On June 23, 1993, the Plain Language Consumer Contract Act (the "Act") was signed into law in Pennsylvania. This law requires many lenders, retailers and landlords to redraft their loan, sale, lease and other agreements.
The objective of this Act is to protect consumers from making contracts that they do not understand, as well as to aid consumers in better understanding their rights and duties under such contracts. By passing this Act, the legislature hopes to promote the writing of contracts in plain language.
What contracts are covered by this Act? Basically, any contracts between a consumer who borrows, buys, leases, or obtains credit, money, services or property, real or personal, and a party acting in the usual course of business are covered. The product or services must be predominately for household, family, or personal uses. Moreover, these contracts must be made, solicited or intended to be performed in Pennsylvania after June 23, 1994.
However, various transactions are excluded from coverage by the Act. One of these principal exemptions exists in the real estate arena, covering conveyance documents and contracts, deeds and mortgages, certificates of title and title insurance contracts. Other important exemptions include contracts with any federal or state regulated financial institutions or any of their affiliates, as well as contracts subject to examinations by the Pennsylvania Public Utility Commission or the Federal Energy Regulatory Commission. Additional exceptions include: commercial leases; marital agreements; contracts involving amounts of more than $50,000; contracts to purchase securities; and insurance policies and contracts.
The Act contains a number of language, as well as visual guidelines, as set forth below. Courts are to consider these guidelines in determining whether a contract meets the requirements of being easy to read and understand.
Contracts should use:
- short words, sentences and paragraphs;
- active verbs;
- commonly understood meaning of words, if the contract defines words;
- type size, length and spacing so that they will be easy to read;
- ink that contrasts sharply with the paper used in the contact;
- personal pronouns, actual or shortened names of parties, the terms "seller" and "buyer" or the terms "lender" and "borrower," when the contract refers to the parties to the contract.
Contracts should not use:
- technical legal terms, other than commonly understood legal terms, such as "mortgage," "warranty" and "security interest;"
- Latin or foreign words;
- more than one condition in a sentence;
- cross references, except ones that briefly and clearly describe items being referenced;
- double negatives or exceptions to exceptions.
The Act further requires that consumer contracts must contain statements describing what property will serve as collateral for a transaction and any waiver of a consumer's rights in residential leases.
Any creditor, seller or landlord who violates the Act will face penalties and damages, including the following: any actual damages resulting from a violation of the Act; court costs; reasonable attorney's fees; statutory damages of up to $100; or any other relief ordered by the court.
If you are a lender, retailer, landlord, or other business person involved in consumer transactions, you need to determine compliance with the Act. You should review and revise loan, sale and rental agreements and contracts, to ensure that they meet the requirements of the Act. You should follow the guidelines set forth above and consult an attorney at Grim, Biehn & Thatcher for more details and advice specific to your circumstances.