- It would apply retroactively by invalidating existing pre-dispute arbitration clauses because the AFA would apply “with respect to any dispute or claim that arises on or after” the date the AFA is passed.
- It would strip arbitrators of their authority to rule on the validity and enforceability of an arbitration agreement. As it does not distinguish between domestic and international disputes, the proposed AFA may have the unintended consequence of severely reducing the efficacy of arbitration as a dispute resolution mechanism for cross-border disputes.
- As it requires both sides to agree to arbitration after the dispute arises, when parties are less likely to cooperate in negotiating an agreement to arbitrate, and where one party may see an advantage in litigation (including a threat of extensive and costly discovery), the proposed AFA will likely result in significantly fewer disputes being arbitrated.
- By invalidating certain arbitration clauses, the AFA may impose significant financial burdensupon the court system, consumers and other contract counter-parties. The court system is already overburdened, and an influx of litigation may result in higher filing fees and delayed adjudication of claims.
Growing Movement Against Pre-Dispute Arbitration. The introduction of the AFA is part of a growing effort to reverse a series of Supreme Court cases applying the FAA to consumer disputes. In March 2015, the Consumer Financial Protection Bureau issued a study criticizing the use of pre-dispute arbitration in connection with consumer financial products or services, which we analyzed in aprevious post. The Bureau’s study could serve as its justification for rules prohibiting or significantly restricting pre-dispute arbitration agreements in contracts for consumer financial products or services.
We will continue to monitor the status of the proposed AFA and report back on any significant developments related to the arbitration of consumer disputes.
About the Author
Attorney Adam Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.