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Rule of Law.

New Legislative Efforts to Chip Away at Arbitration Rights

September 28, 2018Issues, News, Top StoriesNJCJI

New legislation introduced this week by Senator Theresa Ruiz is yet another attempt to limit the enforceability of arbitration agreements.  

 

It is presented as a response to the misuse of consumer financial information by Wells Fargo which prompted Congressional hearings, regulatory enforcement actions, and litigation.  Though the language of the bill is not entirely clear, it appears to be an attempt to bar enforcement of arbitration agreements when consumer information is used fraudulently or without consumer’s consent, even when the consumer has agreed to arbitrate all disputes arising out of the larger contractual relationship.

 

On a policy level, the effort to interfere with the right to arbitrate springs from a misunderstanding of the value of arbitration as a mechanism for efficient dispute resolution.

 

The suggestion that consumers are better off pursuing relatively low-dollar claims as class actions has been considered in several recent studies.  Professor Jason Johnson, in particular, has produced significant empirical academic work exploring the relative effectiveness of arbitration and class actions as mechanism both for providing relief to consumers and for deterring wrongdoing.  He will be discussing his work on the arbitration panel at our upcoming NJCJI Fall Policy Forum.

 

On a more general level, this legislation is also an example of the continuing effort to identify and isolate specific scenarios of bad behavior and bar arbitration of disputes in those discrete contexts.  This broader effort to chip away at federal protections of arbitration rights will be a primary focus of our arbitration panel, with Archis Parasharami , and Gavin Rooney joining Professor Johnston at the upcoming event.

 

 

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