Where you go to college and what you choose to study has always been important, but, with the help of data science, it may now determine whether you get a student loan. Silicon Valley is increasingly setting its sights on student lending. Financial technology (“fintech”) firms such as SoFi, CommonBond, and Upstart are ever-expanding their online lending activities to help students finance or refinance educational expenses. These online companies are using a wide array of alternative, education-based data points—ranging from applicants’ chosen majors, assessment scores, the college or university they attend, job history, and cohort default rates—to determine creditworthiness. Fintech firms argue that through their low overhead and innovative approaches to lending they are able to widen access to credit for underserved Americans. Indeed, there is much to recommend regarding the use of different kinds of information about young consumers in order assess their financial ability. Student borrowers are notoriously disadvantaged by the extant scoring system that heavily favors having a past credit history. Yet there are also downsides to the use of education-based, alternative data by private lenders. This Article critiques the use of this education-based information, arguing that while it can have a positive effect in promoting social mobility, it could also have significant downsides. Chief among these are reifying existing credit barriers along lines of wealth and class and further contributing to discriminatory lending practices that harm women, black and Latino Americans, and other minority groups. The discrimination issue is particularly salient because of the novel and opaque underwriting algorithms that facilitate these online loans. This Article concludes by proposing three-pillared regulatory guidance for private student lenders to use in designing, implementing, and monitoring their education-based data lending programs.
Algorithms are now used to make significant decisions about individuals, from credit determinations to hiring and firing. But they are largely unregulated under U.S. law. A quickly growing literature has split on how to address algorithmic decision-making, with individual rights and accountability to nonexpert stakeholders and to the public at the crux of the debate. In this Article, I make the case for why both individual rights and public- and stakeholder-facing accountability are not just goods in and of themselves but crucial components of effective governance. Only individual rights can fully address dignitary and justificatory concerns behind calls for regulating algorithmic decision-making. And without some form of public and stakeholder accountability, collaborative public-private approaches to systemic governance of algorithms will fail.
In this Article, I identify three categories of concern behind calls for regulating algorithmic decision-making: dignitary, justificatory, and instrumental. Dignitary concerns lead to proposals that we regulate algorithms to protect human dignity and autonomy; justificatory concerns caution that we must assess the legitimacy of algorithmic reasoning; and instrumental concerns lead to calls for regulation to prevent consequent problems such as error and bias. No one regulatory approach can effectively address all three. I therefore propose a two-pronged approach to algorithmic governance: a system of individual due process rights combined with systemic regulation achieved through collaborative governance (the use of private-public partnerships). Only through this binary approach can we effectively address all three concerns raised by algorithmic decision-making, or decision-making by Artificial Intelligence (“AI”).
The interplay between the two approaches will be complex. Sometimes the two systems will be complementary, and at other times, they will be in tension. The European Union’s (“EU’s”) General Data Protection Regulation (“GDPR”) is one such binary system. I explore the extensive collaborative governance aspects of the GDPR and how they interact with its individual rights regime. Understanding the GDPR in this way both illuminates its strengths and weaknesses and provides a model for how to construct a better governance regime for accountable algorithmic, or AI, decision-making. It shows, too, that in the absence of public and stakeholder accountability, individual rights can have a significant role to play in establishing the legitimacy of a collaborative regime.
The recent financial crisis demonstrated that, contrary to longstanding regulatory assumptions, nonbank financial firms—such as investment banks and insurance companies—can propagate systemic risk throughout the financial system. After the crisis, policymakers in the United States and abroad developed two different strategies for dealing with nonbank systemic risk. The first strategy seeks to regulate individual nonbank entities that officials designate as being potentially systemically important. The second approach targets financial activities that could create systemic risk, irrespective of the types of firms that engage in those transactions. In the last several years, domestic and international policymakers have come to view these two strategies as substitutes, largely abandoning entity-based designations in favor of activities-based approaches. This Article argues that this trend is deeply misguided because entity- and activities-based approaches are complementary tools that are each essential for effectively regulating nonbank systemic risk. Eliminating an entity-based approach to nonbank systemic risk—either formally or through onerous procedural requirements—would expose the financial system to the same risks that it experienced in 2008 as a result of distress at nonbanks like AIG, Bear Stearns, and Lehman Brothers. This conclusion is especially salient in the United States, where jurisdictional fragmentation undermines the capacity of financial regulators to implement an effective activities-based approach. Significant reforms to the U.S. regulatory framework are necessary, therefore, before an activities-based approach can meaningfully complement domestic entity-based systemic risk regulation.
