Companies that incorporate arbitration provisions in contracts with customers may find these clauses challenged. Companies can defend such clauses by taking care in drafting their contracts.
In a recent California case, the customer of a payday lender attempted to sue the lender’s debt collector in federal court. The customer’s contract with the lender contained a clause requiring any claims or disputes related to the contract to be resolved in arbitration. Because the language in the arbitration provision was broad enough to encompass claims against the payday lender and its agents, the court said the arbitration provision applied to the customer’s claim against the debt collector.
Additionally, the court said that the arbitration clause was not unconscionable because it offered the customer the opportunity to reject arbitration by providing written notice to the lender. Because the consumer did not exercise its right to reject arbitration, the arbitration provision controlled and the court ordered the case to arbitration.
By having a broad arbitration provision that also explained the customer’s rights, the debt collector was able to enforce the choice to arbitrate and avoid a potential class action suit.