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The Economics of Credit Card Security

The WSJ has an interesting article today on the Target credit card security breach. As the article notes, the US card system is less secure than elsewhere in the world, most notably Europe, which has a “chip and PIN” system, which has a computer chip embedded in the card and requires the purchaser to insert a PIN as well to make a transaction. The Target security breach has led many to wonder–and implicitly the WSJ–why the US has lagged on adopting this more secure technology.

Well it turns out that the economics of credit card security is more complicated than it appears at first glance. But first, an important thing to keep in mind: historically the United States has been a high-trust, low-fraud country when it comes to payment card usage. For example, the conventional practice of handing over your credit card (or debit card) to a waiter in a restaurant and having him disappear into a back room with it is something that must strike people in other countries as somewhat bizarre. Nevertheless, we do it all the time and rarely does anything go wrong in this process. So, this makes a difference–in a high-trust, low-fraud country it generally is not necessary to invest in as elaborate security protections as elsewhere. As an analogy, consider that in the U.S. very few restaurants, stores, or hotels routinely post visible armed guards at their front door, whereas this precaution is not uncommon in other countries.

With that background in mind, the WSJ article contains some interesting numbers relative to the optimal level of credit card security.

First, consider the size of the potential dollar size:

But if the chip cards were used in the U.S., fraud losses could be halved, Aite Group estimates. U.S. merchants and banks had 2012 losses of

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Some Upcoming Speaking Engagements

Here are some speaking engagements I will be doing in the next two weeks:

Thursday, January 22: I will be delivering the annual Brennan Lecture at Oklahoma City University. My topic (picked because it interested the organizers) is “NFIB v. Sebelius and the Constitutional Debate Over Federalism.” Perhaps Justice William Brennan would turn over in his grave if he knew that I was giving this lecture. There are important areas of agreement between us, but probably not on this issue. On the other hand, he might already have turned over when co-blogger Randy Barnett delivered a previous lecture in the series in 2004 (the list of past speakers also includes many people closer to Brennan’s views).

Jan. 27, noon: University of Chicago Law School Federalist Society: I will be doing a talk on my book Democracy and Political Ignorance: Why Smaller Government is Smarter (with commentary by a U of Chicago professor, name TBA).

Jan. 28, noon: University of Illinois College of Law Federalist Society, Champaign, IL: “Democracy and Political Ignorance,” (with commentary by Illinois Prof. Jason Mazzone).

January 31, 2-3:30 PM: University of Texas School of Law, Austin Texas, Conference on “Is Democracy Desirable?” (with commentary by Yale Law School Professor Heather Gerken and University of Texas Professor Sanford Levinson). [...]

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Thanks for Help with Obsidian Finance v. Cox

I just wanted to thank the many people who helped me with Obsidian Finance v. Cox:

  • Benjamin Souede of Angeli Ungar Law Group LLC, our pro bono local counsel for the motion for new trial in district court and for the motion to block plaintiff’s zany attempt to seize the appeal rights.
  • Mayer Brown LLP, with which I’m a part-part-part-time Academic Affiliate, and which paid the litigation costs through its pro bono program.
  • Helene Siegel of Mayer Brown, for her work with cite-checking and production.
  • My colleagues David Babbe, Sam Bray, and Dan Bussel, Loyola (L.A.) professors Karl Manheim, Jay Dougherty, John Nockleby, and Justin Levitt, and recent graduate Dafna Gozani for their help with moot courts for my argument.
  • Bruce Brown, Gregg P. Leslie, and Jack S. Komperda, representing the Reporters Committee for Freedom of the Press, and Tom Goldstein, representing SCOTUSblog, for their amicus briefs that supported our position, and Matthew J. Zimmerman and Richard D. Mc Leod, representing the Electronic Frontier Foundation, which filed an amicus brief supporting our motion for new trial.

I very much appreciate all that all these people have done to bring us to Friday’s win. [...]

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Two Toddlers Killed in Exorcisms in Maryland

So reports the Washington Post (thanks to Prof. Howard (Friedman) Religion Clause for the pointer):

A Germantown mother and another woman accused of killing two toddlers and trying to kill two other children believed that they were releasing demonic spirits that had possessed the siblings, Montgomery County police said Saturday.