Big investment managers, such as Vanguard and Fidelity, have accumulated an astonishing amount of common stock in America’s public companies—so much that they now have enough corporate votes to control entire industries. What, then, will these big managers do with their potential power?
This Article argues that they will do less than we might think. And the reason is paradoxical: the biggest managers are too big to be activists. Their great size creates intense internal conflicts of interest that make aggressive activism extremely difficult or even impossible.
The largest managers operate hundreds of different investment funds, including mutual funds, hedge funds, and other vehicles that all invest in the same companies at the same times. This structure inhibits activism, because it turns activism into a source of internal conflict. Activism by one of a manager’s funds can damage the interests of the manager’s other funds. If a BlackRock hedge fund invests in a company’s equity, for instance, at the same time a BlackRock mutual fund invests in the company’s debt, then any attempt by either fund to turn the company in its favor will harm the interests of the other fund. The hedge fund and mutual fund might similarly come into conflict over the political and branding risks of activism and the allocation of costs and profits. Federal securities regulation and poison pills can create even more conflicts, often turning activism by a hedge fund into serious legal problems for its manager’s entirely passive mutual funds. A big manager, in other words, is like a lawyer with many clients: its advocacy for one client can harm the interests of another.
The debate about horizontal shareholding and index fund activism has ignored this truth. Research on horizontal ownership tends to treat a manager and its funds as though they were a single unit with no differences among them. Traditional analyses of institutional shareholder activism tend to go the opposite direction, treating mutual funds as though they were totally independent with no connection to other funds under the same management.
By introducing a subtler understanding of big managers’ structures, I can make sense of shareholder activism more clearly. Among other things, I show why aggressive activism tends to come entirely from small managers—that is, from the managers whose potential for activism is actually the weakest.
In the wake of widespread revelations about sexual abuse by Harvey Weinstein, Larry Nassar, and others, the United States is reckoning with the past and present and searching for the means to prevent and punish such offenses in the future. The scourge of sexual crimes goes far beyond instances perpetrated by powerful men; this misconduct is rampant throughout the country. In some of these cases, third parties knew about the abuse and did not try to intervene. Scrutiny of—and the response to—such bystanderism is increasing, including in the legal world.
In order to align law and society more closely with morality, this Article proposes a more holistic, aggressive approach to prompt involvement by third parties who are aware of specific instances of sexual crimes in the United States. This Article begins by documenting the contemporary scope of sexual crimes in the United States and the crucial role bystanders play in facilitating them.
The Article next provides an overview and assessment of “Bad Samaritan laws”: statutes that impose a legal duty to assist others in peril through intervening directly (also known as the “duty to rescue”) or notifying authorities (also known as the “duty to report”). Such laws exist in dozens of foreign countries and, to varying degrees, in twenty-nine U.S. states, Puerto Rico, U.S. federal law, and international law. The author has assembled the most comprehensive global database of Bad Samaritan laws, which provides an important corrective to other scholars’ mistaken claims about the rarity of such statutes, particularly in the United States. Despite how widespread these laws are in the United States, violations are seldom, if ever, charged or successfully prosecuted.
Drawing on historical research, trial transcripts, and interviews with prosecutors, judges, investigators, and “upstanders” (people who intervene to help others in need), the Article then describes four prominent cases in the United States involving witnesses to sexual crimes. Each case provides insight into the range of conduct of both bystanders and upstanders.
Because not all such actors are equal, grouping them together under the general categories of “bystanders” and “upstanders” obscures distinct roles, duties, and culpability for violating those duties. Drawing on the case studies, this Article thus presents original typologies of bystanders (including eleven categories or sub-categories), upstanders (including seven categories), and both kinds of actors (including four categories), which introduce greater nuance into these classifications and this Article’s proposed range of legal (and moral) responsibilities. These typologies are designed to maximize generalizability to crimes and crises beyond sexual abuse.
