Discrimination in Contractual Performance: Theory, Evidence, and Preliminary Policy Prescriptions

This Article examines the often-overlooked practice of “selective performance” of standard form consumer contracts—where sellers permit employees to exercise discretion by waiving or modifying contractual terms to maintain customer satisfaction. While such flexibility can benefit consumers, it raises serious concerns about discrimination. Through both theoretical analysis and empirical evidence, this Article demonstrates that discretionary performance can disproportionately favor certain consumer groups, particularly along racial and gender lines, leading to biased and inequitable outcomes. Drawing on examples from diverse sectors, including retail, insurance, and mortgage services, the Article highlights how marginalized communities, especially Black consumers, frequently face harsher treatment and greater obstacles in the enforcement of contractual rights.

In response, the Article proposes actionable strategies to mitigate bias in the performance of consumer contracts. These strategies include debiasing training, the implementation of more objective decision-making criteria, increased monitoring and accountability, diversifying personnel, and leveraging artificial intelligence to detect and prevent discriminatory patterns. Additionally, the Article explores how regulators can incentivize sellers to adopt these bias-reducing measures through a “safe harbor” framework. By integrating insights from psychology and institutional design, this Article offers a roadmap for promoting fairness and reducing discrimination in the performance of consumer contracts, ultimately advocating for a more equitable marketplace.