Academic journal article The Journal of Consumer Affairs

Seeking a Single Policy for Contractual Fairness to Consumers: A Comparison of U.S. and E.U. Efforts

Academic journal article The Journal of Consumer Affairs

Seeking a Single Policy for Contractual Fairness to Consumers: A Comparison of U.S. and E.U. Efforts

Article excerpt

The United States and the European Union both have made substantial progress toward harmonizing contractual unfairness law for consumers within their borders. To a large degree, the policies of these two largest consumer markets in the world are similar, but consumers should beware that some significant differences remain. Furthermore, differences in interpretation among member states could lead to differences within the E.U.

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Legally enforceable contracts are the foundation of a capitalistic market system where voluntary exchange allocates resources. "Classical" contract law as developed during the 19th and early 20th centuries throughout the Western world placed particular emphasis on enforcing voluntarily formed contracts. Despite this respect for freedom of contract, courts do not enforce contracts if there is evidence that one party did not consent to the terms because of fraud, mistake, or coercion. More rarely, courts decide not to enforce contracts whose terms are so one-sided it is difficult to believe the disadvantaged party agreed to them despite no other evidence of fraud, mistake, or coercion (Beatson and Friedman 1995; Chitty 1999). This development in contract law is generally referred to as unfairness or unconscionability and is the subject of this article. Unfairness provides the legal system with needed flexibility to enforce the vast majority of contracts, while not enforcing a few contracts when it would be unfair or inappropriate to do so.

This article first examines the need for consumer protection from unfair contract provisions. It then provides background information on the development of consumer contract fairness law in the two largest consumer markets, the United States (U.S.) and the European Union (E.U.). Next the general standards for determining fairness from each source are compared, followed by a section presenting and comparing specific examples of unfair contract provisions. The implications section then summarizes both similarities and differences between the two regimes and suggests that the E.U. and U.S. have fundamentally different models of consumer policy.

THE NEED FOR CONSUMER PROTECTION

This "escape valve" of unfairness raises the question of whether consumers within a free market system need additional protection from unfair contracts beyond general unfairness principles available to all types of parties. It is not the intention of the authors to analyze the justifications for treating consumers as a separate class of contracting party (on this issue see further Trebilcock 1981; Ramsay 1984; Kennedy 1981). However, some authors (e.g., Alwitt 1996) have recognized that consumers appear to be disadvantaged in their exchange relationships with large businesses. Common sense suggests that consumers may suffer a lack of choice or a lack of knowledge about alternative choices when selecting certain products or services. Moreover, for exchanges involving lengthy and complex contracts, consumers may lack the time or interest to carefully review such contracts, particularly when limited purchases are planned. Lastly, consumers may lack the time, interest, and ability to effectively challenge terms they may not like and bargain for more favorable terms. For this reason, consumers often may be faced with "take it or leave it" contract terms.

In contrast to each consumer anticipating few purchases from any particular seller, each marketer anticipates a large number of sales to consumers. Marketers can therefore justify spending more resources in contract formulation than consumers. Furthermore, if consumers pay little attention to contract terms (preferring instead to focus on price and quality of the product or service), then there is little incentive for sellers to compete based on contract terms. Lastly, sellers may have a strong incentive to seek enforcement of their consumer contracts for fear they will develop a reputation for laxity that consumers will use to their advantage. …

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