Consumer Contract Laws

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 What Is a Consumer Contract?

A consumer contract is defined as a legally binding agreement formed between a merchant and a consumer. Consumer contracts can be created either through a verbal agreement, a written contract, or implied conduct (e.g., purchasing a hair dryer at a pharmacy).

Adopted (at least in part) by all 50 states and the District of Columbia, the Uniform Commercial Code (“UCC”) includes all details of the laws that govern consumer contracts. Under this code, a “consumer” is an individual who purchases goods and/or services for personal use. “Merchant: is defined as an individual who deals in goods associated with their specific trade or has special knowledge or skills related to the goods and/or services in the contract.

In general, consumer contracts typically involve one of the following three promises:

  • A promise to supply services;
  • A promise for the sale of goods
  • A promise to provide digital content (e.g., a combination of services and goods. For example, if a consumer purchases a laptop and that laptop comes with an offer for one full year of free repair services, then the consumer has entered into a consumer contract that contains both goods and services)

Another example of when a consumer contract may include mixed purposes is when a consumer purchases workout equipment for their home. If the consumer purchases a treadmill, there may be an option to add repair services for a reduced price.

What Are Some Unique Features of Consumer Contracts?

When negotiating consumer contracts, the law and the courts assume that merchants are generally more business savvy than the average consumer and thus have a stronger bargaining position.

Because of this, consumer contracts are governed by stricter regulations than standard contracts between merchants. The primary purposes of consumer contract protection laws are to prevent merchants from taking advantage of consumers’ relative naivete, as well as to make it easier for consumers to understand the contents of their contract with the merchant.

State and federal legislatures have enacted several consumer protection laws to protect consumers from merchants to combat the potential for injustice. Examples of consumer contract protection laws include:

  • Form of Consumer Contracts: The “form” of a contract essentially describes how a contract appears to the parties and how it is structured. State consumer protection laws often regulate how consumer contracts appear to the consumer to ensure that they can be easily understood. For example, there may be specific rules on what size font can be used when drafting consumer contracts and how certain items or prices should be presented.
  • Acceleration Clauses: Acceleration clauses are typically found in installment contracts. This contract clause begins with an agreement to make monthly payments to the merchant until the remaining portion of the contract is paid. In the event of a default, an acceleration clause will require a consumer to pay off the balance immediately. For instance, if a consumer is paying monthly installments on a car and misses several payments in a row, this could trigger an acceleration clause, and the consumer would be obligated to pay for the entire car immediately. Since this could have serious financial repercussions for a consumer, many states have consumer contract laws that prohibit the use of such clauses in consumer contracts.
  • Anti-Price Gouging Measures: “Price gouging” occurs when a merchant takes advantage of changed market conditions by heavily marking up items and charging exorbitant prices. For instance, after a natural disaster like a flood or hurricane, a merchant may raise the price of bottled water or canned goods since these products will be in great demand. This is where state protective consumer contract laws kick in and prevent merchants from charging “unconscionably excessive” prices.
  • Contract Terms: Parties are usually free to include any contract terms that the parties agree upon. There are some exceptions to this general principle, however, such as when a specific term would be unfair to the consumer if it was included in the contract or could potentially be abused by the seller. A court will strike down those contract terms. They will not be enforced.
  • Consumer Review Fairness Act (“CRFA”): The CRFA was passed by Congress in 2016 and protects consumers’ ability to share their honest opinions about a service or product, including on social media. Specifically, the CRFA makes it illegal for a merchant to insert any of the following provisions in a consumer contract:
    • A provision that bars the consumer’s ability to review a merchant’s services, products, or behavior
    • A provision that imposes a fee or penalty against a consumer who writes a negative review

When consumers give reviews, the CRFA requires them to surrender their intellectual property rights to what they have said or posted.

What Are the Consequences for Violations in a Consumer Contract?

Various consumer protection laws heavily regulate consumer contracts. Thus, if a merchant violates a consumer contract, they could face several serious legal consequences.

For instance, depending on the type of consumer contract violation, the contract could be declared null and void. This means that the contract will immediately become invalid without further analysis. In some cases, a court may decide that only certain portions of the contract are invalid or that the contract is voidable, not void. Regardless, void and voidable contracts must be either canceled or at least redrafted.

Some other types of consequences that may arise from violation of a consumer contract include:

  • Monetary damages
  • Civil and criminal fines (e.g., for fraud)
  • An injunction to do or refrain from doing some action promised under the contract

Last, it is important to note that both federal and state consumer laws regulate consumer contracts. The merchant can be punished in both systems. Thus, a defendant in a consumer contract case can receive two separate sets of penalties, depending on the facts of their case and which laws apply.

Do I Need a Lawyer for a Consumer Contract?

One issue that frequently arises when dealing with consumer contracts is that consumers might not even be aware that their rights have been violated because they are often so complex. Consequently, when a consumer has discovered the violation, it may be too late to file a contract claim. It is, therefore, very important to understand all of the details of the arrangement. Thus, it is strongly recommended that you speak to a local contract attorney before signing a consumer contract.

An experienced contract attorney can review the terms of your consumer contract and make sure that you are not signing away important legal rights. Additionally, your lawyer can explain the meaning of each clause in the contract, as well as ensure that you understand what obligations you have agreed to under the contract.

One of a lawyer’s most valuable services is the ability to negotiate with the other party. Often, the parties to the contract have strong emotions about the breakdown in their relationship, and since they no longer trust one another, they may react emotionally to attempts to work something out between them. By keeping a professional tone, a lawyer can help you get the best result possible.

If negotiations are unsuccessful and it becomes necessary to sue the merchant, your lawyer can help you file a lawsuit in the appropriate court, prepare other necessary legal documents for your case, and provide representation in court.

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