifically, I argue that enhancing sanctions for a vulnerable, reluctant-to-report consumer group will shift fraud perpetrators toward targets that are better able to defend themselves. Additionally, fraud perpetrators will have to operate with extra caution in their schemes to ensure that they will not inadvertently ensnare a member of the protected class. This measure would accomplish further protection of the selected group and moderately increase deterrence throughout the rest of the economy.
However, I argue that this measure should be supplemented with another initiative. If we create a group consisting of randomly selected consumers and provide the members of that group with significant extra protection through higher sanctions and concentrated consumer education, fraud incidence will drop even more significantly. The concealed nature of the randomly protected consumer creates a general aura of deterrence. In this environment, fraud perpetrators never know whether a potential victim carries specially protected status - this elevates the risk of detection and the expected sanction for all consumers.
Group protection enables enforcement to achieve deterrence without having to provide incremental, expensive protection to the entire population. Understanding how the perpetrators and consumers make decisions about engaging in transactions is the key to unlocking efficient methods, like those described, for achieving the objective of efficiently reducing incidence of consumer fraud.
Keywords: consumer protection, consumer law, consumer fraud, fraud, sanctions, fraud detection, law and economics
JEL Classification: K00, K42, K23
Suggested Citation: Suggested Citation
Friedman, David Adam, Reinventing Consumer Protection. DePaul Law Review, Vol. 57, p. 45, 2007. Available at SSRN: https://ssrn.com/abstract=984082
By Jan Smits