Home > Credit Cards > Congressional Lawmakers Introduce Arbitration Fairness Act

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AlFranken_John_Taylor_CCFlickrYou aren’t likely to pay much attention to forced arbitration clauses until you get trapped by one, and by then it’s too late. These clauses, found in many consumer contracts, take disputes out of the courts, and require settlement through an arbitrator. The arbitration process is supposed to be cheaper, faster, and more fair than the judicial system. But critics point out that arbitrators often find in favor of the companies that hire them—the same companies that are trying to avoid lawsuits by slipping these clauses into their contracts.

Today, U.S. Sens. Al Franken (D-Minn.), Richard Blumenthal (D-Conn.) and U.S. Rep. Hank Johnson (D-Ga) are introducing the Arbitration Fairness Act, which will eliminate forced arbitration clauses in employment, consumer, and civil rights cases, and allow consumers and workers to choose arbitration after a dispute occurs.

Although this isn’t the first time this legislation has been introduced, there is a special sense of urgency this time around. In April 2011, the Supreme Court ruled that companies can ban class action suits in contracts with the help of—guess what?—forced arbitration clauses. In AT&T v. Concepcion, the Supreme Court overturned a lower court decision allowing a class action lawsuit to proceed despite the fact that the contract customers signed required disputes to be settled through binding mandatory arbitration.

According to Franken’s press release, “The majority of the Court held that the Federal Arbitration Act barred state courts from protecting consumers from these arbitration clauses. The effect of this decision essentially insulates companies from liability when they defraud a large number of customers of a relatively small amount of money.”

Binding arbitration clauses are slipped into all kinds of contracts. More than three years ago, I described how I found one of these clauses in my contract with Comcast, the provider of my Internet, phone and television services at the time. I also recently pointed out that if you dispute an item on your credit report online, at least one of the major credit reporting agencies will require you to agree to arbitration to settle any disputes.

Want to know how bad this is? The Consumerist put together this interactive tool to walk you through it: Mandatory Binding Arbitration: The Worst Choose Your Own Adventure Ever

Few consumers realize how far-reaching arbitration clauses can be. The Boston Globe recently told the story of a man who committed suicide after losing half of his life savings. His family believes a bank advisor may have misled him into shifting his savings into more aggressive investments. After his death, the discovered they couldn’t sue because of a mandatory arbitration clause. Multiple lawyers told them they would likely lose in arbitration.

It’s one thing to put arbitration clauses into business contracts, where the parties can negotiate. It’s quite another to put them into consumer or employment contracts where the only option is to take it or leave.

Here are a few of the problems identified by the Fair Arbitration Now Coalition, an organization largely comprised of consumer advocacy groups:

  • They usually bind the consumer, but not the company, which retains its right to take a complaint to court.
  • The company or employer generally picks the arbitration company. (Imagine if companies who were being sued could pick their judge. Would we stand for that?)
  • Despite being advertised as cheaper, it frequently costs more than taking a case to court. In addition, consumers must often travel to more distant venues, racking up additional costs.
  • Arbitrators don’t have to follow the law, and if they are wrong, there is no public review of decisions as with court cases. There is no right to appeal.

Most importantly, they point out that “forced arbitration strips our most basic rights and makes many employee and consumer protections unenforceable.” Is that really what most Americans want? If not, then hopefully they’ll let their elected officials know how they feel about The Arbitration Fairness Act. And hopefully, this time Congress will listen.

[Related: How to Order Your Free Annual Credit Report]

Image: John Taylor, via Flickr.com

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  • Alice Jones

    I’m preparing an appeal of an arbitration with AT&T. The arbitrator was biased in his decision. Several violations of the FDCPA and FCRA were committed by AT&T when they inappropriately escalated attempts to collect a debt I disputed. AT&T went to great lengths to justify these attempts going as far as to say that I “gave them permission to contact my father because I did not want to deal with them.” My father had passed away a few years before. On the day of the hearing, the arbitrator made a joke about AT&T’s antics with me by saying, “unless they contacted your father from the grave.” AT&T had reportd the disputed debt on my report in 2008. It wasn’t taken off until I actually filed for arbitration April 2010. The AAA has taken my complaint abt the arbitrator; however, it seems unlikely to me that these “hearings” are no more than kangaroo courts. I’ll have to file an appeal for a retrial or some relief in the federal court. My grandson is a CF patient, and the violations included several calls from their own collection agency even though I had formally disputed the charges, badgering me abt the bill on top of the intent to ruin my credit. Now the arbitrator, paid by AT&T, is likely still on the panel with no fears of retribution to do the same to someone else.

