In June of 1993, the Plain Language Consumer Contract Act was signed into Pennsylvania law, adding the commonwealth to a long list of states that had passed similar legislation in years prior. Commonly referred to as the Plain Language Law, the act aims to protect consumers from signing contracts they do not fully understand, and to educate consumers on their rights and duties under such contracts.

At the time of its enactment, the legislature believed businesses were purposely designing contracts in a manner that prevented the average person from fully comprehending the terms. Basic lease contracts, for example, were full of legal jargon, making it difficult to determine a responsible party in the event of a dispute.

Despite the original intent of the Plain Language Law, the requirements of the statute are not typically followed by businesses and individuals—primarily because they are unaware of its existence. Moreover, the Pennsylvania attorney general specifically designed a packet of materials to help aid the contract pre-approval process, but the materials are still widely underused two decades later.

In an effort to ward against potential liabilities, contract holders are urged to educate themselves on the provisions of the Plain Language Law, and to consult professional legal support when appropriate.

About the Law

In general, the Plain Language Law applies to any Pennsylvania contract through which a consumer:

• Borrows money;
• Buys, leases or rents personal property, real property or services for cash or on credit; or
• Obtains credit.

Based on the criteria above, contracts that are governed by the Plain Language Law include residential leases, retail sales contracts, home improvement contracts, vehicle leases and more. There are several exclusions, however. Excluded contracts include real estate conveyance documents, mortgages, contracts to buy securities, insurance contracts, marital agreements, commercial leases and consumer contracts involving amounts of more than $50,000.

Though the application may seem fairly straightforward, contract holders should take caution when designing binding legal agreements. Those who violate the act will face penalties and damages, including responsibility for any actual damages resulting from a violation of the act; court costs; reasonable attorney fees; statutory damages of up to $100; or any other relief ordered by the court. In addition, a consumer may use the Plain Language Law as a defense in of a dispute. Lack of compliance will not invalidate the contract; however it can be used by a consumer to demonstrate that he had no understanding of the terms of the contract. A violation of the Plain Language Law is also considered to be a violation of the Unfair Trade Practices and Consumer Protection Law (73 P.S. Section 201-1 et seq.) which permits triple damages for violation.

How to Stay in Compliance

The goal of the Plain Language Law is to help the contract holder express terms with complete clarity by designing agreements so that both parties understand them. In order to comply with the Plain Language Law, contracts are required to be organized, well-designed and should contain writing that is easy to read and comprehend. In order to reach its goal, the act requires contracts to satisfy a “test of readability,” which outlines various language and visual guidelines, along with consumer restrictions.

According to the Plain Language Law, in determining whether a contract meets the statute's requirements, drafters and legal professionals should consider the following guidelines:

Language:

• Use short words, sentences and paragraphs that are written in the active voice. Avoid using technical legal terms or Latin or foreign words, other than those that are commonly understood, such as mortgage.
• If the contract defines words, the words should be defined by using commonly understood meanings, and when the document refers to the parties to the contract, the reference should use personal pronouns, actual names or clearly understood terms like “seller” and “buyer.” The contract should not use cross references, double negatives or sentences that contain more than one condition.

Visual:

• In general, the contract should have type size, line length, column width, margins and spacing between lines and paragraphs that make the contract easy to read. The contract should caption sections in boldface type. Ink should be high-contrast (black and white is fairly standard, for instance).

Consumer restrictions:

• The contract should contain a description of the property that may be taken or affected by reason of security interest or contract if the consumer does not meet the terms of the contract. The statement is not required to list all possible exemptions.
• Contract should contain waivers of a consumer's rights in residential leases.
• If the disclosures required by the Truth in Lending Act (Public Law 90-321, 15 U.S. C. Section 1601 et seq.) are made on the contract, then the statement of consumer restrictions should appear immediately following these disclosures.

Preapproval Process

To help aid contract holders through the drafting process, agreements covered by the Plain Language Law may be submitted to the Pennsylvania Office of Attorney General (OAG) for pre-approval. In the act's infancy, the OAG sent out hundreds of specially designed pre-approval packets to individuals and business owners looking for guidance, but over time, the process has been overlooked or forgotten altogether. If your contract is currently governed by the provisions outlined above, it's important to take full advantage of the pre-approval process offered by the OAG—it's the simplest way to ensure you have done your due diligence in designing a clear, comprehensive contract.

The pre-approval packet comes equipped with five core documents: The Office of Attorney General's Statement of Policy for Contract Preapproval; the Plain Language Consumer Contract Act; an application for contract preapproval; the Test of Readability; and illustrations for the Test of Readability. The packet serves as a checklist of sorts, providing guidance to contract holders before the formal Plain Language contract review.

According to the procedures established by the OAG, each contract submitted must be accompanied by a separate application for contract preapproval even if several similar contracts are submitted at once; however, contract forms that have the same use may be approved as a whole. For example a form residential lease may be submitted for approval, even though it will be used for multiple tenants

Steps to obtaining preapproval:

• Complete the application for contract preapproval.
• Enclose three copies of each contract you wish preapproved.
• Underline in red on each copy language required by Federal or State law or regulation.
• Mail the application and three copies of each contract to the OAG.

When to Consult a Legal Professional

As legal professionals, we often see consumer contracts come through our firm that are not drafted in compliance with the Plain Language Law. But it's important to remember that ignorance of a law is never an acceptable defense. For contracts with multiple consumer parties, complex agreements or simply to give drafters peace of mind, consider consulting legal counsel when reviewing a final contract. One small mistake could lead to costly circumstances down the line.

June Swanson is an attorney at Pittsburgh-based law firm Meyer, Unkovic & Scott. She can be reached at [email protected].