Posted by Neil H. Buchanan
In my new FindLaw column, available here, I continue my recent discussion of the inextricable role of government in making it possible for a country to benefit from a market economy. I focus on the proposed Consumer Financial Protection Agency (CFPA), the brainchild of Harvard Law Professor Elizabeth Warren that would rein in predatory lending and would be designed to allow regular people to engage in responsible borrowing.
My argument in that column is that those who oppose the CFPA on the ground that it inappropriately injects government into private transactions are simply incorrect. Private transactions, and especially loans, are only possible (or appealing) because they are enforceable by government. There is a regulatory system in place that shapes the market for consumer loans, and that system is currently very pro-lender. (I do not even mention the change in the bankruptcy law in 2003 that tilted the playing field even more decidedly in favor of lenders.)
In passing, I mention in the column that it is especially appalling to claim that we can expose the average American to the tender mercies of the consumer loan market when we as a society have failed so abysmally to educate so many of our citizens. If the social Darwinism of our time insists that people must read the contract and protect themselves, then that makes it all the more important that we make sure that they receive the education necessary to be able to understand a contract when one is offered.
This observation might lead us to propose an expansion of the doctrine that provides a defense in contract on the basis of mental deficiency (similar to the doctrine of "infancy," in which anyone under 18 cannot be held to a contract -- even though they can enforce a contract against others). We could essentially say to Congress: "Either give people a decent education, or give them the ability to protect themselves against their own ignorant errors in daily commerce." As initially appealing (or, perhaps, rhetorically delicious) as that idea might be, however, it ultimately misses several key points.
First, as I note in today's FindLaw column, even educated people do not read contracts. Because I am a Contract Law professor, I go out of my way to read as many contracts as I can, but I click through licensing agreements as fast as anyone. The presumption that we could have a system of contract with fewer or no equitable defenses if only everyone had a J.D. is fatuous. Contracts are often inherently complicated and often require more education than could reasonably be provided to the vast majority of citizens. (The consumer loan contract in Williams v. Walker-Thomas Furniture, the famous "unconscionability" case, is a great example of a contract that is impenetrable even after multiple readings by people with years of higher education.)
Second, the classical ideal of face-to-face, issue-by-issue negotiations that underlies contract law is simply inapt for the modern economy. Acting as if we can simply give people better educations and then send them out on their own in a world of basic contract law ignores the change that mass consumerism wrought on the notion of contracting. Contracting is now too expensive to be done the old fashioned way. When the assembly line replaced individual craftsmanship, non-negotiated contracts replaced old-fashioned customized contracts. The law has never really caught up to that change, notwithstanding Llewellyn's best efforts. Pushing the education angle inadvertently pushes us back in the direction of this outmoded way of thinking about contracting.
Finally, third, the "either educate them or protect them from harsh contract outcomes" approach would almost certainly lead to a disastrous conclusion: that it is much cheaper to change the law of contracts (to treat adults as if they were infants or mentally defective) than it would be actually to educate them. In fact, it would not ultimately be cheaper, because the choice to give up on people's education would undermine future economic prosperity. However, in exactly the same way that going cheap on bridge repairs looks financially appealing until it is too late, the high cost of failing to educate people would not be obvious until it is much too late. (The non-economic benefits of education are arguably even more important.)
When I was clerking in Oklahoma (which at the time ranked 45th in the country in overall educational attainment, if I recall correctly), I discovered up close what a truly uneducated populace is like. Commerce simply did not work as smoothly as in other places that I have lived. One consequence of mass ignorance, moreover, is that education is not respected. As one prominent Oklahoman put it to me, with an exaggerated and sardonic twang: "We're just too dumb to educate ourselves." We must always resist any temptation to make it seem acceptable to keep people in ignorance.