New Jersey Gov. Phil Murphy recently signed legislation that establishes new consumer protections in arbitration. The new law, Assembly Bill 4972 (AB 4972), aims to reduce conflicts of interest and fee-shifting.

As set forth in the statement accompanying AB 4972, New Jersey has rules governing arbitrators and arbitration generally, but there are no rules pertaining to the regulation of arbitration organizations. The sponsors of the bill maintain that such regulations are necessary, particularly with respect to arbitration involving consumers. In support, they note that because arbitration is generally confidential and conducted outside of the public eye, it is difficult for the state to monitor whether it is being conducted fairly.

Under the bill, “consumer arbitration” is defined as “arbitration pursuant to a standardized contract, written by one party, with a provision requiring that disputes arising after the contract's signing shall be submitted to binding arbitration, and the party not writing the contract is a consumer.” AB 4972 expressly does not apply to arbitrations conducted or administered by a self-regulatory organization, as defined by the federal Securities Exchange Act of 1934, the Commodity Exchange Act, or regulations adopted under those acts. Accordingly, arbitrations conducted by the Financial Industry Regulatory Authority (FINRA) would not be subject to the new rules.

Below are the key provisions of AB 4972:

  • Fee Shifting: The legislation prohibits a neutral arbitrator or arbitration organization from administering any consumer arbitration that requires a non-prevailing consumer who is a party to the arbitration to pay the opposing party’s costs or fees. The bill also requires an arbitration organization to waive the fees and costs of arbitration, exclusive of arbitrator fees, for an indigent consumer. In addition, the bill requires an arbitration organization to provide written notice to any consumer of the right to obtain a fee waiver and to keep specified information concerning a consumer confidential.
  • Financial Interests: The bill prohibits an arbitration organization from administering consumer arbitration or providing any other services related to consumer arbitration if the arbitration organization has, or within the preceding year has had, a financial interest in any party or attorney for a party. Similarly, an arbitration organization may not administer a consumer arbitration, or provide any other services related to a consumer arbitration, if any party or attorney for a party has, or within the preceding year has had, any type of financial interest in the arbitration organization. Under the bill, a “financial interest” means holding a position in a business as an officer, director, trustee, or partner, or holding any position in management of the business; or ownership of more than a five percent interest in a business. As amended prior to passage, AB 4972 provides that any position-holder in a non-profit organization who is not compensated for holding that position would not be considered to have a financial interest in the organization.
  • Record-keeping: Any arbitration organization that is involved in more than 50 consumer arbitration cases per year would be required to collect and publish information regarding each consumer arbitration within the last five years. The information must include: (1) the name of any corporation or other business entity that is party to the arbitration; (2) the type of dispute involved, including, but not limited to, goods, banking, insurance, health care, or employment. In the case of arbitration involving employment, the amount of the employees’ annual wage as defined by a set of ranges; (3) whether the consumer was the prevailing party; (4) the number of occasions a business entity, which is a party an arbitration, has previously been a party in an arbitration or mediation administered by the arbitration organization; (5) whether the consumer was represented by an attorney; (6) the date the arbitration organization received the demand for arbitration, the date the arbitrator was appointed, and the date of disposition by the arbitrator or arbitration organization; (7) the type of disposition of the dispute, if known, including withdrawal, abandonment, settlement, award after hearing, award without hearing, default, or dismissal without hearing; (8) the amount of the claim, the amount of the award, and any other relief granted, if any; and (9) the name of the arbitrator, the total fee for the case, and the percentage of the arbitrator's fee allocated to each party.

What’s Next?

The new law is scheduled to take effect on the first day of the fourth month following enactment, which is May 1, 2020. It will apply to consumer arbitration commenced on or after the effective date and will operate only prospectively so as not to prohibit the administration of consumer arbitrations on the basis of financial interests held prior to the effective date.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Joel Kreizman, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.