The two dead children — a boy, Norell Harris, 1, and a girl, Zyana Harris, 2 — were found Friday morning on their mother’s bed in a Germantown townhouse. Both had been stabbed repeatedly, police said. A sister, Taniya Harris, 5, and a brother, Martello Harris, 8, were seriously injured but are expected to survive.

Police said the women thought that they were performing an exorcism, although it did not appear they had followed any ritual….

Police identified the women as Zakieya L. Avery, 28, the mother, and Monifa Sanford, 21, who lived with the family. Each has been charged with two counts of first-degree murder and two counts of attempted first-degree murder….

Avery, who has received mental health counseling, moved twice in recent years — from Western Maryland to Ohio and then to Montgomery, according to a minister whose church she attended. A relative said she had separated from her husband. Writings on her Facebook page suggest that she believes in God and fears Satan….

In the townhouse community where Avery lived … at least one neighbor saw signs of possible trouble Thursday night. He spotted a child alone in a parked car and called 911, police said. As officers were on the way, two women came out of Avery’s townhouse, told the neighbor to mind his own business, took the child and went back into the home, police said.

When officers arrived, they knocked on Avery’s door but got no response. They didn’t hear or see anything suspicious

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Thanks And Farewell For Now

My thanks again to the VC for lending me the podium this week to talk about The Conscience of The Constitution. I hope you’ll join me—in person or online—on January 30, when I speak about the book at the Cato Institute’s book forum. Then I’ll be participating in February’s Cato Unbound to discuss the debate over “judicial activism” (which takes up chapter 5 of my book).

If you enjoy The Conscience of The Constitution, you might also be interested in my other books, The Right to Earn A Living: Economic Freedom And The Law, and Cornerstone of Liberty: Property Rights in 21st Century America (on sale now for only $7 at the Cato store).

Please also bookmark the Pacific Legal Foundation’s Liberty Blog to follow our litigation in defense of economic liberty and other constitutional rights across the country—including our ongoing challenges to Obamacare, subject of the cover article in this issue of Regulation. And my personal blog is Freespace, where I write on various subjects of interest. You can also follow me on Twitter @TimothySandefur. [...]

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Upcoming Talks

I have a few upcoming talks that are open to the public and may be of interest to VC readers.

  • On January 21, at noon, I will be speaking at the National Constitution Center’s “Affordable Care Act Town Hall” with Simon Lazarus of the Constitutional Accountability Center.  Jeff Rosen will moderate our discussion of continuing legal controversies surrounding the ACA and its implementation.  This podcast offers a bit of a preview. Registration details here.
  • On January 30, at noon, I will be speaking on ACA implementation before the Cleveland Lawyers Chapter of the Federalist Society. Details to follow.
  • On January 31, at noon, I will be speaking on “The Conspiracy Against Obamacare: How Academic Bloggers Influenced the Legal Battle Over the Individual Mandate” at the Public Affairs Discussion Group, sponsored by the Center for Policy Studies at CWRU.
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Could Cellphone Cases Help Justin Bieber?

Jess Bravin has a report that could be of great interest to the VC readership’s Belieber contingent:

The justices Friday agreed to decide when searching a cellphone requires a warrant—the very kind of evidence that Los Angeles County sheriff’s deputies believe could link the “Believe” singer to the egging of a neighbor’s house.

Deputies searched Mr. Bieber’s Calabasas, Calif., house on Tuesday and seized his iPhone, among other items. The device could contain photos or video related to the egging, authorities think.

But Sgt. Ernie Masson, reached at the sheriff’s Malibu/Lost Hills station, said that while deputies had a search warrant for the Bieber house, he could not say whether it specifically covered the phone.


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Supreme Court Grants Cert in Both Cell-Phone Search Cases

Today the Supreme Court agreed to hear both of the pending cell-phone search cases; as explained here, one case, Wurie, involves an old-style flip-phone, and the second, Riley, involves a modern smart phone. The Court modified the Questions Presented in Riley to match that in Wurie, so the question presented in both is “[w]hether evidence admitted at petitioner’s trial was obtained in a search of petitioner’s cell phone that violated petitioner’s Fourth Amendment rights.”

