Contracts with Consumers

Contracts with consumers are affected by consumer protection legislation in various ways.

Form of Contract

Consumer protection laws commonly regulate the form of the contract, requiring that payments under the contract to be itemized and allocation to such items as principal, interest, and insurance are to be clearly indicated; Generally, certain portions of the contract or all of the contract must be printed in type of a certain size, and a copy must be furnished to the buyer. Such statutory requirements are more demanding than the statute of frauds section of the UCC. It is frequently provided that the copy furnished the consumer must be completely filled in.

Contract Terms

Consumer protection legislation does not ordinarily affect the right of the parties to make a contract on whatever terms they choose. It is customary, however, to prohibit the use of certain clauses that are believed to unconscionable to the debtor or that have too great a potential for abuse by a creditor.

Acceleration Clauses

An acceleration clause is a contractual provision which allows the holder to declare the remaining balance due and payable immediately upon the occurrence of a default in the obligation. Parties to a credit transaction may agree that payment should be made in installments but that if there is a default with respect to any installment, the creditor may declare the entire balance due at once. This cancels or destroys the schedule for payments by making the entire balance immediately due. Such acceleration of the debt can cause the debtor great hardship. Because of this, some statutes limit or prohibit the use of acceleration clauses.

Price Gouging

Some consumer protection statutes are aimed at preventing price gouging with respect to goods or services for which the demand is abnormally greater than the supply. The New York statute provides: “During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety, and welfare of consumers, resulting from stress of weather, convulsion of nature, failure or short age of electric power or other source of energy . . . no merchant shall sell or offer to sell any such consumer goods or services for an amount which represents an unconscionably excessive price.” Consumer goods and services are defined as “those used, bought, or rendered primarily for personal, family, or household purposes.” Such a statute protects, for example, purchasers of electric generators for home use during a hurricane-caused blackout.

Inside Contracts with Consumers