In Muhammad v. County Bank of Rehoboth Beach, the New Jersey Supreme Court chose the interests of consumers over liberally construed Federal Arbitration Act (FAA) policies in deciding that a no class-arbitration provision contained within a payday loan contract was unconscionable. The court used state law contract principles to invalidate the clause, finding that the clause violated several state public policies. Particularly important to the court was the fact that individual claims for damages would be nominal, and thus individual vindication of statutory rights would prove too costly to be practical. In making this distinction, the court suggested a preference for protecting individuals who have entered into contracts of adhesion with little or no chance of protecting themselves outside of the availability of the class mechanism. The court's decision may serve as a guidepost for other jurisdictions attempting to shape the law in the undefined arena of class-arbitration waivers. The court signals that freedom to contract under the FAA is important, but not at the expense of protecting individual claimants and the statutory rights of consumers.



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