Abusive Forced Arbitration Clauses, Anti-Consumer Court Decisions, Targeted By Legislation

In response to concerns over the impact of forced arbitration clauses contained in many consumer contracts, new legislation has been introduced by a group of Senators to stop what many have described as an abusive and anti-consumer practice, which hides arbitration requirements in the fine print of contracts consumers have to sign to obtain vital services. 

Known as the Restoring Statutory Rights Act (PDF), the legislation was proposed on February 4 by Senator Patrick Leahy, a Vermont Democrat, and Senator Al Franken of Minnesota.

The law would allow federal or state courts to revoke any arbitration agreement that are found to be “unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” It would also protect states from interference by federal laws when they choose to crack down and restrict forced arbitration clauses.

Forced arbitration, also known as pre-dispute arbitration clauses, are commonly found in credit card agreements, loan paperwork, mobile wireless contracts, nursing home entrance agreements and other circumstances where consumers are placed in a position where they have no alternative but to waive their right to go to court in order to obtain services.

Instead of being able to pursue a lawsuit in court, the arbitration provisions require matters be taken to a board of arbitrators, which many critics point out are usually stacked in the company’s favor, decreasing the likelihood of a fair ruling.

“When Americans sign cell phone agreements, rent an apartment, or accept a contract for a job, most of us focus on the service we are about to receive or that we are about to provide,” Senator Leahy said in a press release. “Legal fine print tips the scales against us. It is forcing consumers into private arbitration, denying us of our Constitutional right to protect ourselves in court.”

Senator Leahy said the legislation was necessary after a series of recent Supreme Court decisions appeared to “gut” consumer protection from abusive forced arbitration contracts.

A number of groups have come out in support of the legislation, including the American Association for Justice, Public Citizen, and the Alliance for Justice.

In a letter to members of the U.S. Senate (PDF) urging support for the legislation on February 4, Public Citizen called the bill a significant step toward ensuring that forced arbitration is no longer used to block citizens’ access to the courthouse to defend their rights.

“Forced arbitration has crept into virtually every sector of Americans’ lives,” the letter states. “These contractual provisions compel people to give up their ability to enforce their legal rights in court before a dispute has even arisen. Most people do not even realize that forced arbitration clauses are buried in the fine print of contracts for employment, consumer products, financial goods and services, and even student enrollment agreements at for-profit schools.”

One of the provisions of the proposed bill would require written acknowledgement by both sides that there is an arbitration clause in place, to prevent such agreements from getting lost in legal fine print.