U.S. Senator Sherrod Brown (D-OH), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, has introduced the Arbitration Fairness for Consumers Act. The legislation, introduced on March 7, proposes to amend Title X of the Consumer Financial Protection Act of 2010 to prohibit pre-dispute arbitration agreements and class-action waivers in contracts for consumer financial products or services. Under the bill, such agreements would be invalid and unenforceable. The bill text is available here.
The bill is co-sponsored by multiple left-leaning powerhouse legislators, including Senator Elizabeth Warren (D-MA), Senator Bernie Sanders (I-VT), Senator Edward Markey (D-MA), and Senator Dianne Feinstein (D-CA). Brown asserts that the bill will end abusive practices for financial products and services: “Forced Arbitration clauses let big companies hide from accountability and silence victims, giving more power to Wall Street over workers and their families.” Citing to an Economic Policy Institute report, Brown’s remarks supporting the bill state that “when consumers go to arbitration to try to get some kind of restitution from a company, they win just 9 percent of the time.” In contrast, “when corporations take consumers to arbitration, the company wins 93 percent of the time.”
If enacted, the implications for the credit card industry will be far reaching, effectively voiding any arbitration clauses in new credit card or current card disputes. Presently, arbitration neutrals are appointed to resolve the majority of disputes between consumers and the credit companies. If the legislation passes, credit card disputes will either (1) be handled privately between the credit card company and the consumer, or (2) decided by the courts. This could result in a flood of new financial services cases, overwhelming an already saturated docket for courts throughout the country.
Not surprisingly, the bill does not have bi-partisan support. “Restricting arbitration would be little more than a government-sponsored bonanza for trial lawyers and certain liberal advocacy groups, at the expense of consumers seeking a fast and fair resolution of their disputes,” states Senator Pat Toomey (R-PA). Republicans have a long history of opposing elimination of consumer arbitration clauses; presumably this proposed legislation will face the same gauntlet.