Trade Groups: ALI Restatement of Law Could Have Implications for Customer Contracts

The American Bankers Association this week joined a group of other trade associations and companies in a letter to the American Law Institute Council opposing a proposed restatement of the law for consumer contracts. The restatement would create new legal rules for consumer contracts that would potentially invalidate many agreements and contract terms, create uncertainty about the enforceability and meaning of consumer contracts and encourage meritless litigation for banks and other businesses. For banks, mandatory arbitration provisions and common consumer contract terms would be vulnerable targets under the restatement.

“Restatements” are intended to be documents reflecting common law as it exists and are used by courts as guidance in making decisions. However, the proposed restatement attempts to create new rules to advance a particular policy, in effect functioning as a federal statute. Common bank agreements with consumers would be subject to new litigation challenges even if they comply with other statutory consumer protections.

The letter is consistent with longstanding ABA policy positions regarding arbitration clauses in consumer contracts and focuses on how the proposal is inconsistent with the longstanding expectation of the meaning and purpose of restatements and the consequences if adopted.