Finally, the Article prescribes a new approach to the duty to report on sexual abuse and possibly other crimes and crises through implementing a combination of negative incentives (“sticks”) and positive incentives (“carrots”) for third parties. These recommendations benefit from interviews with sexual violence prevention professionals, police, legislators, and social media policy counsel. Legal prescriptions draw on this Article’s typologies and concern strengthening, spreading, and standardizing duty-to-report laws at the state and territory levels; introducing the first general legal duty to report sexual crimes and possibly other offenses (such as human trafficking) at the federal level; exempting from liability one of the two main bystander categories the Article proposes (“excused bystanders”) and each of its six sub-categories (survivors, “confidants,” “unaware bystanders,” children, “endangered bystanders,” and “self-incriminators”); actually charging the other main bystander category the Article proposes (“unexcused bystanders”) and each of its three sub-categories (“abstainers,” “engagers,” and “enablers”) with violations of duty-to-report laws or leveraging these statutes to obtain testimony from such actors; and more consistently charging “enablers” with alternative or additional crimes, such as accomplice liability. Social prescriptions draw on models and lessons from domestic and foreign contexts and also this Article’s typologies to recommend, among other initiatives, raising public awareness of duty-to-report laws and creating what the Article calls “upstander commissions” to identify and “upstander prizes” to honor a category of upstanders the Article proposes (“corroborated upstanders”), including for their efforts to mitigate sexual crimes. A combination of these carrots and sticks could prompt would-be bystanders to act instead as upstanders and help stem the sexual crime epidemic.
Exchange-traded funds (“ETFs”) are among the most important financial innovations of the modern era. And yet they still have no coherent regulatory system. This Article addresses the problem by assessing the SEC’s recent effort in this area in light of the recommendations we provided in prior research. In March 2018, we offered the first academic work to show the need for, or to present, a comprehensive regulatory framework for all ETFs. On June 28, 2018, just prior to that article’s scheduled publication, the SEC issued a proposal to change the way it regulates certain types of ETFs. On May 20, 2019, the SEC issued its “Precidian” exemptive order, allowing for the first time “non-transparent” actively managed ETFs—an order that we believe has surprising, hitherto unexplored implications for ETF regulation.
This new Article thus considers the SEC proposal and the Precidian order in the context of our earlier article’s proposed regulatory framework, and also refines that framework. We provide additional rationales for the framework, relying in part on new empirical findings.
The SEC’s proposal does not seek to provide a comprehensive regulatory framework for all ETFs. However, the proposal is a commendable start to addressing some of the problems in the current ad hoc approach to ETF regulation, especially as to the substantive side of ETF regulation. In proposing a more rules-based approach, the SEC helps deal with the central problem of current substantive ETF regulation—the reliance on individualized exemptive letters. However, this partial shift only applies to certain ETFs that are organized under the Investment Company Act of 1940 and also leaves in place an anomalous set of individualized exemptions for several specific Investment Company ETFs, including those offering leveraged and inverse exposures. More broadly, the proposal does not address problems of SEC discretion pertaining to the underlying process of financial innovation in ETFs. The proposed rule also neglects to address the frequent need for individualized exemptions with respect to stock exchange listing requirements.
With respect to the disclosure side of regulation, the SEC proposal again only covers Investment Company ETFs, but is even more incremental in nature. The SEC contemplates modest enhancements of disclosures related to “trading price frictions” of such ETFs. And, going the other direction, the SEC contemplates eliminating the primary source of information for retail investors on intraday values of ETF shares. We welcome the SEC’s invitation for views on more fundamental disclosure reforms. We offer a refined version of the comprehensive disclosure approach advanced in our first article, and provide fresh rationales for such an approach, based in part on new empirical findings. This approach would apply to all ETFs, and would be cognizant of the distinctive characteristics of ETFs and the subtle complexities introduced by the underlying innovation process. Collectively, a disclosure regime consisting of a “dynamic” SEC-specified ETF nomenclature and required ETF self-identification (which nomenclature and self-identification we refer to as the “disclosure building block”), fuller quantitative disclosures of trading price frictions (such as those related to the arbitrage mechanism and bid-ask spreads), and periodic Management’s Discussion and Analysis-style qualitative information centered on the arbitrage mechanism (including, as appropriate, consideration of the impact of the liquidity of the assets in which the ETF is invested) would help individual and institutional investors alike.
