David R. Missimer, general counsel for Automotive Compliance Consultants for dealership compliance issues, advised auto dealers today to take close look at the arbitration clause language used in their finance contracts.
He urged dealers to heed this advice, given how today’s courts are viewing finance contract language, particularly as contract language is under pressure from consumer groups and the Consumer Financial Protection Bureau (CFPB).
“The purpose of an arbitration clause is to keep a customer’s suit against a dealership from becoming the basis of a class action,” Missimer said, “but the CFPB is busy looking at arbitration clauses and both federal and state courts are reviewing such clauses with more scrutiny. It would be prudent for any dealer to review the arbitration clause now being used and make sure it will keep the dealership out of the court system and a class action when the time comes.”
That response seems rather fail-safe, he said, but noted that some courts have begun to review arbitration clauses as unconscionable and look for any ambiguity to find them non-binding. The California Supreme Court currently has such a case before it, and it has stayed action on a number of California Appellate Court Cases striking down arbitration clauses.
“An arbitration clause drafted in accordance with the Federal Arbitration Act requires disputes to be resolved before an arbitrator and precludes class actions by prohibiting class arbitration. Consumer groups object to the use of mandatory arbitration and are lobbying the CFPB hard to pass rules and regulations to limit the use of arbitration in consumer loan transactions,” Missimer said.
Missimer and Automotive Compliance Consultants noted that Mandatory Arbitration clauses should be based upon the Federal Arbitration Act, which preempts state law, and:
- Be clear and concise on any waivers including waiving the right to participate as a class representative or class member.
- Make the arbitration provision of the contract conspicuous, and consider highlighting through bold or different size type any waivers of legal rights like class action waivers.
- The agreement should be balanced and not pro Seller.
- Avoid provisions and arbitration organizations that would make it financially burdensome for consumers to arbitrate.
- Clearly define any legal remedies not subject to arbitration like self-help remedies, or proceeding in small claims courts.
Missimer advised dealers to have their legal counsel review the arbitration clause language used in their documents.
Automotive Compliance Consultants specializes in dealership compliance, providing in-dealership consultations and analysis, compliance audits and training, and offers solutions for all compliance needs. The Automotive Compliance Consultants staff has extensive experience in the retail automotive industry and focuses exclusively on dealership compliance issues.