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Winners and Losers in the Squeaky Wheel System

posted by Amy Schmitz

First, I want to thank you for the invitation!  

Most have heard the adage: “The squeaky wheel gets the grease.” We have long known that the “squeaky wheels” who are proactive in pursuing their needs and complaints are most likely to get what they want. That is proper for the most part to the extent that it rewards those who expend the time and resources to pursue their interests. However, this “squeaky wheel system,” or “SWS” for ease of reference, allows businesses to bank on our inertia (laziness) in contracting and ration remedies to only those with the most resources and power. This also may allow businesses to control public information by quieting the squeaky wheel consumers. The SWS can effectively prevent economists’ proposed “informed minority” from policing fairness of contract terms and business practices by alerting the majority about purchase concerns and prompting companies to make contract changes.

This SWS has troubled me, leading to my recent article, Access to Consumer Remedies in the Squeaky Wheel System in volume 39 of the Pepperdine Law Review. This Article uncovers the salience of the SWS and explores its impacts on contract regulation and purchase practices in the consumer marketplace. It also provides a snapshot of empirical data from my own e-survey of Colorado consumers that is relevant to SWS dynamics. The article proposes proportional and efficient means for consumers to access purchase information and contract remedies using online and other low-cost remedy mechanisms. This proposal is by no means the “answer” and I invite other ideas for expanded and equalized remedy mechanisms to help diffuse the SWS,narrow the divide between the consumer “haves” and “have-nots,” and foster better fairness regulation of companies’ contract and claims assistance practices.

The SWS thrives in debt, insurance, and other business-to-consumer (“B2C”) contexts. Debtors must become squeaky wheels to obtain fee waivers and interest rate deductions, and consumers must be persistent in order to obtain compensation on insurance claims due to insurers’ “rationing by hassle” through delay and ignore tactics. In addition, merchants may ration remedies and cut costs by using the SWS to limit provision of remedies for purchase complaints. They know that relatively few consumers are aware of available remedies, and even fewer seek assistance.

Furthermore, out of the consumers who take any action, only a very small handful have the requisite confidence andresources to become squeaky wheels who capture businesses’ attention and obtain remedies. This SWS therefore may prevent us from learning about unsafe food and products. In February 2011, Consumer Reports published an article entitled  "Trouble with Recalls" that highlighted 2010 survey findings indicating that only a fifth of U.S.adults were aware of having purchased food and other products (other than cars) that were recalled in the past three years. Companies also may use the SWS to capitalize on continued freedom to impose fees and one-sided contract terms with respect to credit card and other common contracts.

Comments

This bears out a notion I have long held: contract law is a useless basis for consumer law. The law of trademark is much more potent. Businesses don't treat consumers right because of (irrelevant) contractual terms; they treat them right because they want to keep a good reputation.

The squeaky wheel system, to me, sounds like a form of price discrimination in reputation. Business is giving more value to those consumers who either: a.) care more than the average or b.) can otherwise harm the reputation of the business more than the average.

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