An obscure but influential group of legal experts shelved a vote Tuesday on a controversial proposal that critics said would bind consumers to contracts they don’t agree with or know about.
Among other things, the proposal would let online businesses impose contract terms on consumers by merely posting a link to the service agreement on their websites, without customers needing to click anything to agree to the terms. Those terms could include provisions that let companies collect consumers’ data or bar customers from suing in court.
Members of the American Law Institute – a much-consulted Philadelphia-based group of judges, lawyers, and law professors – were scheduled to vote on the proposed guide to consumer contract law during an annual meeting Tuesday in Washington. While the group’s so-called restatements of common law are not binding, the scholarly publications are enormously influential on courts and legislatures.
But the group “ran out of time” after a lengthy debate and several failed motions to amend the proposal, said Steven Weise, a Los Angeles lawyer and adviser to the institute’s consumer contract project. Members approved one section of the measure, but a vote on the rest of the restatement was postponed until at least next year, Weise said. Meanwhile, authors of the 154-page document will consider suggested amendments and clarifications.
“It doesn’t stop in its tracks. It will be on the agenda. I don’t know if it will be next year or the year after,” Weise said.
The delay comes after consumer advocates, business leaders, prominent lawmakers, and nearly two dozen state attorneys general criticized the proposal for a variety of reasons.
The proposal seeks to clarify how courts have applied contract law to modern transactions such as online purchases.
The authors of the draft restatement – three law professors from Harvard, University of Chicago, and New York University -- argue that the express consumer approval required in classic contract law is outdated because customers often don’t read the long and complex terms. Instead, the draft restatement emphasizes rules that strike down “unconscionable” or “deceptive” contract terms to offer consumer protection.
“In a world of lengthy standard forms, which consumers are unlikely to read, more restrictive assent rules that demand more disclosures, more notifications and alerts, and more structured templates for manifesting assent are unlikely to produce substantial benefit for consumers,” the authors wrote.
The draft was widely panned by consumer advocates, who said it would weaken the requirement of an express consumer agreement, without offering enough protections from unconscionable contract terms. Critics of the proposal include U.S. Sen. Elizabeth Warren (D., Mass.) and 23 state attorneys general, including Pennsylvania’s Josh Shapiro and New Jersey’s Gurbir Grewal.
“We believe that weakening the requirement of mutual assent is not only contrary to fundamental principles of contract law but will encourage a veritable race to the bottom, as market forces will drive businesses – which will know they can bind consumers to all but the most odious terms – to draft standard form contracts with egregiously self-serving terms,” said a letter signed by the attorneys general.
Meanwhile, industry groups including the American Bankers Association and the U.S. Chamber of Commerce called the proposal “fundamentally flawed” because it treats consumer contract rules differently from general contract law. In a January letter, trade groups representing restaurants, real estate firms, banks, and more said the proposed rules “consistently operate to the detriment of a business contracting with a consumer.”
Among other issues, industry leaders say the proposal’s definition of “deception” could lead to a lot of litigation. For example, salespeople making promises that conflict with what’s written in the contract could be considered a deceptive act. That means mere mistakes could undo a lot of contracts if the proposal is adopted, said Ballard Spahr lawyer Alan Kaplinsky.
“Let’s say the salesman makes a mistake. He says there’s a three-year warranty and it turns out it’s not three years, it’s really two years,” Kaplinsky said. “He wasn’t intending to defraud the consumer. He just made a mistake. That evidence would be admissible because that would qualify as deception in a lot of states.”