House Subcommittee Heard Testimony on Unfair Binding Arbitration Clauses

Lawmakers and consumers testified on Tuesday before a House subcommittee, calling for new, tough laws restricting the ability of companies to force customers into mandatory binding arbitration when disputes arise. The law could help protect consumer access to the courts in cases against nursing homes, banks, cable companies and other corporations.

Congress is currently considering two different pieces of legislation that would restrict forced arbitration clauses contained in many agreements consumers must sign to do business with companies in many industries critical to Americans’ day-to-day life.

Representative Henry C. Johnson of Georgia has introduced the Arbitration Fairness Act, which would prevent all pre-dispute arbitration clauses that could be considered “forced” due to economic and social needs of the individual, and Rep. Linda Sanchez of California has introduced the Fairness in Nursing Home Arbitration Act of 2009, which would nullify all such clauses contained in admission agreements that prevent residents or family members from filing a nursing home negligence lawsuit or other claim in open court.

A report released on Monday by Public Citizen found that 75% of eight major industries require customers to sign pre-dispute arbitration agreements, including banks, cable/internet providers, home builders, and car dealerships. These agreements require customers to sign away their ability to go to court if they have been wronged, and most companies refuse to give customers information about their arbitration requirements until they are ready to agree to sign a contract.

Defenders of the practice object to calling the agreements mandatory, since consumers are not forced to sign the contract, and other clauses in contracts that people may not be familiar with are not considered to be mandatory. Stephen J. Ware, a professor of law at the University of Kansas, testified against passage of the bills, saying that pre-dispute arbitration prevents load on the court system, and that there are pre-existing laws which allow courts to nullify arbitration agreements which are unfairly utilized.

Critics of the practice say that when such agreements become ubiquitous in key industries, especially ones where people have little choice but to participate, then such agreements become de facto mandatory requirements.

“Checking a parent or other relative into a nursing home or other long-term care facility is a perfect example of a time when one party really has no real power or choice in the matter,” Sanchez said in her testimony before the House Subcommittee on Commercial and Administrative Law. “For desperate families who are unable to provide adequate care at home, the need for an immediate placement for their loved ones makes the ‘take-it-or-leave-it’ choice no choice at all.”