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Consumer Arbitration: Taking Stock

posted by Adam Levitin

I have an op-ed in today's American Banker on the supposed efficiency and fairness of binding mandatory arbitration.  We've given arbitration occasional coverage on the Slips over the years, but it's never been a major focus of our posting, in part because it isn't inherently a credit issue. Instead, the fight over arbitration is another chapter in the fight over whether public services should be privatized.  It's worth noting, however, in the time since our coverage began (not to take any credit for it), the needle has moved a bit on binding mandatory arbitration in consumer contracts--both ways.  

On the downside, the Supreme Court both overturned a state law doctrine preventing binding mandatory arbitration (AT&T v. Concepcion), and then, in a truly shameful opinion, held that class action waivers in arbitration clauses were enforceable, even if it that meant there was no effective way to vindicate federal rights (Amex v. Italian Colors Restaurants).  Not surprising that companies like General Mills feel so emboldened in their use of arbitration clauses (although not so bold).

On the upside, however, some courts have read the Supreme Court opinions with a fine comb and recognized that they were 4-1-4 (Concepcion) or 4-1-3 (Italian Colors), with Justice Thomas's concurrence leaving room to avoid arbitration clauses if the entire contract is unconscionable--with arbitration clauses being potential evidence of the unconscionability. That's exactly the position that the California and Missouri Supreme Courts have taken.  

Beyond, this several large credit card issuers agreed to temporarily rescind their arbitration agreements as part of an antitrust litigation settlement.  Contemporaneously, in the Dodd-Frank Act, Congress banned predispute arbitration provisions in a number of contexts:  home mortgages (sec. 1414), agreements between brokers, dealers, and investment advisors and their customers (sec. 921), and for whistleblower claims regarding securities and commodities fraud (sec. 922 and 748). Add to this that FINRA's Board of Governors overturned a FINRA Hearing Panel's determination that the Federal Arbitration Act precluded a FINRA rule limiting pre-dispute arbitration and held that Charles Schwab's class action waiver in an arbitration clause was a violation of FINRA rules.  

Most importantly, however, Congress gave the CFPB authority to ban binding mandatory pre-dispute arbitration in all consumer financial contracts (Dodd-Frank Act sec. 1028).  The CFPB is required, however, to first conduct a study on arbitration.  Part I of the study (just the facts) has been released; Part II (interpretations?) is eagerly awaited. Whatever the CFPB does on arbitration, it is likely to be a real fight for the agency, both politically and in the courts. Stay tuned.   

 

Comments

As you are likely aware, at least one court, the Massachusetts SJC, seems to believe that Amex forecloses the Brewer/Franco interpretation of Concepcion. See Feeney v. Dell, Inc., 466 Mass. 1001 (2013) (reversing its own previous judgment, the opinion for which cited Brewer and Franco, in light of Amex). Are there any post-Amex cases that suggest the Brewer strategy is still viable? The small handful of Massachusetts consumer protection attorneys to whom I have talked are not optimistic.

Any thoughts on whether a confirmed Ch. 13 plan that either specifically terminates mandatory arbitration provisions or is merely silent redefines the debtor- creditor relationship such that there is no mandatory arbitration any longer?

Ed,

It seems as if your posting presents two very different questions. If the Plan is silent about it everything may still be up for grabs. If the Plan specifically terminates the provisions there it may not be a whole lot more to talk about. Which one is it in your case. Silence or specific termination?

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