Upcoming Article in the Spring Issue: Binding Pre-Dispute Agreements: Arbitration’s Gordian Knot

Arizona State Law Journal is previewing its upcoming articles in the spring publication.  This article is written by third-year student, Rob Gordon.

This article proposes a series of amendments to the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16) to increase consumer protection. The article is drafted, in part, to address abuses designed to exploit loopholes in the FAA.  These abuses were spotlighted by the Minnesota Attorney General in a lawsuit against the National Arbitration Forum (NAF), formerly, the nation’s largest consumer arbitration firm. The Minnesota lawsuit alleged that the NAF partnered with consumer debt firms to perpetuate a “rigged-game” against the American consumer. Allegedly, the NAF colluded with the debt-collection industry by accepting a massive capital infusion, paying commissions to business leaders to include mandatory arbitration agreements in consumer contracts, soliciting creditors to refer disputes to binding arbitration,  ruling against consumers in nearly ninety-six percent of disputes, and routinely de-listing individual arbitrators who ruled in favor of consumers.

Because of the abuses identified in the lawsuit, academia, industry, and practitioners have called for major changes in consumer arbitration law. Most proposed legislative reform has centered on the simple elimination of consumer arbitration by creating a per-se invalidation of binding arbitration agreements inserted in consumer contracts. However, this draconian call for the destruction of consumer arbitration ignores that systemic reform can achieve the goal of consumer protection.

This article first examines the history and legal framework of consumer arbitration in the United States; tracing the judicial history of the Federal Arbitration Act and identifying the deficiencies in the current law. The article concludes that reform—not repeal—of consumer arbitration is appropriate. The article proposes that Congress should codify ethical rules for neutral-party arbitrators based on the ABA’s proposed model rule for lawyer-neutrals, amend 9 U.S.C. § 10 to permit the invalidation of arbitration agreements upon evidence of arbitrator bias, and create a per-se presumption of bias when arbitrators have a financial entanglement with one of the parties. These reforms close the holes in the existing law exploited by the NAF and preserve consumer arbitration as a useful tool for resolving legal conflicts.