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Compliance Firm Advises Dealers to Review Arbitration Clauses

Automotive Compliance Consultants warned dealers this week to review their arbitration clauses in their finance contracts. The firm says such language is coming under scrutiny from courts and regulators.

by Staff
August 5, 2014
2 min to read


CRYSTAL LAKE, Ill. — David R. Missimer, general counsel for Automotive Compliance Consultants, which specializes in dealership compliance, advised auto dealers today to review their arbitration clause language used in their finance contracts.  

Missimer issued his warning in response to the way courts are viewing finance contract language, as well as the pressure such clauses are getting from consumer groups and the Consumer Financial Protection Bureau (CFPB).

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“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.”

Missimer noted that some courts have begun to review arbitration clauses as unconscionable and are looking for any ambiguity to find them nonbinding. The California Supreme Court is currently considering a case involving arbitration clauses. 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,” Missimer said. “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 and Automotive Compliance Consultants noted that mandatory arbitration clauses should be based upon the Federal Arbitration Act, which preempts state law. The compliance expert also offered the following recommendations:

• Be clear and concise on any waivers including waiving the right to participate as a class representative or class member.

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• 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. To learn more, contact Missimer at dmissimer@compliantnow.com.

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