Few organizational acronyms are more familiar to Americans than those of the National Collegiate Athletic Association (“NCAA”) and the Internal Revenue Service (“IRS”). Although neither organization is particularly popular,1 both loom large in American life and popular culture. Because there is a tax aspect to just about everything, it should come as no surprise that the domains of the NCAA and the IRS overlap in a number of ways. For many decades, college athletics have enjoyed unreasonably generous tax treatment—sometimes because of the failure of the IRS to enforce the tax laws enacted by Congress, and sometimes because Congress itself has conferred dubious tax benefits on college sports. Very recently, however, there have been signs of what may be a major attitudinal shift on the part of Congress—although, so far, there have been no signs of a corresponding change at the IRS.
This Article offers an in-depth look at the history and current status of four areas of intersection between the federal tax laws and college sports. Part I considers the possible application of the tax on unrelated business income to big-time college sports. It concludes that, even in the absence of any change in the unrelated business income statute, there is a strong argument that revenues from the televising of college sports should be subject to the unrelated business income tax. Part II examines the tax status of athletic scholarships. It explains that athletic scholarships, as currently structured, are taxable under the terms of the Internal Revenue Code but that the IRS seems to have made a conscious decision not to enforce the law.
While the first two Parts of this Article address areas in which the traditional sweetheart arrangement between the IRS and the NCAA remains in effect, the final two Parts of this Article consider areas in which Congress has—very recently—intervened to increase the tax burden on college athletics. Part III describes how Congress, three decades ago, explicitly permitted taxpayers to claim charitable deductions for most of the cost of season tickets to college football and basketball games and how Congress in 2017—to the surprise of many observers, including the authors of this article—repealed this special tax benefit. Finally, Part IV addresses issues of both statutory interpretation and policy raised by Congress’s creation, in 2017, of a twenty-one percent excise tax on at least some universities that were paying seven-figure salaries to their football and basketball coaches. This Article’s conclusion suggests the IRS should follow the lead of Congress and reconsider the administrative favoritism toward college sports described in Parts I and II.
From Volume 92, Number 4 (May2019) Divergence in Land Use Regulations and Property Rights Christopher Serkin[*] INTRODUCTION […]
For half a century at least, the several states of the United States have taken a liberal attitude toward the recognition and enforcement of foreign country money judgments. The U.S. Supreme Court invoked the “grace” of sovereign nations to justify a restrictive approach to the recognition of judgments in the famous case of Hilton v. Guyot. The New York Court of Appeals laid out a more generous approach based in the vindication of private rights. Simply put, private rights won. In 1962, the Uniform Law Commission promulgated the Uniform Foreign Money-Judgments Recognition Act, which codified a liberal approach to the cross-border circulation of money judgments. The many U.S. states that adopted the uniform act were trying to lead by example. The hope was that, if they accepted incoming judgments, judgments exported to the rest of the world would be accepted, recognized, and enforced. For decades, this effort was regarded as a failure. The European Union continued to draw a sharp distinction between E.U. judgments and U.S. judgments—though acceptance of U.S. judgments by E.U. member states crept up over time. Some of the world’s largest economies—most notably, China—outright rejected recognition of U.S. money judgments.
Change has been recent and dramatic. In 2017, a Chinese court recognized and enforced a U.S. money judgement for the first time. Chinese law requires reciprocity between nations in order to recognize a foreign money judgment. The United States has no reciprocal judgment recognition treaty with any country. A U.S. district court recognized and enforced a Chinese judgment in 2009. This “reciprocity in fact” was sufficient for a Chinese court. A few months later, China announced that it would sign The Hague Convention on Choice of Court Agreements (“COCA”), obligating Chinese courts to recognize and enforce judgments rendered under a choice of court clause selecting the courts of any contracting state. The COCA has already entered into force between the European Union, Mexico, and Singapore. The United States has signed, but not ratified, the agreement. Meanwhile, The Hague Judgments Project gathers steam to require the free circulation of judgments arising in all but a few contexts. The drivers of this apparent convergence are obscure and likely diverse. This Article will analyze the causes of this recent, dramatic shift and will attempt to assess the likelihood of further convergence.
From Volume 92, Number 4 (May 2019) from nuisance to environmental protection in Continental Europe Vanessa […]