The Impact of Mandatory Arbitration on the Common Law Regulation of Standard Terms in Consumer Contracts

Abstract

The focus of this paper is the regulation of standard terms in consumer contracts at common law, i.e., judges deciding cases in published opinions. In particular, I focus on the two most important common law doctrines in this area — unconscionability and good faith — and to a lesser extent on court decisions that interpret consumer statutes. They have all played a central role in regulating standard terms in consumer contracts over the years, yet their continuing role is being threatened by the proliferation of mandatory arbitration provisions in consumer contracts. If this trend continues, the ability of courts to further develop contract doctrine in consumer transactions may be severely limited. I begin with a discussion of the role that common law plays in regulating consumer transactions. I then discuss how the unconscionability and good faith doctrines have evolved as limitations on standard terms in consumer contracts. Next I discuss the increasing use of mandatory arbitration clauses in consumer contracts and the likely effects of this trend on consumer contract litigation. Toward the end of the paper, I explore what this might mean going forward if the common law of unconscionability and good faith in consumer contracts are essentially frozen in time, and if mandatory arbitration results in fewer published decisions interpreting and applying consumer statutes.

Keywords: Arbitration, Consumer, Consumer Contracts, Unconscionability, Good Faith, Bad Faith, Mandatory Abitration, Common Law