Why Judicial Control of Price Terms in Consumer Contracts Might Not Always Be the Right Answer – Insights from Behavioural Law and Economics

AuthorYeşim M. Atamer
Publication Date01 Jul 2017
Why Judicial Control of Price Terms in Consumer
Contracts Might Not Always Be the Right
Answer – Insights from Behavioural Law and
Ye s¸im M. Atamer
Regulators everywhere are confronted with the question of how to react to contractual
pricing structures that serve to hide rather than reveal the real cost of goods and services
and thereby abuse limitations in the cognitive competences of consumers. Given that sell-
ers/service providers systematically make use of insights from behavioural sciences to refine
their manipulative pricing techniques, regulators should also integrate scientific findings on
human decision making to correct behavioural market failures through more tailored pol-
icy choices. A holistic approach regarding similar problems is still missing in the EU and
the issue is often disguised behind a discussion on unfair terms control, which does not
serve the purpose of finding a lasting solution. The aim of this article is twofold: first, to
show the weaknesses of an ex post judicial control of pricing techniques, and second, to
discuss policy tools which could counterbalance consumer biases on which the techniques
Looking at the case law of the European Court of Justice (ECJ) and of some
of the high courts in European Union Member States such as the United
Kingdom and Germany, it is no exaggeration to say that the control of price
terms in consumer contracts has become a major issue. Banking fees are one of
the most important terms under scrutiny. Given the global downward trend in
interest rates since 2008 this does not come as a surprise – the banking industry
has had to create new sources of income which it has found by charging
customers higher, and new types of fees. The creativity of banks is impressive
as some examples from the credit card sector show: annual fees, cash-advance
fees, balance-transfer fees, foreign currency-conversion fees, expedited payment
fees, late payment fees, over-limit fees, returned check fees, credit limit increase
Istanbul Bilgi University, Faculty of Law. This paper was drafted during my time as a visiting
scholar at Harvard Law School, 2015–2016. The research was facilitated by a scholarship from the
Scientific and Technological Research Council of Turkey (T¨
ubitak). I am particularly grateful to
Oren Bar-Gill (HLS) for the fruitful discussions and his constant support. The paper benefited
greatly from comments by Oren Bar-Gill, Hans W. Micklitz (EUI), KeremCem Sanlı (Bilgi) and the
two anonymous reviewers. Aslıhan Bulut and the HLS Library Services provided excellent research
assistance. The usual disclaimer applies.
C2017 The Author.The Moder n Law Review C2017 The Modern Law Review Limited. (2017) 80(4) MLR 624–660
Published by John Wiley& Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
Ye s¸im M. Atamer
fees, and even a no activity fee. The model of price partitioning is applied in
all types of banking contracts.1
The first reaction in most jurisdictions has come from the courts. Either
individual consumers or consumer organisations have initiated proceedings to
get some price terms in banking contracts invalidated, arguing that unfair
contract terms were used. Given that most of these price clauses were in fact
buried in small print, this approach seemed reasonable. However, Article 4(2) of
Directive 93/13 on Unfair Terms in Consumer Contracts2(UCTD) constitutes
a major obstacle. According to this provision
[a]ssessment of the unfair nature of the terms shall relate neither to the definition
of the main subject matter of the contract nor to the adequacy of the price and
remuneration, on the one hand, as against the services or goods supplies [sic] in
exchange, on the other, in so far as these terms are in plain intelligible language.
The crucial question is when exactly fees/charges need to be qualified as
relating to the subject matter of the contract and when not.
The German Federal Supreme Court (Bundesgerichtshof, BGH) decided in
May 2014 that a management fee charged by banks when concluding a con-
sumer credit contract would not fall under this exemption and could be con-
trolled, with the result that this item was found to be unfair and German banks
were obliged to pay back management fees retrospectively for a period of up to
10 years.3Stiftung Warentest, a German consumer organisation, reports that the
amount to be repaid could be as high as 13 billion euros.4The Supreme Court
of the UK however, works with a broader definition of the subject matter of
the contract.5In the much discussed decision, OFT vAbbey National plc and
1 cf for example, for Germany: S. Hofauer, ‘Bankentgelte – Was d¨
urfen Banken berechnen
und was nicht?’ (2015) Zeitschrift f¨
ur Bank und Kapitalmarktrecht (BKR) 397; the US: O. Bar-
Gill, Seduction by Contract - Law, Economics, and Psychology in Consumer Markets (Oxford: OUP,
2012) 66.
2 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ 1993,
L 95/29.
