Distributive Consequences of Regulating Boilerplate: Between Price Effects and Socialization of Risk

This chapter is about the distributive impact of boilerplate contracts. Specifically, this chapter scrutinizes the role that Consumer Unfriendly Terms (hereinafter “the CUTs”) play in the distribution of wealth and risk in consumer society, including e-commerce. It nuances the view dominant in some sectors of legal scholarship, according to which it is the least affluent consumers who benefit from the lack of regulation of standard terms (as the prices are lower, and more people can afford the product). The chapter argues that such an account ignores the fact that the poorest consumers – unlike the affluent middle class – often do not have the ability to internalize future damages, should an accident occur.Consequently, regulation of boilerplate contracts, guaranteeing consumers a right (and the factual ability) to seek damages (by, e.g., voiding clauses excluding liability for torts or class action waivers) could be seen as a mandatory, collective “insurance,” where all consumers chip in a little for the benefit of the future injured party. The current situation in the American contract law, i.e., the validity and enforceability of the CUTs, works in the opposite direction – we all pay a slightly lower price while accepting that once someone gets injured – and someone will get injured – their chances of taking a dispute to court and being compensated are lower than if the default rules were not contractually modified. The problem is that, for some, this will be just a minor nuisance, while for others, it might be a life-ruining event.The problem of the “CUTs” precedes the internet and the growth of e-commerce in the last two decades. Yet, the socio-technological changes intensify the CUTs’ consequences while simultaneously offering a chance to combat them better. Large parts of our lives – from communication, travel, and shopping to dating and entertainment – are currently mediated by online platforms (whose boilerplate one needs to accept to use them). Further, the ability to purchase goods and services from all over the country (and the world) has increased due to the internet assuming a central role in our lives. Hence, on the one hand, we are bound by many more contracts than we used to be in the 20th century, with parties located much further from us than when the current legal doctrines were forged. On the other hand, the ability for firms to compete with one another (also on boilerplate clauses) has significantly increased.The primary goal of this chapter is to get the idea across: through unregulated boilerplate, lowering corporations’ future costs and thereby retail prices, the poorest consumers subsidize the middle-class risk-wise, on top of benefiting from short-term lower prices. This is contrary to the basic principle of social solidarity. Now, what the regulatory consequence of this idea should be – whether the government should intervene and in what way – is a political question. I survey the possible reactions – ranging from regulation, over the reinterpretation of common law doctrines, to market solutions – in Part 3. In Part 2, I critique the mainstream distributive narrative surrounding the CUTs and offer an alternative. In Part 1, I begin by looking at the philosophy of consumer law in the US and EU, demonstrating how assumptions behind American contract law are neither necessary nor necessarily optimal.