The New Jersey State Bar Association Supports Assembly Bill 3435 Which Establishes Certain Consumer Protections Related to Arbitration Organizations

The New Jersey State Bar Association supports A-3435 (Diegnan), which supplements the current arbitration law in New Jersey to regulate arbitration organizations.

The NJSBA's Board of Trustees, Legislative Committee and the Consumer Protection Law Committee voted to support this bill because it includes several provisions that would be beneficial to consumers, though we would like to propose amendments to section 2 and 3.

Section 2 prohibits arbitration providers from handling matters involving parties in which they have, or have recently had, a financial interest. The Minnesota Attorney General's enforcement action against the National Arbitration Forum based on its financial ties with debt collection law firms appearing before it, and the National Arbitration Forum's complete and nearly immediate withdrawal from all consumer debt collection arbitration business, highlights the importance of this concern.

Section 2 is drafted too narrowly, however - in particular, the terms "arbitration organization" and "party" should be expanded to include officers, directors, and controlling shareholders and/or partners.

The amendments to section 3, in particular, are crucial, and necessary to prevent A-3435 from having unintended consequences that would drastically roll back existing consumer protections. Section 3 addresses arbitration fees and costs, which are often prohibitively high for consumers, largely because the fees of the arbitrators themselves are typically hundreds of dollars per hour. Fortunately, all consumers currently can challenge the enforceability of arbitration clauses if prohibitively high fees violate existing unconscionability standards. Thus, the NJSBA conditions its support for this legislation on the following amendments:

3.a. No consumer arbitration agreement shall require a consumer who is a party to the arbitration to pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, arbitration organization, attorney, or witnesses.

b. (1) In addition to and without limiting any consumer's right to challenge the enforceability of any consumer arbitration agreement based on unconscionably high fees and costs, all fees and costs charged to or assessed upon a consumer by an arbitration organization in a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent consumer.

Section 4 provides for reports of consumer arbitration activities that the NJSBA strongly supports.