Fate of Obama-Era Arbitration Rules Under Current Republican President and Congress

Perry Cooper, of Bloomberg News, writes  “A half dozen Obama-era rules to limit mandatory arbitration have met a variety of fates in the four months since Donald Trump became president.”

Arbitration Update: CFPB Rule Uncertain, Mixed Fates for Others goes on to say:

1. "The Consumer Financial Protection Bureau rule, which covers financial products, hasn’t been finalized yet and is in a perilous position."
2. "Congress reversed the federal contractor rule under the Congressional Review Act in March."
3. Anti-arbitration rules covering nursing homes and communication contracts have been put on hold by their originating agencies, while rules that apply to for-profit colleges and financial advisers "appear to be in the clear, at least for now."

NY Times Keeps Criticizing Adhesive Arbitration Agreements

Today's criticism goes beyond yesterday's criticism in arguing that the process of arbitration is biased in favor of businesses and against individual consumers and employees.

The Times asserts that arbitration’s “rules tend to favor businesses, and judges and juries have been replaced by arbitrators who commonly consider the companies their clients.” That’s quite a strong allegation and one that I think most arbitrators would dispute. Arbitrators are supposed to be neutral and a ground for vacating an arbitration award is evident partiality of the arbitrator.

Good commentary on the NY Times articles by North Carolina Law Professor Mark Weidemaier

NY Times Attacks Adhesive Arbitration Agreements as Defeating Class Actions

Today's article describes the "soaring number of" arbitration clauses in consumer and employment contracts as the "center of a far-reaching power play orchestrated by American corporations"" "to circumvent the courts and bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices."

Gee, I thought no longer doing business with companies that displease me was another option that's been working well.

Seriously, class actions seem to me a mixed bag for consumers, especially consumers who don't realize they're being damaged by sometimes-complex "illegal or deceitful business practices," so I'm skeptical of both progressives who say class actions are the only thing protecting us from disaster and businesses who say class actions are a disaster.

I don't believe the Times article cites any data suggesting consumers fare worse in arbitration than in individual (as opposed to class) litigation.

More on arbitration and class actions

Good commentary on the NY Times articles by North Carolina Law Professor Mark Weidemaier

Transparency in Arbitration

Indiana University Professor Lisa Blomgren Amsler (formerly Bingham) has written "Combating Structural Bias in Dispute System Designs That Use Arbitration: Transparency, the Universal Sanitizer."

The abstract:

Employers and businesses adopt adhesive arbitration clauses as a means to manage the risk of litigation and perceived “runaway” jury awards. Mandatory or adhesive arbitration describes the power of an economically stronger repeat player to impose an adhesive binding arbitration clause on the weaker, usually one-shot, player. In this brave new world, how can we combat structural bias built into dispute system designs (“DSDs”) that include mandatory or adhesive arbitration clauses? This essay will explore transparency and disclosure as means to that end. First, it will discuss institutional analysis and DSD to examine indicia of structural bias. Second, it will rely on other excellent scholarship to review the current state of the law and instead focus on the relative lack of remedies available to employees and consumers from the courts, Congress, or the executive branch. Third, it examines scholarly proposals to address the gap in remedies. Finally, it explores the various ways employees and consumers might engage in self-help to promote transparency as a means to accountability for biased arbitration systems.

"Forced Arbitration"?

The New York Times this week editorializes against what it calls "forced arbitration."  What the Times means is "arbitration clauses in form contracts typically drafted by businesses and presented to consumers (along with most of the other terms on the form) on a take-it-or-leave-it basis."  The Times focuses on the recent Consumer Financial Protection Bureau study I blogged about here.

The Times says banks' widespread use of use of such arbitration clauses "results in a systematic denial of justice."  In contrast, I argue that such clauses should generally be enforceable, as they are under current law.  Further analysis, I co-authored with KU Law Professor Chris Drahozal is here.

