Panel 4: Consumer Contract Law
Our final panel assessed the future of consumer contract law in the United States, the United Kingdom, and the European Union. The Honorable Carlos Lucero, Judge on the U.S. Court of Appeals for the Tenth Circuit moderated the discussion featuring Professors Geraint Howells, City University of Hong Kong, and James Nehf, Indiana University Robert H. McKinney School of Law.
Judge Lucero, who is a distinguished federal judge and alumnus of The George Washington University Law School, introduced the panel and acknowledged the significance of consumer contract law concepts in business transactions. He noted how legal concepts like “good faith,” “context,” “fairness,” and “equity” carry huge costs for businesses, especially if the attorneys fail to incorporate the proper recitals into the contract. As consumer contract law continues to develop worldwide, Judge Lucero correctly states that “where you stand” on the issues depends upon “where you sit” during the litigation.
The Impact of the European Union on the United Kingdom’s Consumer Contract Law
Professor Geraint Howells presented his paper on how consumer contract law in Europe has influenced the same in the U.K., particularly regarding the concept of “unfair terms.” In a post-Brexit era, the U.K. must honestly assess whether E.U. consumer protections are worthwhile. Given the rapid advent of digital goods, consumer contract law has changed considerably since Professor Howells conducted research in 1992 for the E.U. Commission concerning how people bought goods at a distance.
Since 1992, when the E.U. developed consumer contract laws in many areas, it was easy for the U.K. to consider those laws as both communities adapted to challenging issues. But the E.U. has not significantly influenced “sale of goods” law or conformity principles in the U.K., as this area has seen minimal harmonization over the years. According to Professor Howells’s research, specifically in the area of “unfair terms,” there is a greater potential for conflict between the common law U.K. model and the E.U. model. While the 1992 E.U. Directive on unfair contract terms was more ambitious in reforming consumer contract law, E.U. legal developments still influenced the U.K.’s Consumer Rights Act of 2015. Operating as one integrated system in the U.K. for controlling unfair terms in negotiations, the Consumer Rights Act retained the E.U.’s legal language of “good faith.” Professor Howells, however, wonders whether the U.K. will retain the substance underlying this legal language if it has the freedom (as a non-E.U. member) to change it.
Addressing the concept of “significant imbalance” as a specific type of “unfair terms,” Professor Howells compared E.U. and U.K. legal decisions on the subject. Many, if not most, E.U. court cases are pro-consumer as judges use consumer contract law to redress unfair imbalance between consumers and businesses. By contrast, whenever a consumer contract case has gone to the Supreme Court of the U.K.’s House of Lords, the court has ruled against the consumer and expressed general reluctance to frustrate the purpose of “core non-reviewable terms.”
Professor Howells finished his presentation by summarizing several of his conclusions. Even post-Brexit, U.K. consumer contract law is possibly more systematic given E.U. influence. U.K. law concerning “unfair terms” mimics the E.U. law in form, however, it is arguable whether, and to what extent, it has impacted U.K. court judgments. Rather, sales law generally has retained a uniquely British character and simply accommodated E.U. law. In Professor Howells’s opinion, the future freedom of U.K. law to deviate from E.U. law will depend upon whether there is a “hard” or “soft” Brexit. As the situation develops, Swiss law offers an intriguing comparison case, because it is in a similar negotiation position with the E.U. given its own restrictions on free migration.
The Impact of Mandatory Arbitration on the Common Law Regulation of Standard Terms in American Consumer Contract Law
Professor James Nehf began by summarizing the piecemeal American approach to consumer contract law. At common law, the concepts of “unconscionability” and “good faith,” as well as caselaw applying consumer contract statutes helped stimulate the development of American consumer contract law. Professor Nehf noted how consumer contract law issues sharpen the problem of assent in contracts, as businesses have increasingly used standard terms in adhesion contracts that consumers seldom read and that are non-negotiable anyway. According to Professor Nehf, consumer contract law in the U.S. is inherently reactionary, as legislatures, regulators, and courts react to business overreach in crafting egregiously unfair terms.
Professor Nehf discussed how the common law concept of “unconscionability,” as applied in Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965), influenced the further adoption of Federal Trade Commission rules and rent-to-own statutes forbidding certain unfair terms. The court in Walker-Thomas Furniture thus brought renewed attention to the absence of meaningful choice in adhesion contracts. In addition, the common law concept of “good faith” protected against the abusive exercise of discretion in contract performance, and helped promote honesty in fact and the observance of reasonable commercial standards of fair dealing. Despite these historical developments, Professor Nehf argued that the increasing reliance on mandatory arbitration provisions under the Federal Arbitration Act (“FAA”) undermines American consumer contract law.
Because of mandatory arbitration provisions, Professor Nehf fears that the common law of consumer contract protections will cease to develop and will become outdated. Professor Nehf saved his most pointed criticism for American caselaw, specifically Rent-A-Center West, Inc. v. Jackson, 561 U.S. 63 (2010), which upheld mandatory arbitration clauses that delegate challenges based on general grounds of nonenforcement (e.g., no assent, unconscionability, duress, fraud, etc.) to the arbitrator. These “delegation clauses” effectively prevent courts from hearing most cases, given that the arbitrator has no incentive to dismiss an arbitration and receive no fees.
As a result, more consumer contracts contain mandatory arbitration provisions, class-action waivers, and delegation clauses, which will generally be enforceable if well drafted. In Professor Nehf’s opinion, the dwindling number of consumer contracts cases effectively freezes common law limits on standard terms in time, resulting in an impoverished body of law to guide future decisions. By extension, there is less impetus for statutory and regulatory reform because published cases help drive later legislative enactments as seen by the Walker-Thomas Furniture example. Finally, there is also effectively less interpretation of federal and state consumer statutes and regulations. Professor Nehf concluded his talk with little hope of mitigating the negative impact of mandatory arbitration provisions on American consumer contract law; however, he believes that congressional amendment of the FAA might provide means of doing so.
This summary was authored by Law Review Executive Editor William Bejan.
