Beyond the Black Box, or, When Shrouded Clauses Are Pro-Consumer

38 Pages Posted: 29 Dec 2015 Last revised: 25 Jan 2016

See all articles by Luke Herrine

Luke Herrine

University of Alabama - School of Law

Date Written: December 28, 2015


This article compares two clauses in credit card contracts providing for alternative dispute resolution (ADR). Arbitration clauses use ADR to cut off consumer remedies, while reversal clauses use ADR to expand them. Holding constant the possibility of earning extra money by exploiting consumer biases, it is argued that the coexistence of these two clauses must be explained in terms of which aspects of a firm’s institutional structure leads it to instantiate this possibility. Viewing a firm as a forum to mediate the interests of the constituencies that either own or contract with it, one can ask how the aggregate interests of a firm’s constituencies (including consumers) affect its incentives to take advantage of consumer biases. Ownership can explain the low rate of arbitration clauses in credit union credit card contracts. Contracting patterns, specifically cross-elasticity of merchants and consumers, can explain the consumer friendliness of reversal clauses. Implications for analyzing credit card contracts and consumer regulation more broadly are discussed.

Keywords: credit cards, alternative dispute resolution, arbitration, shrouded clauses, consumer contracts, contracts, ownership, nexus of contracts

Suggested Citation

Herrine, Luke, Beyond the Black Box, or, When Shrouded Clauses Are Pro-Consumer (December 28, 2015). Available at SSRN: or

Luke Herrine (Contact Author)

University of Alabama - School of Law ( email )

P.O. Box 870382
Tuscaloosa, AL 35487
United States

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