What if pre-dispute consumer arbitration clauses were entirely forbidden?

Thinking the unthinkable…

Hilary B. MillerPayday Loan Bar AssociationNovember 14, 2008

Proposed legislation to amend the FAA State common-law defenses based on

principles of contract law (unconscionability, etc.; e.g., Szetela)

Agency rulemaking (e.g., FNMA) State statutory enactments

determining class-action waivers to be unconscionable

Changes in S.Ct. composition

Hilary B. Miller - November 14, 2008

Class actions will proceed Risk of class arbitration Jury trial No matter what, protracted litigation

over procedural matters


Sidestep risk of bet-the-company litigation

Minimize incentives for plaintiffs’ class bar

Address problems one at a time


The best dispute resolution mechanism is the one that is complete before the customer has consulted counsel• Solve the problem at lowest-cost opportunity• Retain the customer• Minimize viral spread

Adopt a “customer satisfaction guaranty”• Ensure that customers know about it• Put teeth in it• Empower CSRs and front-line managers


Drafting opportunities to create enforceable pre-suit settlement opportunities:• Notice-and-opportunity-to-cure clauses• Contractual “offer of judgment” provisions• Mandatory mediation with plaintiff in person

Drafting opportunities to create post-suit benefits:• Waiver of trial by jury• In states that allow, submission to simplified

dispute resolution (e.g., CPLR)• Bump-up clause/attorneys’ fees


Disclosure Make it a bargained-for deal term

• Pay the customer/offer a reduced price if customer will agree to your pre-dispute dispute-resolution program

• Allow the customer a bona fide choice at the time of contracting (not post-transaction opt-out)

Contract with respect to favorable state law, if possible


Anticipate No-A Day arrival in next year Some post-No-A-Day lawsuits will

relate to previous putative misconduct Forms in use now must anticipate that

they will be the basis of post-No-A-Day disputes

Suggested steps are compatible with existing class-action waivers and arbitration clauses


What if pre-dispute consumer arbitration clauses were entirely forbidden?

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