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Class action waiver unconscionable in consumer contract
August 09, 2006 by Ross Runkel at LawMemo

New Jersey's Supreme Court today ruled that an anti-class-action clause in an arbitration agreement was unconscionable.

The clause was in a payday loan agreement. The case involved a consumer bringing a fraud claim that involved a small amount of money.

The court found that because the case involved a small amount of money, individual enforcement of the plaintiff's claim would be difficult if not impossible. A bar on class-arbitration would preclude any realistic challenge to the statutory loan agreement.

The court severed the unconscionable provision from the contract, and then enforced the agreement to arbitrate.

Muhammad v. County Bank of Rehoboth Beach (New Jersey 08/09/2006).

But hey, look at this. In a companion case involving a mortgage loan, the court said an anti-class-action clause would be OK because the case involved a substantial amount of damages and that would give the plaintiff enough incentive to bring the claim as an individual action. Delta Funding Corp v. Harris (New Jersey 08/09/2006).

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