March 04, 2016 Articles

The Legal Landscape of Class Arbitration Waivers in Consumer Contracts

Key questions remain after Italian Colorsand in light of rules proposed by the CFPB and congressional legislation.

Alvaro J. Peralta – March 4, 2016

The Supreme Court has demonstrated a growing interest in the enforcement of arbitration agreements over recent years. Beginning in 1983, Supreme Court decisions have slowly narrowed the scope for public policy arguments against the enforcement of arbitration agreements. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) (stating that the Federal Arbitration Act (FAA) reflected a "liberal federal policy favoring arbitration"). Indeed, the FAA's core command is freedom of contract for arbitration agreements.

The effect of the Court's expansive interpretation of the FAA is particularly felt in consumer transactions. Many commercial contracts contain provisions that force individual consumers to settle their claims through private arbitration as opposed to going through the court system. These arbitration provisions also often contain language waiving a plaintiff's right to sue as a class of injured persons, forcing plaintiffs to bring their claims individually. However, the monetary value of many consumer claims is often so small as to make individual arbitration economically unfeasible. Thus, lawmakers are confronted with the question of whether contractual waivers should be allowed at all, as they presumably do away with consumers' ability to obtain justice. Notably, however, judges—not lawmakers—are largely shaping this issue. Thus, practitioners may benefit from staying abreast of the distinct nuances exposed by judicial interpretation.

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