3 BGH, 13.05.2014 – XI ZR 405/12, (2014) Neue Juristische Wochenschrift (NJW) 2420; BGH,
28.10.2014 – XI ZR 348/13, (2014) NJW, 3713. According to the BGH, credit agreements are
contracts which are regulated by law, and § 488 BGB defines interest as the only consideration
for lending money.The argument of the banks that the administration fee is charged to offset the
time spent while drafting the contract, checking the credibility of the consumer, administering
the collaterals and the like was rejectedby the Court. The BGH underlined that a loan ag reement
can only have a run-time dependent pricing scheme, and all possible costs incurred at contract
conclusion must be priced in the interest rate. Any other option was found to be unfair given
that the consumer would get no reduction on a one-off payment at contract conclusion if she
made use of her right of early repayment. Besides, the Court did not agree with the reasoning
of the banks that checking the credibility of the consumer, or evaluating the collaterals was
a service offered to the consumer. According to the BGH these were all acts which would
solely serve the bank’s interest given that they would secure the repayment of the loan. If not
indicated otherwise all German court decisions can be accessed from the following database:
www.beck-online.de (Unless otherwise stated, all URLs were last accessed 7 April 2017).
4 http://t1p.de/test-bearbeitungsgeb.
5 cf for a detailed comparison of the different approaches in Germany and the UK, M. Schillig,
‘Directive 93/13 and the “Price Term Exemption”: A Comparative Analysis in the Light of
the “Market for Lemons” Rationale’ (2011) 60 ICLQ 933; M. Kenny and J. Devenney, ‘A
Comparative Analysis of Bank Charges in Europe: OFT v. Abbey National plc through the
C2017 The Author. The Modern Law Review C2017 The Modern Law Review Limited.
(2017) 80(4) MLR 624–660 625
Judicial Control of Price Terms in Consumer Contracts?
others, it came to the conclusion that overdraft charges on current accounts
contracted on a ‘free if in credit’ basis were price terms and could therefore not
be controlled based on the UCTD and the 1999 Unfair Terms in Consumer
Contracts Regulation (UTCCR).6According to the Court, 12 million UK
citizens were regularly incurring such charges.
Another type of price term which has received attention in several jurisdic-
tions is adjustment clauses, especially in long term gas or electricity contracts.
The ECJ decided in March 2013 in RWE that such a clause in the standard
terms of a gas supplier can only be valid under the UCTD if ‘the contract sets
out in a transparent fashion the reason for and method of the variation of those
charges, so that the consumer can foresee, on the basis of clear, intelligible crite-
ria, the alterations that may be made to those charges’.7The issue is discussed at
length in German literature as the BGH has tightened the requirements for the
transparency of a variation clause to an extent that no market player seems to be
able to fulfil anymore.8The decision taken on 31 July 20139following the ECJ
ruling has reportedly had an effect on approximately 40 million households as
electricity customers and 13 million households as gas customers, invalidating
the price adjustment terms and tr iggering restitution claims.10
The major question to be answered is whether the intervention of the courts
by way of unfair terms control was the correct way of solving the problem;
or more bluntly, if the problem was solved at all after these decisions. The
intuitive answer is negative. Banks as well as energy companies, and certainly
consumers, still do not know which fees can be charged, or how prices in
long-term contracts can be adjusted. A long adjudication process lasting several
years did not help to achieve more transparent standards. Legal certainty is
suffering, and recurring lawsuits to invalidate standard contract terms or to
claim restitution carry a cost to social welfare.
The aim of this paper is not to question altogether the judicial control of
terms in fine print which effect pr ice equilibrium. Judicial control is and will
remain an important weapon in the battle against unfair terms.11 However,
national legislators as well as the EU legislator could intervene in a more
targeted and efficient way in regard to some price terms, especially by making
Looking Glass’ in J. Devenney and M. Kenny (eds), Consumer Credit, Debt and Investment in
Europe (Cambridge: CUP, 2012) 210.
6OFT vAbbey National plc and others [2009] UKSC 6. For a critical appraisal of the decision see for
example M. Chen-Wishart, ‘Transparencyand Fair ness in Bank Charges’ (2010) 126 LQR 157;
S. Whittaker, ‘Unfair Contract Terms, Unfair Prices and Bank Charges’ (2011) 74 MLR 106;
S. Whittaker, ‘The Control of Unfair Contract Terms’ in J. Chitty and H. Beale (eds), Chitty
on Contracts vol 2 Specific Contracts (London: Sweet & Maxwell, 32nd ed, 2015) paras 38-224 to
7 Case C- 92/11 RWE Vertrieb AG vVerbraucherzentrale Nordrhein-Westfalen e.V
ECLI:EU:C:2013:180 (RWE) para 55.
8 A detailed overview of the German High Court decisions can be found in P. Rott, ‘The
Adjustment of Long-Term Supply Contracts: Experience from German Gas Pr ice Case Law’
(2013) 21 ERPL 717.
9 BGH 31. 7. 2013 – VIII ZR 162/09, (2013) NJW, 3647.
10 cf for the figures, U. B¨
udenbender, ‘Neugestaltung von Preisanpassungsklauseln in Energieliefe-
agen ¨
uber Elektrizit¨
at und Gas’ (2013) NJW 3601, 3607.
11 cf for example, H. Collins, Regulating Contracts (Oxford: OUP, 1999) 257-274 on arguments
why the judicial control of contracts is important as a strategy to fight unfairness.
626 C2017 The Author. The Modern Law Review C2017 The Modern Law Review Limited.
(2017) 80(4) MLR 624–660

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