Extending the Scope of the Unfair Terms Discipline in Consumer Contracts - An Economic and Behavioural Perspective

Abstract

In recent policy discussions, a need is expressed for more substantive control over terms in consumer contracts. This paper comments on one example of this expressed need, namely the suggestion to extend the scope of the fairness test to cover price and main subject matter and the discipline of unfair terms to also cover negotiated terms. This suggestion is brought forward in the Green Paper on the Review of the Consumer Acquis. Consumer protection will be viewed from a law and economics approach and discussed using insights that behavioural law and economics has added to the discussion. Standard terms are analysed more in detail, as the concept within consumer contracts that make policy makers most uneasy due to the standardisation aspect, the take-it-or-leave-it nature of the contract, and the signing-without-reading problem. It will be concluded that while implementing the suggestions from the Green Paper are undesirable. Not only is extending the scope of the Unfair Terms doctrine a too general instrument for the problems addressed; the extension will also generate adverse effects connected to consumer moral hazard, the incentive to thoroughly assess the consequences of one's actions and decisions to prevent error and the decline in available options to consumers. Even so, market failures and behavioural biases might prevent the formation of efficient consumer standard terms. Additional government intervention could be warranted from an efficiency point of view to more effectively and efficiently influence the substance of terms in consumer contracts. Policy makers might want to assess options beyond regulation, such as stimulating negotiations between business and consumer interest groups to provide default standard forms. These forms could provide an anchor for negotiated terms between business and consumers, having a welfare-enhancing effect with respect to negotiated terms as well.