Benefits of Preapproval by the Attorney General of Consumer Contracts

December 30, 2010

In 1993 Pennsylvania signed into law the Plain Language Consumer Contract Act (PLA). The PLA requires any "consumer contract" to meet a test of readability, meaning it is easy to read and understand, which takes into account both the contract’s language, form and design. The Act covers any contract with an individual except contracts over $50,000, securities, insurance, real estate, commercial leases, and documents by financial institutions regulated by certain other state and federal laws. Notably included in the definition are residential leases. In addition to the requirement that language be easy to read and understand, the Act imposes certain other language requirements to be included in consumer contract. For example, a contract must state if the party doing business with the consumer retains a security interest, and that the consumer may lose certain property if he or she does not fulfill the obligations under the contract.

If a seller or lessor violates the PLA’s test of readability, the violation triggers several damages imposed by the Act. Damages include compensation equal to actual loss suffered by the consumer, statutory damages of $100 or if the contract is less than $100 the amount of the contract, court costs, attorney’s fees and "any equitable and other relief ordered by the court." 

The Act provides one important exclusion from liability, and that is a seller or lessor’s "good faith" attempt to make a contract that meets the test of readability. Obtaining Office of the Attorney General (OAG) preapproval of a contract qualifies as such an effort. The OAG will not approve the substance of the contract, but will vouch for the contract’s readability by a consumer. A provision of a lease may still be illegal, but if preapproved by the OAG, its illegality is easy to understand. 

Given the benefits contract preapproval, why do so few sellers or lessors obtain preapproval of their contracts? Most likely because sellers and lessors don’t know they can. There has yet to be significant litigation under the Act which has led to little awareness of its presence. Consumers who are not paying under contracts are also unlikely to be able to afford the costs of litigating a violation of the PLA. Litigation does not need to arise, however, to make preapproval of a contract beneficial. An attorney may counsel a seller or lessor to not pursue seeking payment under a contract if the argument is made that the consumer did not understand a provision of the contract and the contract was not preapproved. If this happens just one time it is worth the time and effort to have a contract preapproved. The OAG does not charge a fee to preapprove the contract.

One of the most significant groups of people that are subject to the Act are those leasing residential properties. A landlord who owns a few units, as opposed to a large-scale property management company, may be using an old lease or one pulled off the Internet that includes several archaic legal terms. If this is the case a landlord may find him or herself defending the readability of the language of the lease. Leases preapproved by the Attorney General, like the one used at our firm, provides an immediate defense. If additional provisions are added or changed to modify our preapproved form, the additional provisions can be submitted for OAG preapproval.

If you are a seller or lessor and have questions about having a contract or lease reviewed and submitted for preapproval, please contact our firm.