Why did the Court take both cases instead of just picking one? One reason may be that Riley has more representative facts but Wurie lets the United States play a larger role: As petitioner, DOJ can file a full length merits brief, a reply brief, and get 30 minutes of oral argument, instead of filing an amicus brief and getting the expected 10 minutes of the state’s oral argument time. Alternatively, perhaps the Justices figured that the issue can arise with many different facts, and they figured taking two cases lets them look at the broader issue (see, for example, Miranda v. Arizona). It’s hard to say.

Either way, these cases should be really important and very fun to watch. I expect them to be the first of many computer search-and-seizure cases the Supreme Court will hear over the next few decades. As I wrote in this short essay on the issue raised by Wurie and Riley, “The computer will be to the 21st century Fourth Amendment what the automobile was to the 20th century Fourth Amendment. In both cases, transformative technologies justify technology-specific rules.” The process of engaging in equilibrium-adjustment for the computer world is likely to occupy the Justices for a long time, and my bet is on it leading to a new criminal procedure with many computer-specific [...]

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Payday Lending and Overdraft Protection

I’ve noted previously, I have a forthcoming paper with former Comptroller of the Currency Robert Clarke that examines competition between payday lending and bank overdraft protection. The central point is easy to grasp–payday lending and overdraft protection are products offered by different providers but which compete for the same customers. And evidence indicates that in choosing between the two products consumers generally choose rationally.

The point came to mind (yet again) reading the Wall Street Journal yesterday, “Hefty Bank Fees Waylay Solders.” According to the article, many members of the military are frequent users of bank overdraft protection, which has caused some concern in some quarters. The article provides no hard evidence that usage of overdraft protection has risen in recent years, but implies that the general impression is that it has.

Assuming that the perception is correct that usage of overdraft protection by military members has risen in recent years, why would that be?  Well, how about the enactment of the Military Lending Act in 2007, which imposed a 36% APR cap on payday loans to military members, effectively outlawing payday loans (and some other products for military members):

 Congress cracked down with the Military Lending Act, which, starting in 2007, limited to 36% the APR interest on many payday-style loans to military members.

Since then, overdraft programs have replaced payday lending as the leading financial problem for many military personnel, says Adm. Abbot of the Navy-Marine relief society. Some financial institutions serving the military have reined in overdraft fees, he says, while others are engaged in “predatory or punitive overdraft practices.”

Eliminating access to a particular product (payday loans) doesn’t eliminate the need for credit. It is entirely predictable that eliminating payday loans to service members will result in increased use of bank overdraft [...]

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Judge Brody Rejects NFL Settlement Agreement

I’ve been following with fascination the overwhelming evidence about brain injuries caused by football. On the one hand, I believe in individual autonomy. On the other hand, I’m not really a fan of football. But I also don’t favor paternalistic policies that limit individuals from undertaking calculated risks. And yet, what about undisclosed risks?

All of that and more is at issue in the complaint brought by over 4,500 former football players who sued the National Football League for damages arising from their injuries. The complaints were consolidated before U.S. District Judge Anita Brody in Philadelphia. The players claim that the NFL was negligent in failing to inform players of the link between repeated traumatic head impacts and long-term brain injuries, including early onset Alzheimer’s and dementia. They claim the NFL knew about these neurological impairments as early as the 1970s and didn’t take any steps to redress these issues until 1994.

On Tuesday, Judge Brody took the unusual step of a issuing a preliminary rejection of the “$760 million over a period of 20 years” reached between the players and the NFL, asking for more detailed financial information, and stating that:

“Judicial review must be exacting and thorough. The task is demanding because the adversariness of litigation is often lost after the agreement to settle….

…I am primarily concerned that not all Retired NFL Football Players who ultimately receive a Qualifying Diagnosis or their related claimants will be paid. The Settlement fixes the size of the Monetary Award Fund. It also fixes the Monetary Award level for each Qualifying Diagnosis, subject to a variety of offsets. In various hypothetical scenarios, the Monetary Award Fund may lack the necessary funds to pay Monetary Awards for Qualifying Diagnoses. … it is difficult to see how the Monetary Award Fund would have [...]

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Can the Government Exclude Lobbyists from Advisory Committees?