    • http://www.Credit.com Gerri Detweiler

      Alice – I hope this turns in your favor. Please let us know how it turns out.

  • http://www.hadd.com Nancy S

    Here is a link to Jordan Fogal’s testimony http://judiciary.house.gov/hearings/June2007/061207fogal.pdf

  • Michelle Rechtien

    Hello Jordan and Nancy…

    Because of forced arbitration, my husband and I have been stuck with a house riddled with costly defects. The builder we bought our new home from has used arbitration to force complaints against it into a rigged system so it can avoid accountability.

    In September 2006, after my husband John returned from a tour of duty in Iraq, we were transferred to Savannah, Ga., where we bought the new home. The day before we moved in, we found numerous defects in the house during our walk through. We used two rolls of painter’s tape to mark all the defects, and the builder’s customer service representative assured us that the defects would be corrected. The following day, my husband and I closed on our new house.

    The house was to be a symbol of our stability and protection for our two children. It turned out to be a nightmare. Shortly after we moved in, the so-called “repair” work began and continued for several weeks; in truth, nothing was adequately repaired.

    Over time, we noticed more defects, which we would point out to the builder. The customer service representative told us to note them and report them at the one year walk through. Over the course of the next several months we documented numerous defects. Ceramic tiles in our entry way and around the fire place were broken. Water leaked from the master shower and the bath tub. We noticed mold growing on the walls. The list goes on.

    We had an appointment for the one year walk through in September 2007, two weeks prior to the one year date. The builder’s representative did not show up. The next day, I was told the representative forgot and made another appointment for three weeks after the one year date. I questioned this and was told, “It will be fine, we will take care of it.”

    The new employee sent in to do the one year walk through arrived with one sheet of paper; we informed her that one sheet wouldn’t even get us through the living room. She assured us “whatever doesn’t get written down, put blue painter’s tape on the defects, point them out to the subcontractors, and they will take care of it.”

    They did not take care of it. Months passed without a word, let alone a repair. Our original home inspector suggested we have a structural engineer perform a structural evaluation. The structural engineer documented poor workmanship and code violations.

    After numerous meetings and conversations with the builder representatives, we were again told they would repair the defects.

    After many failed promises and failed work, in July 2008 we filed the necessary paperwork for arbitration – the only option available to us, thanks to the forced arbitration clause in our warranty. Out of the 182 defects we arbitrated to have the home builder repair, we were awarded 39 by a DeMars & Associates arbitrator. Of those 39, not one single item has been repaired because we have not received the $3,210 the builder offered to settle the dispute, nor does this amount come close to the $14,000 to $16,000 contractors have estimated we will actually need for repairs. The arbitration decision came down in October, just a few days before John deployed to Iraq again. The decision wasn’t fair or just, and made us both at that time figure out we were going to get nothing out of this process. John deployed and since that time I continue to fight to get our house fixed.

    • http://www.Credit.com Gerri Detweiler

      Michelle – Yours is an excellent example of why binding mandatory arbitration should be banned. I imagine you have let your elected officials know that you support the Arbitration Fairness Act – if not, it would be a good idea.

  • http://credit.com Darrell

    Arbitration clauses in car-dealerships also put the consumer who purchase new cars at an un-fair advantage, Guess with all the recalls that have come out against Toyota,
    I can see why the Toyota Dealership’s would want to have the buyer’s sign an arbitration clause, if the dealerships know of a major recall and failed to inform the buyer, fraud has been committed, and if the buyers signs the arbitration agreement, the dealership will try to hide behind it, and use that agreement to their advantage.

  • http://www.hadd.com Nancy S

    Forced arbitration clauses are nearly always included in a builder, builder warranty, and mortgage contract. If your home is built with serious defects and your mortgage is fraudulent these clauses bar you from the court house door. Please contact your elected officials and urge them to support the Arbitration Fairness Act!

  • http://www.jordanfogal.com Jordan fogal

    Please read my congressional testimony you may be next….

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