Review Your Contracts & Website Terms - Largest Arbitration Companies Exiting Consumer Arbitrations

July 28, 2009

The largest U.S. administrator of consumer arbitrations, the National Arbitration Forum (NAF), announced this week that it will cease to administer consumer arbitration disputes as part of a settlement agreement with the Minnesota Attorney General. As of July 24, 2009, the NAF will stop accepting any new consumer arbitrations including debts in credit-card, healthcare, telecommunications, utilities, mortgages, and consumer leases, but will continue arbitrating Internet domain disputes.

On the heels of resolving its lawsuit with the NAF, the Minnesota Attorney General requested that the American Arbitration Association (AAA) stop accepting "credit card and other consumer debt claims based on pre-dispute mandatory arbitration clauses." The AAA has reportedly agreed to do so, but will presumably continue to accept other consumer arbitrations.

The actions of the NAF and AAA are the latest blows to pre-dispute consumer arbitration provisions, which have recently faced an increasing number of challenges from various state Attorneys General and consumer advocate groups. These provisions also face increased legislative uncertainty as Congress continues to consider the Arbitration Fairness Act of 2009 (S. 931/H.R. 1020), which would effectively ban pre-dispute mandatory arbitration clauses from consumer, employment, and franchise contracts. The House is also considering a new Consumer Financial Protection Agency (H.R. 3126), which would have broad regulatory authority to restrict or eliminate consumer arbitration.

Many businesses list the NAF and AAA as the neutral arbitration entity in mandatory arbitration provisions in online Terms & Conditions and other consumer contracts. Clients are advised to immediately review all relevant consumer contracts and make appropriate adjustments. Given the uncertainty associated with this area, businesses should consider including a fall-back provision addressing an appropriate dispute resolution process in the event the identified arbitration company does not accept a given consumer dispute.

For more information about this Client Update, contact Nilesh (Neal) Patel, Jill P. Meyer or any other attorney in Frost Brown Todd's First Amendment, Media and Advertising Practice Group or the Intellectual Property Practice Group.

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