Today the U.S. Court of Appeals for the D.C. Circuit issued an interesting opinion in Autor v. Pritzker.  Here’s how Judge Tatel summarized his opinion for the court:

President Obama, seeking to reduce the “culture of special interest access,” directed executive agency heads to bar federally registered lobbyists from serving on advisory committees. Appellants, federally registered
lobbyists wishing appointment to one type of advisory committee—Industry Trade Advisory Committees
(ITACs)—challenge the constitutionality of the presidential ban. Because the ban requires Appellants to limit their exercise of a constitutional right—in this case, the First Amendment right to petition government—in order to qualify for a governmental benefit—in this case, ITAC membership—we reverse the district court’s premature dismissal of the complaint and remand for that court to determine in the first instance whether the government’s interest in excluding federally registered lobbyists from ITACs outweighs any impingement on Appellants’ constitutional rights.

While the government may be able to defend this policy on remand, the court accepted the appellants claim that the policy effectively conditions eligibility for a valuable benefit (in this case, ITAC membership) on an individual’s willingness to restrict their exercise of his or her First Amendment rights.  On remand, the question will be whether the government can assert interests to justify this imposition.


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Where is Congress in Obama’s Reforms on Section 215?

If I understand Obama’s new policy on Section 215, he is going to have the Executive Branch ask the judges on the Foreign Intelligence Surveillance Court (FISC) to begin to limit when the Executive can query the Section 215 database. That is, he will ask the judiciary to take on a new power to limit the Executive, so that the Executive can only query the database when the executive gets a court order signed by the FISC. In his words, “I have directed the Attorney General to work with the Foreign Intelligence Surveillance Court so that during this transition period, the database can be queried only after a judicial finding, or in a true emergency.”

Maybe I’m just old-fashioned, but doesn’t Congress need to be involved in this little enterprise? The FISC is a creation of Congress. It has no power to do anything that Congress doesn’t grant it. The Executive and the Judiciary can’t just meet and agree on a new set of rules to govern surveillance programs; those rules are supposed to be generated by Congress. I suppose it shows how far from Congress’s text the FISC has taken the law that the Executive sees the FISC as the primary negotiating partner in creating new rules. The FISC’s interpretation of Section 215 is based on an implausible reading of Congress’s law, so it’s almost like it’s the FISC’s authority at issue, not Congress’s. But I hope we could recognize that FISA is a statute and statutes are enacted by the legislature. If the President and the FISC are having trouble locating this sometimes-elusive branch of government, they’re in the fancy building with the dome near the Supreme Court. Big building, can’t miss it.

Anyway, maybe I just misunderstood what President Obama said, in which case I will [...]

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Live-Blogging President Obama’s NSA Speech

I’m going to try live blogging the President’s remarks today on NSA.  I’ve never done this before, so don’t be surprised if the whole thing comes crashing down in the middle.

11:15:  The President gives us a few history lessons and a tour of intelligence policies of the last quarter century.

11:19 The President summarizes the impact of 9/11 and the success of the intelligence community in hunting terrorists.  The changes in our intelligence programs has been successful, but the risk of abuse grew too.

11:21 The President trashes the past excesses of the previous administration.

11:24 America’s capabilities are unique, President claims.  This is not correct.  Lots of governments use big data for intelligence collection.

11:25 President appeals to the left, claiming to have stopped abuses and instituted new restraints, then to the right, by saying that the government, including NSA, has not abused its power and has consistently followed protocols to protect privacy.

11:27  “Now that I’m done with drones, it’s time to reform our intelligence community too” Unfortunately, President suggests, Snowden and his sensationalizing leaks have distorted the debate.

11:30 The basic approach guided by this principle: “We must retain the trust of the American people and people around the world.”

11:32 Basic observations:  We do have real enemies and we need intelligence to protect the American people.  We can’t unilaterally disarm.  We’re targeted even by some of the nations that “feigned surprise” and international critics also recognize our special responsibilities.   Second, inteligence community understands the risk of abuse.  Third, we can’t rely on just the good intentions of government officials.

So far, this is a pretty good lecture, in the Obama style of rejecting straw men and seeking a middle ground at a high level of abstraction.

11:36 The reforms:

A presidential directive setting policy for [...]

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