“No News” is “Good News” on the Restatement of Consumer Contracts.

With consumer protection law seemingly in full retreat, sometimes no news is the best one can hope for. That was the case with the recent decision by the ALI to table a proposed Restatement of the Law for Consumer Contracts. (A copy of the proposed Restatement is available here.)

The proposed Restatement of Consumer Contracts accurately describes the pervasive nature of consumer adhesion contracts, in which individual consumers are forced to accept sometimes onerous terms that large companies include in their user agreements, or else forfeit the opportunity to utilize the service. These types of user agreements terms are utilized by all internet companies, from Google, Facebook and Microsoft to mid-size and small internet providers. The agreements typically include class action waivers, forced arbitration provisions, liability waivers and more. Skillfully drafted user agreements typically allow internet companies to flout the law with impunity; they are largely responsible for consumers’ inability to redress the widespread misappropriation of their privacy, for example.

Mutual assent has long been a requirement for contract formation. Nevertheless, the draft Restatement intended to acknowledge a purported “status quo” in U.S. law by which the terms of a consumer agreement could be adopted even without the actual consent of the consumer. Under the Restatement, despite the one-sided nature of the contracts – indeed, because of the one-sided nature of the contracts – the contracts could go into effect even without even being made available to the consumer. All that would be required under the proposed Restatement would be assent to the transaction itself; completing the transaction would then bind the consumer to terms he never had seen, and in some cases, even terms that never had been made available to him. As one extreme example, consider the following comment to the Restatement:

Subsection (b) identifies an alternative process for the adoption of standard contract terms, under which terms may be made available for review for the first time after the consumer manifests assent to the transaction. The process of replacing the opportunity to read prior to assent with a reasonable post-assent review period and termination right allows the parties to enter transactions with sacrificing any meaningful protection that advance reading of the contract bestows.

In other words, since consumers are powerless and ill-informed anyways, the basic elements of contract formation need not apply. This attitude pervades the proposed Restatement and is reflected throughout.

The Restatement’s approach ignores entirely the value of exposing the current circumstances surrounding contract formation to disinfecting sunlight. Exposing consumers time-and-again to the actual content of these adhesion contracts might, at the least, contribute to a more informed populace that might demand reform. In contrast, abolishing traditional rules of consent has the effect of validating the unfair and unequal status quo, and enshrining it into law.

The ALI proposal met with a groundswell of opposition. Elizabeth Warren called the proposal dangerous. Twenty-three State Attorneys General wrote in opposition. The authors defended their work by arguing that what they had taken away by being lenient about consent, they had given back by taking a stronger approach to unconscionability and other contract defenses. Commentators noted in response that the proposed Restatement was actually a policy document designed to say what the law should be, rather than what the law was.

The law governing consumer user agreements requires wholesale reform. It isn’t too much to say that the laws approving and enforcing these one-sided agreements contribute to the alienation that is driving polarization across the nation. Voting down the misguided Restatement seems like a small step in the right direction.

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