Proposed revision to the GAC

Continuing the theme of arbitration under fire, the Consumer Law Section of the Georgia Bar has requested Bar support for the "Transparency in Arbitration Costs Act." As of last week, I did not see this as a bill in the current session; however, it raises some serious questions. It requires the drafter of a consumer arbitration agreement to "disclose" the cost and fees that may be associated with any future "in-person" arbitration hearing at the time of entering into the agreement. How would a drafter be able to know exactly what fees and costs would be involved at some unknown point in the future with an unknown arbitrator? The provision allows for a good faith estimate. Failure to comply with this requirement would not in itself make the agreement unenforceable. Instead, it could be used to establish the unconscionability of the agreement. In addition, failure to comply gives the Attorney General (and anyone else) the power to sue and enjoin future violations of the act. For a pdf of the memo to the Bar and the proposed, click HERE.


Admirable as the intent is (making consumers more aware of the possible costs associated with arbitration), the provision tries to avoid running afoul of the FAA, which happens to preempt any state law that treats arbitration provisions differently than other contracts, by changing the state law on unconscionability. Federal law differs to state law as the general enforcement of contracts; however, this provision does not apply to all contracts in the state, just arbitration agreements. Additionally, the provision giving persons the power to sue and enjoin the drafter's failure to comply in the future forces, in essence, a unique requirement on arbitration contracts. Therefore, my opinion is that it runs afoul of the FAA regardless.

Some other problems: "Consumer" as defined includes employees who enter into an arbitration agreement with employers. Also, it requires disclosires on costs and fees, but it doesn't educate the consumer as to the possible costs and fees associated with litigation. As most arbitrators will tell you, an expensive arbitration is more often the result of the parties' and their attorneys' own failure to take advantage of the cost savings possible in the process. Moreover, court costs can appear relatively cheap, but the undisclosed costs are the attorneys' fees.

Here again, perhaps the lesson is for drafters of consumer and employment arbitration agreements to go ahead and commit upfront to paying all costs and fees of the arbitration. What say you?