Schmitz Explains Squeaky Wheel System at Scott Lecture

October 28, 2013

As the speaker for the 39th annual Austin Scott Lecture, Professor Amy J. Schmitz presented her lecture entitled Access to Consumer Remedies in the Squeaky Wheel System. By “squeaky wheel system,” Schmitz means the current method by which customers must be proactive and persistent to obtain remedies or other assistance from merchants when they are dissatisfied with their goods or services. Schmitz’s phrase is derived from the saying, “the squeaky wheel gets the grease,” as has been noted in the workplace and marketplace to describe how individuals  who protest the most and loudest will get what they want. In her lecture, Schmitz identified the problems with the current system as well as the people it most negatively impacts. She offered a solution to these issues using the Internet, and online dispute resolution (“ODR”), as the primary tool.

According to Schmitz, the “squeaky wheel system” severely limits consumers’ rights because it discriminates against consumers based on their socioeconomic status. Roughly one-third of consumers make any effort to seek  remedies with respect to their purchases, but only a very small handful of those individuals go further and take the necessary measures to be the true “squeaky wheels” who obtain assistance.

“Those that have more resources, are more educated, and are in higher socioeconomic status levels are most likely to get more remedies,” Schmitz said.

She went on to cite a study showing that out of every 1,000 purchases made, households of the highest socioeconomic status complained about 98.9 of those purchases, while households of the lowest socioeconomic status complained about 60.7 of the 1,000 purchases. According to Schmitz, the “squeaky wheel” system only exacerbates this situation.

“It’s widening that gap between consumer haves and have-nots,” Schmitz said. “It’s almost a consumer caste system.”

Schmitz called attention to the differences that are evident between consumers of different races and genders. In Schmitz’s own empirical study of Colorado consumers,  71.3 percent of females versus 53.4 percent males reported that they “never” or “rarely” try to negotiate purchase terms. Another study, conducted by Professor Ian Ayres of Yale Law School, took place at car dealerships in Chicago where it was found that white females paid 40 percent more than white males, and African American consumers paid twice the mark-up paid by all other consumers. Moreover, according to the Consumer Federation of America, upper income African American women were five times more likely than upper income white males to be saddled with a subprime mortgage. Schmitz suggested that the reason women and African American consumers often benefit less than white male consumers is that they are less “squeaky.” Research has indicated that society has conditioned these groups of people to complain less by instilling in them the assumption that they are less powerful, or that complaining would breach social norms.

According to Schmitz’s research, many people do not pursue any sort of remedies because they are unaware of the proper course of action.  Consumers also may experience inertia—essentially laziness. In addition, consumers have a tendency to “follow the rules” and aim to avoid creating a disturbance.  They also may put up with poor products and services because they do not want to admit that they have made a bad purchase. Schmitz also used data from her own empirical study to show how consumers rarely try to change the contracts that contain the terms of their purchase, and when they do, they are largely unsuccessful. Consumers do not read these contracts for the most part, nor do they trust them, but they feel powerless to alter them.

Schmitz proposed a solution to these problems. The answer, she said, is well-crafted ODR mechanisms with the goal of creating what she calls “The New Handshake,” which is also the title of her forthcoming book with co-author Colin Rule (founder of Modria, an ODR provider). This New Handshake would involve ODR administered through a single website with due process standards that would be used for problem diagnosis, direct negotiation, mediation, and evaluation. In this hypothetical situation, merchants would have to pay to opt-in to the website’s program and buyers would report their issue through the site to the merchant, who would then respond, allowing the buyer to select a remedy. Schmitz laid out key considerations for setting up the program, including 1) it should be free or of very low cost to consumers, 2) it should make various guides and demonstrations for use of the site accessible, and 3) companies who opt-in should be allowed to display a trustmark on their own websites to let consumers know that they will be a trustworthy and accountable merchant.

“We as consumers really can be empowered. I get so excited about ODR because I think we always have to be willing to try and find solutions to open a way that we can all get help on our complaints,” Schmitz said.

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