Arbitrator Declares Class-Action Ban Unfair

November 25, 2004

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A leading arbitration firm has declared it will no longer enforce contracts that bar consumers from bringing class action cases. Judicial Arbitration and Mediation Services (JAMS) said the class-action restriction is "an unfair restriction on the rights of the individual consumer."

Banks, credit card issuers, telephone companies and car dealers, among others, have in recent years forced consumers to accept contracts that force them to give up their right to sue. Instead, consumers agree to submit disputes to an arbitrator selected by the company. JAMS is often one of the arbitrators chosen by companies.

"Although JAMS does not hear many consumer cases, it has been a pioneer in maintaining standards of fairness for the protection of consumers in arbitrations," the firm said in a statement. "JAMS unequivocally takes the position that it is inappropriate for a company to restrict the right of a consumer to be a member of a class action arbitration or to initiate a class action arbitration."

Other big arbitration firms may follow suit. American Arbitration Association said it is reviewing its policies.

Companies argue that mandatory arbitration keeps their costs down by keeping cases out of court. But consumer advocates say that arbitration can be prohibitively expensive for individual consumers and blocks evidence that can be decisive.

More significantly, in many consumer cases, the dollar amount in dispute is too small to cover the costs of arbitration and travel for individual cases, whereas a class action consolidates hundreds or even thousands of cases, thus reducing the cost for each individual case.

JAMS' policy revision is almost certain to result in consumer attorneys filing class action cases with JAMS, observers said.

Founded in 1979, JAMS is the nation’s largest private provider of alternative dispute resolution services. It has 23 offices nationwide and employs more than 200 full-time arbitrators.

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