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Litigation Alert >> AAA Now Requires Pre-Approval and Registration of Arbitration Clauses in Consumer Agreements, including Website Terms & Conditions

September 14, 2015

For companies looking to avoid the often time-consuming and costly process of going to court over consumer claims, arbitration clauses have become a common feature in consumer agreements. Arbitration generally offers a less formal, less expensive and less complicated process to resolve disputes than litigation. While many arbitrators are legal professionals rather than former judges, and arbitrated cases proceed outside of the courtroom, arbitration administration agencies have become interested in extending due process rights to consumers that are similar to the protections afforded to them in court.

For example, the American Arbitration Association (AAA) has issued a set of protocols detailing the rights of consumers in the arbitration process. The AAA now also requires that companies that seek to have consumer complaints administered by the AAA must first submit their arbitration agreements to the AAA for review for compliance with its Consumer Due Process Protocol. If an arbitration clause is not pre-registered and reviewed by the AAA before a consumer claim is filed, the AAA will insist that the company pay increased fees for an expedited review of its agreement. Additionally, the AAA reserves the right to refuse to administer the case, forcing the company into court should the consumer not wish to proceed with arbitration.

Background
In the latter half of 2014, the AAA released an amendment to its Consumer Arbitration Rules requiring a company intending to use the AAA for consumer arbitrations to submit the company’s arbitration clause to AAA for registration, review and approval, in order to ensure compliance with the AAA’s Consumer Due Process Protocol.

The Consumer Due Process Protocol enumerates consumers’ rights within the context of AAA arbitration. These rights include, among others:

  • an arbitration process that involves only reasonable amounts of costs, including, in certain circumstances, by requiring the company to subsidize those costs;
  • timely resolution of claims;
  • a convenient forum;
  • and a fundamentally fair hearing, including adequate notice of the hearing and the opportunity to present evidence to an impartial decision maker.

In addition to the rights of the consumer during the arbitration, the protocol requires that the arbitration clause include:

  • adequate notice about the arbitration clause and its provisions, including whether it is mandatory or optional;
  • information on the arbitration process itself, what exactly arbitration is, how much it might cost, and where the consumer can go to access more complete information;
  • clear guidance for a consumer on how to submit a dispute for arbitration;
  • and notice about the option to go to small claims court instead of arbitration, where applicable.

The AAA will no longer administer a consumer arbitration until the company’s clause has been registered with the AAA and reviewed for compliance with the Consumer Due Process Protocol.

What Does This Mean?
Under the AAA’s new consumer arbitration rules, a company that intends to arbitrate consumer disputes before the AAA must notify the AAA of its intent to do so at least 30 days before the arbitration clause is to go into effect, and the company must provide a copy of the arbitration agreement to the AAA for review and registration. If the AAA determines that a clause does not meet the protocols, the AAA may decline to administer claims under the clause.

Registration with the AAA requires an initial fee of $500 for the review and subsequent approval of the procedures laid out in the arbitration clause. Once the clause has been registered, companies pay an annual fee of $500 to maintain that registration. For clauses submitted in 2015, the cost is $500 and will serve as the registration fee for the balance of the calendar year. If a clause is not registered at the time arbitration is filed, the AAA requires the company to pay the initial registration fee at that time, plus an additional $250 fee for expedited review of the clause. If the company fails to pay the fee for expedited review, the AAA may decline the case, and the consumer can then opt to proceed in court.

The AAA’s registration requirement is retroactive, and will therefore apply to all arbitration clauses already in use. Companies must submit any preexisting agreements that include an arbitration clause to avoid paying for expedited review at the time arbitration is filed. Where the AAA finds a preexisting clause to be deficient, the AAA will ask the company to agree to waive the offending provision of the clause before registering the clause and/or agreeing to administer cases thereunder. Additionally, companies must resubmit any revisions to previously registered arbitration clauses to the AAA at least 30 days before those revisions take effect, and must pay a new registration fee.

Bottom Line

To ensure that consumer disputes will be arbitrated before the AAA, companies that have AAA arbitration clauses in their consumer agreements, including in website Terms & Conditions, should submit their clauses to the AAA as soon as possible for approval and registration. Otherwise companies risk paying additional fees, and having the AAA decline to administer a dispute.

Author(s)

NEAL H. KLAUSNER
Partner/Co-Chair
212.468.4992
nklausner@dglaw.com
Litigation

DAVID S. GREENBERG
Senior Attorney
212.468.4895
dgreenberg@dglaw.com
Litigation