Lawyers, law professors and judges look to many resources in determining just what the law is on any given subject.  For many years, the American Law Institute (ALI) has published its view of the law in several different fields, including tort law and contract law.  After many years, it has now published and adopted its “Restatement” of the law of consumer contracts.  As creditors in the financial services industry know, consumer finance contracts are a special breed of contract.

Consumer finance contracts are by their nature contracts that few consumers read or understand the legalese.  So, over the years, courts, legislatures, Congress and regulators have developed a sophisticated regimen of protections for consumers.  The laws and regulations, and court interpretations of them, have served as guideposts or bumpers to regulate consumer financial transactions—assuring reasonable transparency and fairness to the consumer.  This is a world we have come to know and understand.

Now, the ALI has entered the picture.  After going through a lengthy effort, years in the formation, the ALI has adopted its own roadmap for consumer contract interpretation.  Just as ALI’s Restatements in the areas of tort law and general contract law have guided us (and most importantly, guided judges) in understanding the law, this new Restatement will take its place as an important resource for guidance in the area of consumer contract law.

Is this a good thing?  Depends on who you ask.

Many commentators, including States Attorneys General, general counsel of major companies and representatives of trade associations, have suggested that the ALI missed the mark in adopting this Restatement.  The primary concern that has been expressed is that the Restatement adopts or advances “public policy” that contradicts existing law.  For traditional consumer creditors, who have come to rely on their regulators’ interpretations, this Restatement can create confusion or a new understanding as to “just what the law is.” 

Certainly, consumers rarely read and almost never negotiate consumer finance contracts.  We have all come to rely on the body of federal and state law and regulation offering consumer protection to offset this reality. 

To the extent that the ALI Restatement alters the balance between consumer protection (including defenses to enforceability) and protecting the integrity of the consumer contract for the creditor, we may be entering a new era of contract interpretation.

Please Note: This is the two hundred-eleventh blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.