Arbitration: The Plaintiffs’ Bar Strikes Back

I. Introduction

Arbitration provisions in consumer finance contracts came into widespread use in the mid-to-late 1990s as an effective industry antidote to the plague of class actions raging during that decade. Consumer finance companies and retailers saw the U.S. Supreme Court’s broad view of the reach of the Federal Arbitration Act (the FAA) in 1995’s Allied-Bruce Terminix Cos. v. Dobson ¹ as a means not only to preclude runaway punitive damage verdicts in state courts but also to prevent class actions, the conventional wisdom then being that class arbitrations were not permitted under the FAA. In the ensuing years, arbitration provisions in consumer contracts became a kind of wonder drug, defeating or deterring the filing of many putative class actions.