Unconscionability and Imperfect Information: A Research Agenda

Abstract

Many consumer protection initiatives were enacted or adopted by courts and legislatures in the United States during the 1960s and 1970s. The first major intervention, in 1960, was the Henningsen case, which held the standard automobile warranty unconscionable; probably the last was the Federal Trade Commission's rule, in 1982, that prohibited the taking of security interests in household goods, except for purchase money security. In between were the Truth in Lending Law, The Magnuson Moss Warranty Federal Trade Commission Act, the Uniform Consumer Credit Code, and additional statutes and cases. Much of this law preceded serious scholarly commentary. For example, in the Senate debates in 1967 on the Truth in Lending Law, the Bill's major sponsor, Senator Douglas, asserted that if 10% of the consumers in a market shopped for credit, these "price conscious" consumers would force firms to price competitively. At that time, no equilibrium model of price search existed: not only was there no scholarly support for Senator Douglas's 10% figure, there was no method by which to answer the question of how much consumer search is necessary to ensure competitive pricing.