11.2 Consumer Contracts

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

11.2 CONSUMER CONTRACTS

11.201 Introduction.

A. What Could Be the Half of a Baker's Dozen Biggest Consumer Contracts. Perhaps the seven biggest contracts into which consumers enter are: purchasing a home, obtaining a mortgage, getting homeowner's insurance, buying a car, choosing car insurance, finding a loan for a college education, or paying for a wedding, which may include separate contracts with photographers, caterers, and numerous other vendors. Many of these types of contracts have traditionally had little, if any, consumer protection laws that applied to them.

When buying a home, for example, consumers have few consumer protection laws to safeguard them. The old maxim of caveat emptor (let the

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buyer beware) still applies. ⁴⁷ Intelligent consumers should have an experienced attorney familiar with at least real estate law to review the contract used by their real estate agent. Consumers should interview the neighbors of the property owner to inquire about the property's history in order to be aware of any drainage problems or flooding on the property or in the area; understand what load-bearing walls are; know what French drains and sump pumps do; hire a home inspector; and take the time to know whether the inspector has liability insurance and its limits and exactly what portions of the house the inspector is agreeing to inspect.

Recent changes in the law and regulations now require pre-inspection agreements (Home Inspection Contracts), thus (hopefully) eliminating the problem of consumers not seeing what the inspector was agreeing to do until they got the home inspection report. ⁴⁸ Home inspectors' contracts often permit "sampling," and require only that the inspector look at what can be seen or readily gotten to. For example, has the inspector agreed to look inside a wall to see if a load-bearing wall that had been partially removed for an addition or to provide more open space is being properly supported? Thus, consumers may be getting much less of an inspection than they think. And the consumer may need to hire an experienced licensed contractor or structural engineer to ensure that their house does not have hidden structural problems. The lawyer or consumer interested in these topics should look at the inspection regulations and at Real Estate Transactions in Virginia (Virginia Law Foundation 2015) or A Guide to Real Estate Law in Virginia (Virginia Law Foundation 2018).

When obtaining a mortgage, car loan, ⁴⁹ or student loan, significant changes have occurred as a result of problems that surfaced during the first decade of the twenty-first century. The Dodd-Frank Wall Street Reform and Consumer Protection Act ⁵⁰ in Title X, known as the Consumer Financial Protection Act of 2010, established the Consumer Financial Protection

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Bureau (CFPB), ⁵¹ an independent agency funded by the Federal Reserve System. This bureau regulates the offering and provision of consumer financial products, services, and practices under seventeen different federal consumer financial laws. Numerous financial and housing regulators transferred their consumer financial protection functions to this Bureau. ⁵² The CFPB conducts regular examinations at large banks (those with greater than $10 billion in assets) and non-bank financial services companies in specific markets, including automobile finance, consumer reporting, credit card account management, debt collection, education loans, mortgage origination and servicing, prepaid cards, remittance transfers (commonly known as wiring money abroad) and short-term, small-dollar lending (commonly known as payday lending). ⁵³

Even beyond its examination authority, the CFPB investigates and takes enforcement action against providers of financial products or services. The bureau has the authority to issue civil investigative demands (subpoenas) to gather relevant documents and testimony, conduct hearings and adjudication proceedings, and commence civil actions in federal court seeking any appropriate equitable or legal relief, including restitution and civil monetary penalties, against any person that violates a federal consumer financial law. ⁵⁴

In support of its consumer protection mandate, several of the bureau's statutes enable it to promulgate rules and regulations regarding, for example, debt collection, payday lending, and prepaid cards. The bureau has been active taking and publishing complaints about mortgages, car loans, credit cards, payday loans, credit reporting, debt collection, and student loan practices. While leadership changes at the CFPB have brought differing perspectives on the costs that these regulations impose on industry versus the benefits they provide to consumers, ⁵⁵ the CFPB's core functions of enforcement, supervision, rulemaking, and consumer education remain intact and the bureau nevertheless remains active in all four functions.

