H.R. 3010/S. 1782 - The Arbitration Fairness Act of 2007

Protect Consumers from Abusive Binding Mandatory Arbitration Clauses!

Since these binding mandatory arbitration clauses are presented on a take-it-or-leave-it basis, the consumer has no choice but to waive their rights.  Unfortunately, these clauses are achieving their intended purpose—undermining consumer protections, civil rights, and other laws that level the playing field between corporations and individuals.

How Consumers are Hurt by the Fine Print

Arbitration can be a valid and effective method of dispute resolution when both parties voluntarily agree to arbitrate, but when it is used by a corporation to limit the legal rights of an individual in a non-negotiable contract, it becomes an abusive weapon.  With the help of binding mandatory arbitration clauses, corporations are able to create a one-sided process that leaves the consumer with big arbitration fees and little chance of recovery. 

• One-sided Requirements.  Most binding mandatory arbitration clauses only require the consumer to waive their rights to the civil justice system, while allowing the corporation to sue in court if they so choose.

• High Costs.  Consumers must pay steep filing fees just to initiate a case—seldom less than $750 – and pay their share of the arbitrator’s hourly charges, which are routinely $400 or more per hour.  All these fees must be deposited in advance, and almost always amount to thousands of dollars.  In addition, arbitration clauses often allow the corporation to choose the location, regardless of how inconvenient or costly travel will be for the consumer.

• Biased Decision-makers. Since only businesses are repeat users of an arbitrator, there is a disincentive for an arbitrator to rule in favor of a consumer if he expects further retentions.  A September 2007 Public Citizen report on credit card arbitration analyzed more than 19,000 credit card arbitration cases in California, and found that the arbitrators ruled in favor of the corporation almost 95% of the time.

• Weak Civil Justice Safeguards.  Binding mandatory arbitration clauses often severely restrict the individual’s ability to argue their side of the case.  For example, it severely restricts the individual’s ability to obtain necessary evidence – which they would be allowed to obtain in court.  Moreover, it is nearly impossible to appeal adverse decisions by arbitrators. A decision may be overturned only if there is fraud or “manifest disregard of the law.”

• Secret Backroom Proceedings.  While proceedings and records of the courts are open to the public, most arbitration clauses require that proceedings be kept confidential, even if the case raises important public policy issues.  As a result, only the corporation can track past decisions and know which arbitrators have ruled for them.

S. 1782/H.R. 3010, the Arbitration Fairness Act of 2007

When Congress enacted the Federal Arbitration Act (FAA) in 1925, its goal was to allow an alternative forum for parties on equal footing to resolve their disputes.  The Arbitration Fairness Act of 2007, introduced by Sen. Russ Feingold (D-WI) and Rep. Hank Johnson (D-GA), reflects the FAA’s original intent by requiring that agreements to arbitrate employment, consumer, franchise, or civil rights disputes be made after the dispute has arisen.  

• This legislation would not prohibit arbitration.  The bill would amend the FAA to prevent the use of pre-dispute binding mandatory arbitration clauses in consumer, employment and franchise agreements. 

• This legislation will ensure that the decision to arbitrate is truly voluntary and that the rights and remedies provided for by our judicial system are not waived under coercion. 

• This legislation would allow pre-dispute binding mandatory arbitration to continue in most business-to-business agreements.  

• This legislation would not apply to collective bargaining agreements.  

The Arbitration Fairness Act of 2007 is supported by a broad coalition of consumer groups, including: Consumer Federation of America, Alliance for Justice, Center for Responsible Lending, American Association for Justice, National Consumer Law Center, Public Justice, National Employment Lawyers Association, Public Citizen, U.S. PIRG, National Consumer Voice for Quality Long-Term Care, and Consumers for Auto Reliability and Safety.

Please Support the Arbitration Fairness Act of 2007