From our cellphone and cable packages to our mortgages, insurance policies, student and payday loans, credit cards, bank accounts, travel tickets, software, rental cars and much more, corporations routinely seize our bargaining power and critical rights without our informed consent. Want to give away the right to use your image in a commercial endorsement? Want to gag yourself from complaining about bad service or a defective product? Want to allow a corporate wrongdoer to physically harm or steal from you and not be responsible in court because you “agreed” to costly arbitration in a faraway state? Of course not. Yet you “accept” such terms all the time.
Standard form contracts are everywhere, snaring consumers into an insidious peonage through the “tricks and traps” of fine print, as Senator Elizabeth Warren has called them. Sometimes longer than a Shakespeare play but far less readable, boilerplate contracts are indecipherable to most humans. The opportunity to negotiate does not exist. Comparison shopping for better terms is improbable if not impossible. Even if one could easily obtain the contracts upfront and undertake comparisons, corporations don’t compete on these terms. And the bad news is that, as Ralph Nader notes, “underneath all is the contract.” We should think of boilerplate contracts as “contract asbestos.” They may “facilitate” commerce by maximizing corporate efficiencies, entitlements and immunities; but as with asbestos, they are toxic to consumers. We are exposed to often invisible, rights-denying terms that may harm us years after the initial agreement.
Thanks to a series of Supreme Court decisions in favor of corporations that use forced arbitration, consumers who “agree” to such terms may lose their right to go to open court, have a jury trial, bring class actions, and vindicate their substantive rights at the federal or state level. Though small-claims court or challenges of unconscionability, fraud and duress may remain, what do we tell the person who wants to challenge predatory loan practices with others, usually poor, who have been wronged by fraudulently misrepresented, usurious rates? One bad contract can ruin someone’s credit, employment prospects and the chance to be heard in court.
The Consumer Financial Protection Bureau has the power to protect consumers against assaults in financial contracts, but since its launch in 2011, it has been forced to play defense. The Senate Republicans left CFPB director Richard Cordray’s appointment in doubt until last summer, and some continue to seek to replace his position with a commission, which would frustrate regulatory efficiency.
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The CFPB has gone on the offensive regarding mortgages, and it’s now taking on student loans, debt collection and payday loans. It should do the following with respect to fine print across all industries:
First, the bureau should finish the arbitration study it is required to conduct under the Dodd-Frank reform law. Preliminary results released in December demonstrate how little redress tens of millions of consumers have. With Congress unlikely anytime soon to pass the Arbitration Fairness Act—which would restore civil rights, antitrust, employment and consumer disputes to the courts—the CFPB should ban pre-dispute forced arbitration in all contracts it has jurisdiction over.
Second, the CFPB should require all industries it oversees to file their standard consumer contracts with the bureau and then create searchable repositories for them, much as the CARD Act of 2009 required of credit card companies. Such databases would increase understanding of the prevalence of harmful provisions. Regulated industries should be required to submit their contract forms to regulators, and businesses using boilerplate should make their contracts available at their places of business and on their websites.
Third, the CFPB should develop consumer-road-tested model contract terms. Perhaps equally important, it could identify terms that should never appear in any contract: clauses that steal consumer rights to criticize a product or service; provisions that give the vendor alone the right to change the agreement and assume consumer consent, no matter what the new terms; and waivers of liability for ordinary negligence that permit corporations with bad behavior to undermine public policies.
Finally, the CFPB should promote, as we suggest at faircontracts.org, a “fair contract” symbol, comparable to the green energy star or fair trade symbol. It would signify at a glance that a corporation’s contract boilerplate is devoid of an identified set of harmful consumer provisions. All these actions should be on the CFPB’s agenda for the new year. It’s time for consumers to reassert their rights and to regulate feudal corporate contracts.