Unstacking the Deck? Contract Manipulation and Credit Card Accountability

Abstract

This Article examines and critiques the revised legal framework for interpreting and enforcing consumer credit card agreements under the federal Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. Credit card issuers have historically prepared credit card agreements in their favor in a “race to the bottom,” regardless of regulatory requirements or enforcement mechanisms. This Article argues that many reforms mandated by the CARD Act may be ineffective, or at best, incomplete, with respect to creating effective and informed contracts. Rather than addressing fundamental flaws in the credit card agreement negotiation context regarding asymmetries of information, incentives, and resources, the CARD Act generally attempts to solve problems by relying on passive disclosure processes that are based on unrealistic assumptions about individual debtors’ likely responses and existing enforcement regimes. Instead, this Article recommends establishing ex ante default rules and ex post presumptions of enforceability that align issuers’ profit incentives with the desire for meaningful and timely disclosure of material contract terms. The contractual regime’s flaws could be further remedied through mechanisms designed to demonstrate and ensure credit card holders’ knowing assent to the initial or amended terms of credit card agreements. Finally, the limits of the CARD Act could be addressed through other ex post mechanisms designed to address contractual issues after they arise, including permitting collective remedial actions with respect to similarly situated holders. These solutions are offered not as a perfect antidote to the asymmetries identified above, which may be structural, but instead as tools to assist in preventing, as well as providing redress for, outcomes that are predicated on the exploitation of those same asymmetries.

Keywords: Credit Card, CARD Act, Contract, Behavioralism, Credit Card Accountability Responsibility and Disclosure, Default Rules