Written by: Courtney Fernandez
Introduction
Venmo, a digital wallet, increasingly embeds itself in everyday life as individuals, as well as businesses, exchange payments for all types of goods and services. Recently, Venmo notified its consumers of changes to its terms of use for its app, effective May 23, 2022, including an onerous Agreement to Arbitrate. This obligation reflects the power that businesses hold to impose legal constraints on consumers. Arbitration clauses create some positive and negative consequences that consumers must stay aware of if they continue to use products, such as the Venmo app. Given that the Federal Arbitration Act preempts any state arbitration law, businesses and consumers must take care when creating and entering arbitration agreements.
Advantages of Arbitration
Arbitration clauses often result in significant benefits to businesses like Venmo. Arbitration allows parties to resolve their legal disputes privately with a binding arbitration award presided over by a third party neutral. These neutrals typically have extensive experience as attorneys in a particular area of law or became arbitrators after retiring as a judge. Prominent arbitration tribunals such as the American Arbitration Association (AAA) or JAMS permit the parties to choose their arbitrator from available neutrals in the region or from a selected qualified list of arbitrators. This choice empowers the parties to choose a trusted neutral. The trust in the chosen arbitrator may frequently lead to more satisfying results or cooperation and collaboration among the parties.
Likewise, both AAA and JAMS provide their own respective rules that govern arbitration proceedings to ensure that consumers receive a fair resolution to their dispute. For example, AAA and JAMS have parallel rules for consumer disputes which demand that consumers have adequate and clear notice of the arbitration provision. Misleading or ambiguous arbitration clauses will not suffice, and courts will likely render these types of clauses as unenforceable. Moreover, arbitration proceedings prove advantageous to consumers because the arbitration agreement governing the dispute may limit the types of discovery that the parties may conduct. Limited discovery may save the parties some of the time and costs compared to the time-consuming and costly nature of litigating in courts.
The arbitration clause in Venmo’s new User Agreement points out the arbitration provision using bold text in the first paragraph of the User Agreement. This emphasis illustrates Venmo’s overt attempt to present their consumers with clear and adequate notice of the contractually binding Agreement to Arbitrate. Venmo’s arbitration clause relies on the Consumer Arbitration Rules from AAA and smartly includes a link to these AAA rules. Including access to the AAA rules within the arbitration clause also highlights Venmo’s desire to offer fair and enforceable arbitration guidelines to their consumers. Notably, Venmo’s arbitration clause empowers the courts to interpret issues related to the scope or enforceability of the arbitration clause. The courts’ ability to retain jurisdiction over issues related to the arbitrability of the consumer’s claims helps limit the arbitrator’s jurisdiction and allow the consumer to preserve some rights to litigate.
Disadvantages of Arbitration
Conversely, arbitration clauses such as Venmo’s Agreement to Arbitrate often inflict significant detriments to consumers. By signing an arbitration clause, individuals lose their rights to their day in court either individually or in a class action lawsuit. Arbitration clauses also cause consumers to lose the right to a trial by jury as guaranteed by the Seventh Amendment for certain actions. In fact, Venmo’s arbitration clause demands that the consumer waives their right to participate in a class action proceeding against Venmo and similarly requires a consumer to waive their right to a jury by agreeing to resolve any disputes exclusively through binding arbitration. Furthermore, Venmo’s arbitration clause contains broad language regarding the scope of legal claims that fall within the arbitrator’s jurisdiction including both federal and state statutory claims. Additionally, courts have limited ability to review any orders and arbitration awards rendered in an arbitration proceeding. This limitation strips individuals of their full rights to appeal that accompany a typical litigation proceeding.
To avoid businesses’ arbitration clauses, consumers may need to explicitly elect to circumvent the arbitration agreement. However, the process for opting out of arbitration may involve a burdensome multistep process that consumers likely will not undertake the time to do. For instance, Venmo’s new terms of use requires that consumers mail their completed signed Opt-Out Notice Form to Venmo’s business address. Venmo further limits the time period in which the consumer may send the completed form. In the User Agreement, consumers receive notification that first time users have approximately thirty days from the date they accept the User Agreement for the first time to opt out, while all other users who previously accepted the prior User Agreement have until June 22, 2022 to opt out of arbitration. These types of limits may impose obstacles on the consumers and lead to most consumers choosing to accept the restrictions of the arbitration clause.
Conclusion
Of course, Venmo consumers do not need to opt out of the Agreement to Arbitrate simply because such an agreement exists in Venmo’s User Agreement. Arbitration offers many advantages that consumers may enjoy benefits from, although federal or state courts will likely not afford them, such as an expedited resolution of their legal dispute. But consumers should remain cognizant of what rights they waive when they sign an arbitration agreement. A consumer using Venmo may not fail to read the new User Agreement to safeguard against participating in arbitration. Venmo’s Agreement to Arbitrate appears to exemplify an enforceable and fair arbitration clause, as a result, Venmo consumers must take notice because arbitrators will enforce the contract.
Sources:
9 U.S.C § 2
Consumer Arbitration Fact Sheet, American Arbitration Association, https://go.adr.org/consumer-arbitration (last visited May 5, 2022).
Consumer Arbitration Minimum Standard, JAMS, https://www.jamsadr.com/consumer-minimum-standards/ (last visited May 5, 2022).
Venmo Opt-Out Notice Form, Venmo, https://help.venmo.com/hc/en-us/articles/360062640153-Venmo-Opt-Out-Notice-Form (last visited May 5, 2022)
User Agreement, Venmo, https://venmo.com/legal/us-user-agreement/ (last visited May 5, 2022).
Joe Valenti, The Case Against Mandatory Arbitration Clauses, CAP (Aug. 2, 2016), https://www.americanprogress.org/article/the-case-against-mandatory-consumer-arbitration-clauses/
Sadaf Ahmed, Consumer Arbitration Clause Must Be Clear, ABA (May 27, 2020), https://www.americanbar.org/groups/litigation/committees/alternative-dispute-resolution/practice/2020/consumer-arbitration-clause-must-be-clear/
Barbara Krasnoff, How to opt out of Venmo’s new arbitration clause, Verge (Apr. 25, 2022), https://www.theverge.com/23040916/venmo-arbitration-class-action-sue-how-to
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