American Arbitration Association Creates Consumer Arbitration Clause Registration Requirement: A Reaction
The guest blog post by the Securities Arbitration Commentator on this topic is thought-provoking. As described by the Commentator, “the American Arbitration Association (‘AAA’) announced on July 10th that its Consumer Arbitration Rules are being amended effective September 1st to require firms to register consumer predispute arbitration agreements (‘PDAAs’). The data will be maintained in a publicly-accessible Consumer Clause Registry (‘Registry’). Specifically, Consumer Arbitration Rules rule R-12 now provides that, as of September 1st, ‘a business that provides for or intends to provide for these Rules or another set of AAA Rules in a consumer contract (as defined in R-1) should 1) notify the AAA of the existence of such a consumer contract or of its intention to do so at least 30 days before the planned effective date of the contract [and] 2) provide the AAA a copy of the arbitration agreement.’”
Well-Intended but Burdensome Nonetheless
While creation of the Registry is evidently well-intended, I wonder whether the clause registration requirement might become burdensome and costly for certain types of companies. The non-exclusive list of covered agreements in Rule R-1 is exhaustive: credit card agreements; telecommunications (cell phone, ISP, cable TV) agreements; leases (residential, automobile); automobile and manufactured home purchase contracts; finance agreements (car loans, mortgages, bank accounts); home inspection contracts; pest control services; moving and storage contracts; warranties (home, automobile, product); legal funding; health and fitness club membership agreements; travel services; insurance policies; and private school enrollment agreements. Firms in state-regulated industries like banking or insurance, may find themselves having to register many, many state-specific contracts every year, and when they make mid-year modifications.
I humbly suggest that firms consider using ARS’ Business and Individual Dispute Resolution Program in such instances. Now, before I generate screaming headlines “ARS to Businesses: Come to Us to Avoid Consumer Protection Requirements,” let me explain my thinking:
A National Business may be Filing Contacts on a Year-Round Basis: As described above, a firm that operates nationally or in several states in businesses like insurance or banking very often has to tailor its form contracts to comply with state laws. So, it’s entirely likely that such firms may be filing 50 plus arbitration clauses for AAA review, approval, and registration. Then they will need to refile when there are changes, and again on an annual basis. That’s a fair amount of filing (and fees).
The Abuses the Registry Seeks to Eliminate are Not Present at ARS: The Registry has noble intentions, in that it tries to protect the consumer from abuses found in some consumer arbitration programs. Indeed, AAA will apparently refuse to administer an arbitration arising out of a program that does not comply with the Consumer Due Process Protocol.
What are the Protocol’s core protections for consumers?
- All parties are entitled to a fundamentally-fair ADR process. As embodiments of fundamental fairness.
- Providers of goods or services should undertake reasonable measures to provide Consumers with full and accurate information regarding Consumer ADR Programs.
- All parties are entitled to a Neutral who is independent and impartial. If participation in mediation or arbitration is mandatory, the procedure should be administered by an Independent ADR Institution. Administrative services should include the maintenance of a panel of prospective Neutrals, facilitation of Neutral selection, collection and distribution of Neutral’s fees and expenses, oversight and implementation of ADR rules and procedures, and monitoring of Neutral qualifications, performance, and adherence to pertinent rules, procedures and ethical standards.
- All parties are entitled to competent, qualified Neutrals. Independent ADR Institutions are responsible for establishing and maintaining standards for Neutrals in ADR Programs they administer.
- Consumer ADR Agreements should make it clear that all parties retain the right to seek relief in a small claims court for disputes or claims within the scope of its jurisdiction.
- Providers of goods and services should develop ADR programs which entail reasonable cost to Consumers based on the circumstances of the dispute, including, among other things, the size and nature of the claim, the nature of goods or services provided, and the ability of the Consumer to pay. In some cases, this may require the Provider to subsidize the process. In the interest of ensuring fair and independent Neutrals, the making of fee arrangements and the payment of fees should be administered on a rational, equitable and consistent basis by the Independent ADR Institution.
- In the case of face-to-face proceedings, the proceedings should be conducted at a location which is reasonably convenient to both parties with due consideration of their ability to travel and other pertinent circumstances. If the parties are unable to agree on a location, the determination should be made by the Independent ADR Institution or by the Neutral.
- ADR proceedings should occur within a reasonable time, without undue delay. The rules governing ADR should establish specific reasonable time periods for each step in the ADR process and, where necessary, set forth default procedures in the event a party fails to participate in the process after reasonable notice.
Arbitration Resolution Services is Protocol-Compliant
The ARS Business and Individual Dispute Resolution Program is already Protocol-compliant. In fact, the rules were just amended to more directly address the issue of consumer choice. Specifically, revised Section 1.1 provides:
Where there is a written agreement between the parties, ARS strongly recommends that the agreement’s arbitration provision be highlighted and that the individual have the option at the time of execution to opt out of the arbitration process. Such shall be done by requiring the individual to initial a box or other check off indicating their specific knowledge and consent to the arbitration process or choice to forego it in favor of litigation.
This is precisely the point I make in the cover story of the current issue of the American Bar Association’s Dispute Resolution Magazine: the consumer should be given the choice to agree to arbitration when they sign the contract, with the arbitration clause separately signed, initialed, or clicked.
Benefits of using ARS
So, any fears that consumers will be harmed by participating in an ARS arbitration are misplaced. And what benefits does ARS arbitration offer to the parties?
- Simplified and easy to understand rules and regulations
- Low cost
- The ARS model is cloud-based, with the entire arbitration or mediation process being conducted online via the Web
- Trained attorney arbitrators
- No physical appearance required
- Hearings, if requested, scheduled based on the party’s needs
- ARS’ software that’s user-friendly for individuals at any level of technical ability
I submit that ARS does not need to have a Registry because the ills a Registry seeks to cure don’t exist in the ARS system. The ARS system is already Protocol-compliant; any consumer case being administered by ARS will enjoy the full protections of the Protocol.