Fight against mandatory arbitration clauses finds ally in Senate

Fine print that prevents consumers from suing their banks and lenders will soon face a challenge from the dormant Fair Arbitration Act, which Sen. Al Franken, D-MN, said Thursday he plans to reintroduce in the Senate soon.

Franken, standing alongside members from the Fair Arbitration Now Coalition, addressed the issue of arbitration clauses included in the contracts that millions of people sign when getting a loan or a credit card. His bill, which he plans to introduce with House Rep. Hank Johnson, D-GA, would give consumers the choice of whether or not to go into arbitration over disputes. Arbitration clauses typically require that consumers must negotiate compensation for unfair treatment through private arbitration.

Franken’s speech follows a Consumer Financial Protection Bureau (CFPB) report released on Tuesday, which found that 90 percent of arbitration clauses prevent class action lawsuits, and concluded that there was “no evidence that arbitration clauses lead to lower prices for consumers."

“This week, the CFPB took a big step forward in the same fight by releasing their study of forced arbitration, which has become the standard take-it-or-leave-it practice for consumers in everything from their credit cards to cell phone contracts,” Franken said.

“Those types of agreements often prevent consumers from taking companies to court for legal relief, and instead put victims of wrongdoing at a disadvantage,” he said.

Ira Rheingold, executive director of the National Association of Consumer Advocates, said that the arbitration process subjects consumers to a judicial process that operates outside of public scrutiny.

“They have created their own private justice system,” Rheingold said, noting that corporations sue individuals through the public courts. “Corporations think the public justice system is good enough to sue you, but it’s not good enough when consumers want to take action against them.”

The financial industry defends arbitration as cheaper and more efficient than lengthy civil suits in courts. Arbitration clauses often prevent consumers from lodging class-action lawsuits, which means that even if thousands of people have been wronged, the company may deal with each customer individually. 

Responding to the report, Richard Hunt, president of the Consumer Banker’s Association, said it stands behind the arbitration process.

“For nearly 90 years, arbitration has allowed consumers quick and easy access to an affordable option for dispute resolution,” Hunt said in a statement. “As a last resort, if legal recourse is necessary, arbitration has proven to be the best path forward because it is mutually beneficial to all parties — both consumers and lenders.”

“We look forward to reviewing this study in its entirety, and we look forward to working with the CFPB to improve consumers’ understanding of the arbitration process and how it can benefit them,” Hunt added.