Congress Should Ban Mandatory Pre-Dispute Consumer Arbitration

posted on:
October 10, 2007

author:
Staff

Every person in the United States who has a credit card, buys a car, signs up for a cell-phone plan, or enters into any other kind of consumer transaction has a mandatory arbitration agreement that is binding on them if a dispute arises.

Most all consumer contracts now include mandatory arbitration clauses that force individuals to go through arbitration rather than civil a court if a dispute subsequently arises.

All decisions by an arbitrator who hears the claim are binding. Some of these clauses also ban customers from joining class-action lawsuits. For years, consumer advocates have rightfully claimed these clauses to be grossly unfair. Congress is presently considering a blanket negation of pre-dispute mandatory arbitration agreements.

If passed, the Arbitration Fairness Act of 2007, which was recently introduced in the U.S. Senate and House of Representatives, would make the clauses unenforceable. Paul Bland, a staff attorney with Public Justice, a national nonprofit public-interest law firm in Washington, D.C., made this observation relating to the legislation:

This is, by far, the most comprehensive bill that has been introduced. There have been bills that ban arbitration in the employment section or the banking section.

The legislation highlights consumers’ vulnerability when it comes to arbitration. Mandatory arbitration clauses give corporations – not consumers – protection because the arbitration process can be costly and the time to prepare and present a case is limited. Corporations tend to always win in arbitrations and that is undisputed.

Many people don’t realize that arbitration was never intended by Congress to be used to settle consumer disputes. The Arbitration Fairness Act, introduced in the Senate and the House on July 12th, would amend the Federal Arbitration Act passed in the 1920s. This act was intended to settle disputes between companies of similar size and power, but the U.S. Supreme Court broadened the law to include consumer disputes.

Private arbitration companies are pressured to rule in favor of corporations – which are or can be repeat arbitration customers – and that is very obvious. “If arbitrators rule against companies too often, they get blackballed. Decisions by arbitrators are final and cannot be appealed. It will take an act of congress to remedy the situation.

If you agree that mandatory, binding arbitration is unfair for consumers, let your Senators and House members know how you feel. Ask them to support the pending bills so that a ban can be put on mandatory, binding arbitration in consumer transactions. If they balk, remind them that Congress has amended the FAA so that car dealers don’t have to face forced arbitration in their contracts with car manufacturers.

The reason given by lobbyists for the car dealers was that arbitration between dealers and the powerful manufacturers was unfair.

 

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