## Facts

- A New Jersey consumer obtained several small, short-term loans arranged through storefront operations associated with County Bank, including a $200 loan carrying a $60 finance charge and an APR over 600%.
- The borrower extended the $200 loan twice, incurring additional finance charges on the same principal.
- The loan documents were standard-form, nonnegotiable agreements drafted by the lender and presented on a take-it-or-leave-it basis.
- The documents required binding arbitration and included an express waiver of class proceedings, requiring disputes to be resolved only in individual arbitration.
- The borrower filed a putative class action alleging unlawful high-rate lending and statutory violations under New Jersey consumer-protection and related statutes.
- Defendants moved to compel arbitration and enforce the class-action waiver; the trial court stayed the case for arbitration, and the appellate court affirmed.

## Issues

1. Whether a class-action waiver contained in an arbitration clause within a consumer contract of adhesion is unconscionable and unenforceable under New Jersey law when the claims are small and arise under consumer-protection statutes.
2. If the class-action waiver is unenforceable, whether the plaintiff may pursue class relief in court notwithstanding the arbitration agreement.

## Decision

- The New Jersey Supreme Court reversed the judgment enforcing the class-action waiver and the stay pending individual arbitration.
- The court held the class-action waiver unconscionable and unenforceable in the circumstances presented.
- The ruling permitted the case to proceed in court as a putative class action rather than being limited to individual arbitration.

## Legal Principles

- New Jersey courts may refuse to enforce contract provisions that are unconscionable, considering both procedural unconscionability (including adhesion and lack of meaningful choice) and substantive unconscionability (unfairness and conflict with public policy).
- In consumer contracts of adhesion, a term may be unconscionable when it effectively functions as an exculpatory provision by preventing practical enforcement of statutory rights.
- When individual damages are modest and alleged misconduct is widespread, a class-action ban can defeat the remedial and deterrent purposes of consumer-protection statutes by making individual pursuit of claims economically irrational.
- A general policy favoring arbitration does not require enforcement of unconscionable remedial limitations embedded in an arbitration agreement.

## Conclusion

Because the loans involved small-dollar claims and a highly adhesive contract, the class-action waiver would likely prevent effective private enforcement of New Jersey’s consumer-protection statutes and shield alleged unlawful lending practices from accountability; the waiver was therefore unenforceable, and the borrower could pursue class relief in court.


Muhammad v. County Bank, 912 A.2d 88 (N.J. 2006)