The Times does recognize that class actions are a big part of the debate on consumer arbitration.  This is true not only at the Consumer Financial Protection Bureau, but also in Congress, and in the courts.  For recent congressional testimony, see here.

   

Consumer Arbitration Soon to be Regulated by Federal Agency?

Consumer Arbitration Soon to be Regulated by Federal Agency?

The Consumer Financial Protection Bureau released the preliminary results of its study on arbitration in consumer financial transactions such as checking accounts, credit cards and payday loans. Allison Frankel at Reuters says: 

 According to CFPB, exceedingly few consumers actually bring arbitration claims when they have a dispute with their credit card company, bank or payday lender. Tens of millions of consumers are subject to mandatory arbitration for disputes involving financial products and services, CFPB estimated, yet only 1,241 cases involving these products were filed with the American Arbitration Association between 2010 and 2012. Of those, according to CFPB chairman Richard Cordray, about 900 were filed by consumers. (The rest were initiated by banks and lenders.) CFPB offered some caveats, including the lack of data from JAMS Inc, which also hears consumer arbitrations, albeit far fewer than AAA. But the bureau isn’t exactly going out on a limb when it concludes that the evidence shows arbitration doesn’t provide any recovery to the overwhelming majority of consumers of financial products, especially those with small dollar claims. “Plainly, the number of arbitrations was low relative to the total populations using these products,” the report said, in a notable understatement.

A leading defender of such consumer arbitration, Alan Kaplinsky, says "The CFPB seems to be setting the stage for a rulemaking which will likely not be favorable to the industry".  For his updates see here.  A good analysis of the credit card aspect of this is here by Fred Williams. 

My views on the broader topic are here.
 

The Case for Enforcing Adhesive Arbitration Agreements

Arbitration clauses appear in a wide variety of the form contracts through which consumers obtain goods, services and credit, as well as in employment agreements, and other contracts of ordinary individuals. These adhesive agreements to arbitrate are generally enforced by courts, but this enforcement is quite controversial. Countless law review articles criticize it, while the few that defend it are usually limited in important ways. This paper defends the general enforcement of adhesive arbitration agreements.

Section I shows that this general enforcement is socially desirable and that it benefits most consumers, employees and other adhering parties. Section II introduces the doctrines on which courts most commonly rely in refusing to enforce particular adhesive arbitration agreements, the unconscionability and effectively vindicate doctrines, and applies them to typical adhesive arbitration agreements. Sections III and IV apply these doctrines to two issues that are now hotly contested in the courts: an arbitration agreement's prohibition of class actions (discussed in Section III) and the costs of pursuing a claim in arbitration (discussed in Section IV).

This paper concludes in Section V that many courts have been too reluctant to enforce adhesive arbitration agreements that prohibit class actions or require plaintiffs to pay forum fees not required in litigation. This reluctance is largely caused by courts narrowly considering only how the arbitration agreement affects the particular adhering party before the court, and considering those effects given the existence of the particular dispute that gave rise to litigation. This paper calls on courts to take the broader approach of considering all the adhering parties who adhered to the same form contract and considering the agreement's effects on those parties as of the time they entered into the agreement. This ex ante perspective would lead courts to consider the adhering parties who benefit from, as well as those who are harmed by, adhesive arbitration agreements.

Arbitration Clauses, Jury-Waiver Clauses and Other Contractual Waivers of Constitutional Rights

Consenting to a contract containing an arbitration clause or a jury-waiver clause alienates or waives the Seventh Amendment jury-trial right in federal court. The standards of consent in arbitration law, however, tend to be lower than the standards of consent in the federal caselaw governing jury-waiver clauses. The Federal Arbitration Act (FAA) requires courts to apply contract law's standards of consent to arbitration agreements, while certain commentators argue that courts are instead constitutionally required to apply the higher standards of consent (knowing consent) found in the caselaw governing jury-waiver clauses. This article responds to these commentators and argues that the FAA's contract-law standards of consent are constitutional.