Study shows businesses benefit from using unenforceable contract terms

Meirav Furth-Matzkin and Roseanna Sommers, both of Chicago, have written Consumer Psychology and the Problem of Fine Print Fraud, 72 STANFORD LAW REVIEW___ (Forthcoming). Here's the abstract:

This Article investigates how laypeople respond to consumer contracts that are formed as a result of fraud. Across four studies, we show that contrary to the prevailing wisdom in contract law scholarship, fine print is not simply white noise. Rather, it has a significant and detrimental effect on lay consumers. We demonstrate that clauses that consumers neglect to read ex ante, at the time of signing, have a significant psychological effect ex post, when consumers discover that they were deceived about the terms of the transaction. Consumers who would otherwise complain about being cheated are demoralized by contractual fine print, and consequently decline to seek redress. This is because they erroneously assume that all contracts—even contracts induced by fraud—are binding. Our studies presented participants with cases in which a seller induces a consumer to buy a product or service by making a false representation. The false representation is directly contradicted by the written terms of the contract, which the consumer signs without reading. Our findings reveal that laypeople, unlike legally trained individuals, mistakenly believe that such agreements are consented to, and will be enforced as written, despite the seller’s material deception. Importantly, the presence of fine print discourages consumers from wanting to take legal action, initiate a complaint, or damage the firm’s reputation by telling others what happened, even when the contract contradicts what they were told. At the same time, the fact that the seller lied makes little difference to laypeople’s intuitions about whether the contract will be, or should be, enforced as written. Finally, we show that informing consumers about Anti-Deception Consumer Protection Laws alters their perceptions about the legal and moral status of contracts induced by fraud, although such information does not completely counteract their formalistic intuition that whatever the contract says is the final word. The implications of our study, we argue, are that prevailing methods for addressing deceptive business practices are inadequate because they fail to take account of consumer psychology.


0 thoughts on “Study shows businesses benefit from using unenforceable contract terms

  1. Nandan Joshi says:

    Contracts induced by fraud generally will be binding unless the consumer can prove fraud or deception. Laypeople’s intuition is a fairly reasonable one.

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