Yesterday, former Director of the Consumer Financial Protection Bureau Richard Cordray wrote to the Director of the American Law Institute Richard Revesz opposing the controversial draft Restatement of the Law of Consumer Contracts. The Restatement will be voted on tomorrow by the ALI's membership. Here are excerpts from Cordray's letter:
I write to express deep concerns about the American Law Institute’s Tentative Draft Restatement of the Law, Consumer Contracts. I write as former Director of the U.S. Consumer Financial Protection Bureau and former Ohio Attorney General, two positions where I was tasked with protecting consumers. In my view, the Tentative Draft would endorse principles of law that would facilitate malefactors in mistreating and harming individual consumers. *** The Tentative Draft Restatement is deeply troubling because it undermines contract as a meaningful protection for consumers. It would bind consumers to all of a business’s “standard terms”—that is, to all the terms of a contract of adhesion if the consumer: (1) had notice of and opportunity to review the terms of the contract and (2) indicated assent to transact, though not necessarily assent to the particular terms. Under the Tentative Draft’s rule, a consumer could readily be bound to terms the consumer does not comprehend and to which the consumer would never knowingly consent, such as unilateral modifications; class action waivers; commitment to resolve disputes through binding mandatory arbitration; and broad privacy waivers allowing tracking of consumers’ internet browsing, the use of facial recognition technology, and the further sale or distribution of the resulting personal information. The Tentative Draft’s approach is inconsistent with the fundamental basis of contract law, namely that contracts are enforced by law because they are presumed to result in mutual gains from trade and thereby enhance social welfare. Such mutual gains can only be assumed to exist if the parties knowingly agree to the terms of the deal.