by Deepak Gupta
The Wall Street Journal is reporting that the American Arbitration Association "will stop participating in consumer-debt-collection disputes," at least--according to an unnamed AAA official quoted in the story--"until some standards or safeguards are established." I'm not sure what that caveat means, but it suggests a lobbying strategy, consistent with AAA's prior positions, to get Congress to adopt minimum standards instead of making arbitration truly voluntary. It's also unclear whether the AAA's withdrawal will extend beyond consumer debt, as NAF's does, to include other forms of consumer or employment disputes. AAA doesn't currently handle a lot of collection cases--certainly nowhere near as many as NAF.
Whatever the scope of AAA's pullout, this is big news in the battle over arbitration fairness. And the timing is no coincidence. The news follows close on the heels of the Minnesota AG's lawsuit against NAF, the resulting consent decree, and today's report from the House of Representatives. Indeed, the Minnesota Attorney General released a letter to the AAA on Sunday asking it to take this very step. The announcement also appears to have been deliberately released on the eve of tomorrow's House oversight hearing. Even before the news from AAA, the tort deformers at Point of Law were forced to concede that consumer arbitration is "in retreat" and "has taken a big hit in the political and PR world."
So far the Journal appears to be the only news outlet reporting on the AAA announcement. The Chicago Tribune and the San Francisco Chronicle, among other papers, had additional coverage today on the victory over NAF. You can learn more about the arbitration fairness legislation pending in Congress here.
So what happens now in consumer disputes involving NAF and AAA clauses?
Before the news about the AAA, forced-arbitration architect Alan Kaplinsky of Ballard Spahr (who described the NAF pullout as "devastating") was advising companies using NAF to force their customers into arbitration before the AAA or JAMS:
Companies using arbitration should examine their arbitration provisions to see what administrators are designated. The NAF should be eliminated and replaced with the American Arbitration Association (AAA) and JAMS, the two other arbitration administrators with the ability to administer consumer and employee arbitrations on a nationwide basis. This should be done immediately for all new agreements and, to the extent permitted, all existing agreements. Under Section 5 of the Federal Arbitration Act, the court must appoint an arbitrator to replace the NAF if there is no other administrator named in the arbitration agreement.
With both NAF and AAA out of the picture, JAMS will apparently be the only nationwide alternative for consumer debt cases. It's quite unlikely they will be able to fill the void. And it's also quite likely they will feel significant pressure to follow the lead of NAF and AAA.