|art by Todd Berman / flickr|
You may already know that the American Arbitration Association ("AAA") recently announced that it would require registration of all consumer arbitration clauses incorporating its rules, apparently in response to pressure from the Consumer Financial Protection Bureau, which recently conducted a study of consumer arbitration clauses. The requirement became effective in September.
The AAA's new registration requirement applies to any arbitration clause in a consumer contract that invokes the AAA’s Consumer Rules or refers to the AAA. The rule change does not affect commercial contracts. As always, the distinction between consumer and commercial is a test of fact, regardless of the language of the document. If a consumer signs a document that purports to be an agreement for use with commercial customers and references the commercial arbitration rules, the consumer may nonetheless invoke the AAA Consumer Rules when bringing a claim.
Registered arbitration provisions become publicly-accessible information. According to the AAA, “[b]y accessing the Registry, parties will be able to search businesses by name to determine if the AAA has reviewed their consumer arbitration clause and will administer their consumer arbitrations.” Moreover, according to the AAA, “the Registry will include online access to the arbitration clause reviewed by the AAA and may also include other documents related to the arbitration clause.”
The Registry is available on the AAA website, and a password is not required to search it and view clauses that have been submitted. As of the date of this post, only a small number of arbitration provisions appear to be registered, and some clauses are not visible. It is unclear to me whether this is simply because the website is new and still being populated.
Effect of Registration
Rule 12 of the amended Consumer Rules states that beginning on September 1st, a business that “provides for or intends to provide for” AAA administration in a consumer contract “should notify the AAA of the existence of such a consumer contract or of its intention to do so at least 30 days before the planned effective date of the contract” and provide a copy of the arbitration clause to the AAA. Rule 12 further states that the AAA will review the clause for material compliance with the Due Process Protocol and the amended Consumer Rules (including consumer fee limits). The Rule and the AAA website call for registration of existing clauses rather than just newly-adopted clauses. (See, for example, Rule 55(viii).) The AAA may determine that additional, related provisions or documents are necessary in order to properly evaluate the clause, and may request them and post them on the Registry.
For arbitration clauses submitted to the AAA during 2014, the registration fee is $650, which will maintain the clause on the Registry through 2015. An annual fee of $500 is imposed thereafter.
Each arbitration provision used will require a separate registration and registration fee. The AAA's Rule states that "[a]ny different arbitration agreements submitted by the same business or its subsidiaries must be submitted for review and are subject to the current review fee." Therefore, it might make sense to use only one clause, or some other limited number of standard clauses, throughout your organization.
Effect of Not Registering
If a business has not registered its consumer clause prior to the filing of a consumer case, the AAA will require that the business register its clause at that time, and will "conduct an expedited review.” The expedited review costs an additional $250. The primary risk associated with not registering the clause in advance is the chance that the AAA will determine that it does not comply with the AAA Due Process Protocols or fee limitations, and therefore decline to arbitrate.
If an arbitration provision is updated or revised, it will require a subsequent registration with the AAA. Rule 55 purports to require re-registration and an additional $500 fee for "[a]ny subsequent changes, additions, deletions, or amendments." Despite the strict language of the Rule, it is unclear to me whether the AAA would take the position that a minor, non-substantive change would trigger the re-registration requirement; one would hope that a non-substantive change would not require an additional filing and $500 fee.
Conclusions and Additional Considerations
Based upon the new Rules and the analysis above, you might conclude that it is most cost-effective, and administratively useful, to standardize an arbitration clause (or a limited number of clauses) across the organization, whether or not you intend to register the clause in advance of a dispute. In making these determinations, you may want to consider the risk of the AAA rejecting the clause, the frequency with which your organization has historically been subject to arbitration demands, the benefits and burdens of standardizing an arbitration clause(s) across your organization, and (for heavily-regulated entities like banks) the risk of criticism for failing to register in advance, among other factors.