In a growing number of consumer transactions, firms exploit consumer confusion and promote poor buying choices. Consumer law generally responds with disclosure and design rules aimed at aligning consumer and firm interests. But with modern experimental and data-analysis techniques, firms can run circles around these rules. The process for enacting disclosure and design rules leaves regulators tied to slow, circumscribed responses. What is needed is a new regulatory instrument that can accomplish two objectives. First, it should unite the interests of firms with the goals of regulators through performance standards for consumer comprehension or suitable consumer product use, thereby redirecting the creative potential of the private sector (much like emissions standards do for pollution reduction). Second, the new regulatory instrument should institutionalize a monitoring system that provides feedback on actual consumer comprehension and product choices, which can be used to improve both the marketplace and regulation in a virtuous cycle.
This Article suggests a fresh approach to consumer law, one that has been tried piecemeal in consumer regulation but without an express intellectual foundation—until now. The principal aim of the approach is modest—to bring consumer transactions in line with consumer expectations. Its broader objective is more ambitious—to make the law as agile as firms are. Performance-based consumer law has the potential to incentivize firms to educate rather than obfuscate, develop product designs that align with consumer expectations rather than defy them, and channel consumers toward products that are suitable for the consumers’ circumstances. Moreover, even if performance-based regulation does not directly lead to dramatic gains in consumer comprehension or to marked declines in unsuitable uses of consumer products, the process of establishing and implementing such regulation promises dividends for improving traditional forms of regulation. But performance-based consumer law is more than a technocratic exercise. It is based on—and its operation would reinscribe—a normative vision of consumer law that places consumers at the center.
This Article is particularly timely in at least three respects. First, it answers the question implicitly asked by recent critiques of mandated disclosure: What should we do instead? Second, it plots a promising course for the young Consumer Financial Protection Bureau that is plainly authorized by the Dodd-Frank Act. Third, the policy structure it proposes would be helpful in several areas in which policymakers are currently at a loss for what to do, including personal-data privacy, opaque consumer-product pricing schemes, and drug marketing to consumers.