Originally from Dispute Resolution Journal

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The suitability of arbitration for resolving consumer disputes, especially in the financial industry context, has been the subject of intense debate for nearly a decade, culminating in a hotly debated series of articles in the New York Times which argued for banning all pre-dispute consumer arbitration clauses.

The concerns expressed have been twofold: (1) that an inherently unfair arbitration process is imposed on consumers through non-negotiable contracts of adhesion; and (2) that arbitration clauses in consumer contracts include the pre-dispute waiver of class action remedies and thus deprive consumers of the only viable remedies in some cases. This article will argue that the arbitration process as provided for by leading ADR providers is generally more accessible, efficient and effective than litigation, but that the issue of permitting enforcement of class action waivers deserves closer scrutiny.

I.    ARBITRATION IN INDIVIDUAL CONSUMER DISPUTES 

The Federal Arbitration Act (FAA) established a national policy strongly favoring arbitration. The United States Supreme Court has repeatedly ruled that the FAA supersedes state laws that would limit enforcement of arbitration clauses in contracts. The FAA applies to consumer contracts as well as to business contracts.

In recent years, however, lawsuits involving the arbitration provider National Arbitration Forum (NAF) prompted both the government and arbitration organizations to revisit the issue of consumer arbitration generally, and in the consumer finance arena specifically. NAF was the designated provider of arbitration services in many credit card and other consumer finance agreements. The Minnesota Attorney General and others sued NAF in 2009 based on undisclosed financial connections between it and collection agencies and creditors that used its services, which cast doubt on the impartiality of NAF and the arbitrators it used to resolve consumer disputes. As a result, NAF exited the consumer arbitration field.