Fixing Standard-Form Contracts

Consumers are at a disadvantage when it comes to standard-form contracts – information gaps, weak bargaining power, and behavioral biases all work against them. Moreover, in the digital age, consumers do not even try to read the lengthy contracts they instantaneously approve. Manipulation by sophisticated commercial parties is therefore guaranteed. The literature offers various ways to alleviate the problem, including nudges and carefully crafted contractual default rules, but the question remains - how can the content of a consumer contract that no one reads be improved? In this Article, I draw lessons from the financial market, where shareholders and debtholders face challenges that do not fall short of those of consumers. However, in the financial market, prominent advisory entities – proxy advisory firms and credit rating agencies – assist investors to improve the terms of their “investment contract.”This Article advocates the creation of equally powerful advisory entities – contract advisors - in consumer markets, to perform a similar role. To start with, contract advisors would review and rate consumer contracts. Once enough consumers start to follow their ratings, these new entities would not only serve in an advisory role but may become powerful enough to negotiate with major commercial parties on behalf of consumers. Ultimately, contract advisors would unleash the latent power in consumer crowds in order to overcome buyer-side weaknesses. Once this vision materializes it will be the end of standard-form contracts as we know them today