The war against arbitration agreements continues apace. The latest volley comes from the U.S. Court of Appeals for the Fourth Circuit, Johnson v. Continental Finance Company, LLC, No. 23-2047 (4th Cir. Mar. 11, 2025). In Johnson, the court considered whether a change-in-terms provision in a cardholder agreement rendered arbitration and delegation clauses illusory under Maryland law. In a 2-1 decision featuring opinions by all three panel members, the court said “yes,” and found the arbitration and delegation clauses unenforceable.

Plaintiffs filed putative class-action complaints against Continental Finance Company, LLC and Continental Purchasing, LLC. Continental moved to compel arbitration pursuant to the arbitration provision contained in the cardholder agreement Plaintiffs received upon account opening. Plaintiffs opposed, arguing the cardholder agreement lacked consideration because the agreement’s change in terms provision permitted Continental to unilaterally amend the agreement at its “sole discretion”:

We can change any term of this Agreement, including the rate at which or manner in which INTEREST CHARGES, Fees, and Other Charges are calculated, in our sole discretion, upon such notice to you as is required by law. At our option, any change will apply both to your new activity and to your outstanding balance when the change is effective as permitted by law.

Affirming the district court, a majority of the panel agreed that the arbitration clause was illusory because the change-in-terms provision allowed Continental to “change any term of [the] Agreement in [its] sole discretion, upon such notice to [Plaintiffs] as is required by law.” Citing a decision by the Supreme Court of Maryland (Cheek v. United Healthcare), the majority said such provisions “are so one-sided and vague” under Maryland law that they “allow[] a party to escape all of its contractual obligations at will,” including the obligation to arbitrate. Based on this, the majority held that the arbitration and delegation clauses were unenforceable.

Judge Wilkinson’s lead opinion raises a difficult question: If the change-in-terms provision renders the arbitration clause illusory, then why doesn’t it render the entire cardholder agreement illusory? To be sure, the plaintiffs limited their argument to the arbitration and delegation clauses, and the majority affirmed that these were the only provisions that its judgment disturbed. The lead opinion doesn’t answer this question. To our eyes, we see no limiting principle that would prevent the same argument from taking down the entire cardholder agreement. What’s good for the goose is good for the gander: Arbitration agreements are to be treated just like every other contract under state law. If the change-in-terms provision nullifies the formation of the arbitration agreement, the same should be true for every other term in the contract. Such a drastic outcome would jeopardize the formation of countless consumer contracts. As the dissent (authored by Judge Niemeyer) points out, the change-in-terms language here is “legal and widespread.” All that is required is sufficient notice of the change. If consumers don’t like the change, they negotiate with their wallets and take their business elsewhere.

Perhaps sensing this gap in the lead opinion, Judge Wynn addresses it in his decisive concurrence. But in doing so, he frankly raises more troubling questions. He points to another Maryland Supreme Court case (Holmes v. Coverall N.A., Inc.) stating that “an arbitration provision contained within a broader contract is a separate agreement that requires separated consideration in order to be legally formed.” This strand of Maryland law strikes us as potentially unlawful as preempted under the Federal Arbitration Act. Again, arbitration agreements must be treated on the same footing as every other contract under state law. No one disagrees that every other provision in Continental’s contract can be negotiated collectively and supported by the same pot of consideration. So why do arbitration agreements require something different and more rigorous under Maryland law? Though we’re obviously Monday morning quarterbacking this case, our answer is: They shouldn’t.

As noted at the top, Johnson is part of a larger judicial war by plaintiffs’ lawyers and consumer advocacy groups against consumer arbitration—one that we expect to grow in ferocity given the Trump administration's recent defanging (and defunding) of the CFPB. Several courts have limited the enforcement of arbitration provisions in consumer contracts where plaintiffs have argued that the unilateral modification of such contracts to include arbitration provisions was illusory or did not comply with the implied covenant of good faith and fair dealing. See Canteen v. Charlotte Metro Credit Union, 900 S.E.2d 890 (N.C. 2024); Decker v. Star Fin. Grp., Inc., 204 N.E.3d 918 (Ind. 2023); Badie v. Bank of Am., 67 Cal. App. 4th 779 (1998). And prior to the recent changes in Washington, the CFPB had proposed a rule making one-sided “change-in-terms” provisions illegal and unenforceable.

We note however that several courts have gone the other way, see, e.g., SouthTrust Bank v. Williams, 775 So. 2d 184 (Ala. 2000), and the cases that have refused to enforce arbitration provisions have indicated that such provisions may be enforceable where the change in terms clause expressly requires a detailed description of changes before they become effective (Johnson) or the contract previously had a governing law provision that specified the forum for the resolution of disputes (Canteen).

Companies that have arbitration provisions or are considering adding them to their consumer contracts should stay apprised of the developing law in this area, particularly in the states in which they are located. Please talk to a lawyer before you draft or promulgate an arbitration clause—an ounce of prevention is worth a pound of cure.