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When paying for a wedding, consumers again have a dearth of consumer protections laws to help protect them when entering into typical wedding-associated contracts. Again, an experienced lawyer or a savvy consumer is needed to protect consumers' interests. For example, an attorney familiar with copyright law is recommended for dealing with photographers. It is very common for consumers to feel they have been taken advantage of by the wedding photographer that they hired. The bridal couple or their families often believe that because they are the subjects of the photos, or because they are the ones who hired the photographer, they are the ones who hold the copyright to the photos. While that is the law in a number of other English-speaking countries, it is, in fact, just the opposite under U.S. laws. Those copyrights are typically owned by the photographers (or their businesses), not the persons photographed. ⁵⁶

Some wedding photographers, in their contracts, give the bridal couple a license to make personal, noncommercial uses of their wedding photos. The couple especially want this if they expect an electronic copy or flash drive containing the high-resolution files of all their pictures or wish to post or send their pictures by way of the Internet. A license, in this case, means the couple can print copies themselves, post their pictures on Facebook, and send them to their friends without asking for permission and without violating the photographer's copyright. If the couple cannot get this license, they should ask for a Creative Commons. A Creative Commons is a system that allows creators to attach a license to their work that gives certain permissions to the whole world. While there is more than one type of Creative Commons license, the couple can accept a license that merely requires that whoever uses the work must attribute the content to the creator and provide a link back to the original. ⁵⁷

Insurance contracts for the consumer's home can be problematic. They need to be read carefully by a lawyer or a consumer who is willing to take the time to be educated as to what the various clauses mean. Some low-budget home insurance contracts require that the homeowner rebuild or make repairs to a home before being reimbursed by the insurance company, which is an impossibility for many poor, middle-class, or elderly consumers.

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Car insurance contracts also must be read carefully by a lawyer or a consumer who is willing to take the time to be educated about the various clauses. For example, consumers need to understand what uninsured/ underinsured coverage means. And they need to know that carrying the minimum insurance required by the Virginia Financial Responsibility Law ⁵⁸ or paying the Department of Motor Vehicles the fee in order to drive uninsured ⁵⁹ is a big mistake should they be involved in an accident with serious injuries. Uninsured/underinsured driver coverage is often inadequate when the consumer is in an accident with a driver who carries insufficient car insurance and the consumer has insufficient uninsured/underinsured coverage. The old maxim "the more you have to protect, the more car insurance you need" is true. The consumer can never be certain that a driver who causes injury will have insurance, or enough insurance, to make the consumer whole. Having the ability to buy additional uninsured/ underinsured motorist coverage gives the consumer control over his or her own financial security. Typically, the amount of uninsured/underinsured motorist coverage purchased will equal the amount of liability coverage unless the consumer specifically requests a lower amount. Thus, there are great reasons for consumers to raise their car's liability coverage and uninsured/underinsured coverage. ⁶⁰

B. Other Consumer Contracts. Of course, there are numerous other consumer contracts. These contracts can involve personal, family, or household transactions. Other examples include contracts for food, clothing, housing renting, transportation, vacations, communications, and other consumption.

C. Where Protections for Consumers Can Be Found. Consumer contracts and consumer contract law address the rights and remedies of the parties regarding, for example, contract inducements, practices, warranties, credit, and remedies for breach. Consumer contracts often involve terms discussed in other chapters of this book. These terms may also be affected by federal and state consumer protection laws establishing additional contractual terms, procedures, substance, and remedies.

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Accordingly, consumer contracts are affected by both the common law and the consumer protection statutes. Under the common law, consumer contracts are affected by misrepresentations in the context of fraud and constructive fraud. Under the consumer protection statutes, consumer contracts are affected by nondisclosures and by deceptive, unfair, monopolistic, and unconscionable business practices. Examples of these statutory requirements include state and federal standards for truth in lending, warranties, and...