Contract is predicated on agreement, or so the story goes. Of course, the reality of the modern bank-customer transaction is not so straightforward. In those transactions, the contract law is confronted with an ostensible dilemma: Should the law find its goal in the efficiency to be gained by binding customers to terms which they neither read nor understand? Or should the law instead focus on classical conceptions of bargain and agreement, and refuse to enforce contract terms that do not exhibit these characteristics? Article 4 of the Uniform Commercial Code, which regulates bank-customer transactions, attempts to strike a balance between fairness and efficiency, but the success of its task is undermined by one provision, section 4-103, which permits banks and customers to circumvent the effect of the Article "by agreement."

The majority of the form terms that invade bank-customer agreements are not the subject of agreement in any meaningful sense; they are unilateral impositions of the "stronger" contracting party: the bank. Provisions such as waivers of a customer's right to a jury trial and terms granting the bank the authority to alter the terms of the account agreement abound, and nobody—including the courts asked to enforce these provisions—seriously contends that these terms are the result of agreement in the sense of a bargained-for exchange. Instead, as the economic literature shows, these terms result from banks' exploitation of their naïve customers.

In the typical bank-customer transaction, banks, like all businesses, exploit the naïveté of their less-sophisticated customers by imposing on those customers terms to which the customers have not manifested real agreement. This exploitation, which occurs even at market equilibrium, is achieved by the use of "shrouded" terms, or terms whose meaning and effect are hidden from the customer. But the impact of this shrouding is more harmful than a simple exploitation of naive customers: Sophisticated consumers are complicit in the bank's efforts to exploit naive customers, Indeed, because that exploitation redounds to their benefit, sophisticated customers seek out banks that exploit naive customers. A pernicious cross-subsidy results.

The extant "justifications" of unilaterally-imposed form terms such as those in bank-customer agreements miss the mark because they fail to account for that cross-subsidy. Commentators have argued that courts are capable of weeding out those shrouded terms that result in an aggregate inefficiency, or that naive customers suffer no real detriment because they are shielded by a protective umbrella erected by the more sophisticated customers. One commentator has argued that shrouded terms are merely a prelude to later bargaining and negotiation that occurs when a customer disadvantaged by a term calls to complain about its effects. These varied attempts to craft a trust-the-market solution to the impact of shrouded terms fail because the very market that created these terms cannot be trusted to alleviate their pernicious effects.

If we cannot trust the market to police the effects of shrouded terms, then we must find some other mechanism to accomplish that task. Article 4 attempted to provide such a mechanism in the form of a laundry list of acceptable terms that would prevent banks from gaining too much power over their customers. But for those transactors that would find it advantageous to circumvent Article 4's effects, section 4-103 provided an escape clause. Now, the escape clause has become the rule rather than the exception, and a reexamination is due. The conclusion of this paper is that advertisement about the nature and impact of the terms contained in account agreements, and thus education of bank customers, can undo the harmful effects of shrouded terms. With the shroud lifted, bank-customer agreements, like any other contract, can be evaluated by reference to classical notions of bargain and agreement.

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