Document Type

Article

Publication Title

Houston Law Review

Volume

59

Publication Date

2022

Keywords

Contracts, consumer finance, consumer contracts, consumer protection, commercial law, uniform commercial code, warranty, unconscionability, consumer law, product liability, consumer financial products

Abstract

The history of consumer goods and consumer credit markets pre-sents an anomaly: market transactions for consumer goods and credit transactions evolved in tandem from face to face and bespoke to standardized and widely distributed; the law governing these “product” markets has not. With consumer goods, the Uniform Commercial Code codifies implied warranties of merchantability and fitness for a particular purpose, and the common law of tort provides strict liability for defective products. With consumer fi-nance contracts, borrowers enjoy scant common law protection. And yet both consumer goods and consumer contracts may be danger-ously defective “products.”

This Article reconsiders the traditional, all-or-nothing choice be-tween tort and contract law to govern injury from different sorts of consumer products. It argues for a symmetric treatment of defective consumer goods and consumer financial products, one accom-plished by turning to the tort-like doctrines in the common law of contract: the doctrines of unconscionability; good faith; and war-ranty. The terms of an adhesive financial contract should be inter-preted in light of an implied warranty that the contract-as-product is as described. The defense of unconscionability should be strengthened to enable enhanced scrutiny of terms that fundamen-tally undermine contractual products. Its procedural prong should be satisfied by the adhesive nature of the terms, without additional proof of the circumstances of a consumer’s surprise about the con-tents of the contract. The substantive prong should be informed by implied obligations of good faith and the implication that this con-tract-as-product is fit for ordinary and particular purposes – that it is faithful to the underlying transaction. Attempts by lenders to dis-claim implied warranties or obligations of good faith should be viewed as prima facie unconscionable.

In this way, the law governing consumer-contracts-as-products would serve the same function as the product liability and warranty laws that govern consumer-goods-as-products. Reconciliation of these laws would ensure that financial contracts are fit for their or-dinary purposes as loans.

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