Enforceability of Mandatory Arbitration in Online Contracts

The New York Times has described the use of mandatory arbitration as “stacking the deck of justice.” Conversely, according to business groups, class actions are inappropriate in small claims of this nature because they involve “issues that consumers actually care about, such as alleged overcharges [and] are unlikely to be classable because they are individualized disputes.”

The CFPB characterized the effect of these “widely used clauses” as leaving the “consumer with no choice but to seek relief on their own ' usually over small amounts.” At least one federal appellate court recently agreed, even while admitting the strong presumption in favor of enforcement of arbitration clauses. Unsurprisingly, opinions abound that reach the opposite conclusion. Often such disputes are resolved on technical, fact-intensive details that determine whether the consumer had adequate notice of mandatory arbitration. This is a contrast from policy-based arguments that appear to underlie the CFPB rule, although, as discussed in greater detail below, parties both seeking to compel arbitration or to evade it have offered public policy-based grounds as secondary justifications for their position.