Consumer Protection without Law: Can One-Way Contracts Provide Better Consumer Protection Than the Current Enforcement-Based Regime?

By Ben-Shahar, Omri | Regulation, Summer 2010 | Go to article overview

Consumer Protection without Law: Can One-Way Contracts Provide Better Consumer Protection Than the Current Enforcement-Based Regime?


Ben-Shahar, Omri, Regulation


Suppose standard-form contracts between businesses and consumers were "one-way contracts," enforceable only against one party, not the other. You probably think that I mean they would be enforceable only against businesses, not consumers an extreme version of the consumer protection approach that has been percolating broadly. But I have in mind the opposite one-way contract, enforceable only against consumers, not against businesses. Consumers would be bound by contract, unable to escape any of their obligations or the fine print; they would have to pay the contract price, the hidden fees, abide by any restrictive provisions (as long as they are legal), commit to the full term of the service, and so on. Businesses, on the other hand, would not be legally bound to anything they promised, and aggrieved consumers would be unable to legally enforce any of their rights that appear in what we normally think of as the "contract"--not timely delivery, not the return policy, not the warranty, not even the conforming delivery itself. There would be no court-imposed remedy whatsoever.

How in the world can this make sense, even as a thought experiment? The reality of the market is already such that businesses have greater power and sophistication than consumers. Surely, consumers--not businesses--are the ones who need protection. Consumers are less informed, less well funded, plagued by collective action problems, and overall less able to secure compliance with their side of the bargain. If anything, contract law should remedy this asymmetry, not reflect it. So why should we consider stripping consumers of the power to sue for breach of promise, thus further disarming them vis-a-vis their mighty business opponents?

I argue that the concept of one-way contracts is a useful device to deliver two essential insights. The first insight is a descriptive metaphor, capturing much of the reality of business-to-consumer relations. The second insight is normative, suggesting that further gravitation toward a one-way contracts model could actually benefit consumers. Rather than augmenting the legal remedies that consumers have under contract law (the stated goal of much consumer protection advocacy), we should think of other mechanisms that monitor business-to-consumer relations, which--unlike contract law--actually work.

THE PROBLEM WITH CONSUMER-TO-BUSINESS CONTRACTS

What can a consumer do when the business with whom he transacted breaches the deal? What if the business does not perform its obligation by, say, refusing to make good on a warranty or return policy? The prominent solution in contract law is enhanced enforcement. Consumers are able to file suits, seek remedies, and even to aggregate claims into class actions and secure substantial recoveries. But the impediments in the contractual setting are significant. Most claims are low value and are not worth the time and cost of legal proceedings. The ability to file large class action claims applies only to systematic violations. When the individual claims are small, members of the class are hard to identify and only a small compensatory effect is achieved. There is a non-trivial problem of separating the meritorious from frivolous shakedown suits. The fact is that despite a broad push for class litigation in state consumer protection laws, there is a prevailing sense that the consumer's plight has not been answered by litigation.

Bolstering consumer protection through contract law runs into the additional problem that businesses can draft contracts that circumvent legal protections. For example, if the law tries to offer additional protection to consumers by increasing remedies, businesses can conspicuously limit the remedies. If the law installs procedures securing access to justice, businesses can draft their way out of court through choice of law and mandatory arbitration clauses. If the law finds such arbitration clauses unconscionable and vacates them, businesses make incremental changes to the clauses so as to make them legally tolerable. …

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