Arbitration Fairness Proposed

18 Jul Arbitration Fairness Proposed

Some members of Congress think you ought to have a right to say if a dispute between you and lender should be heard by a private arbitrator, often in a distant city, or by a judge in your hometown.

Did you think you already had that right? Think again. Many, likely most, credit cards, credit lines, payday loans, construction contracts, and even employment contracts come with an “arbitration clause” which limits your right to pursue legal remedies in a court. As my friend Andy Miofsky pointed out, many people don’t even realize they gave up this right and are often unaware their rights are being dealt with in a quasi-legal proceeding until it is too late.

One reason this is problematic to consumer advocates is that private arbitrators are not judges. They may be retired judges. But they work for a private company. And they typically only get to hear cases (and presumably get paid) if they are assigned by the arbitration company. One of the largest arbitration service providers, the National Arbitration Forum (NAF), allows either party to an arbitration to “strike” an arbitrator for any reason.

As the Christian Science Monitor has pointed out, at least two former arbitrators (one a retires chief justice of the West Virginia Supreme Court and the other a former Harvard professor) have testified that the banks would routinely “strike” them from hearing cases after they had ruled in favor of consumers. So, unlike judges who are paid for rendering impartial justice, in private arbitration you can end up not working if you do the same thing.

Not surprisingly, the Monitor’s previous analysis of NAF proceedings showed that 96% of the arbitration awards are in favor of the creditors, with the “Top 10” most frequently used arbitrators (hearing over 60% of the cases) sided with industry in all but 1.6% of cases. This compares with the arbitrators who heard three or fewer cases had sided with consumers 38% of the time.

Do you think you would know which arbitrator has the “best” track record to rule in your favor? Want to bet the credit card company that makes you go to arbitration does?

Senator Russ Feingold (D-Wis) and Representative Hank Johnson (D-Ga) have proposed that consumers (as well as employees and franchisees) would not be subject to mandatory arbitration proceedings unless a court concluded that the parties to the agreement — you and the bank, for example — have roughly equal bargaining power. In other words, as soon as Citibank wants your business as much or more as you want to borrow money from Citibank, then you might be stuck with arbitration.

The legislation is referred to as the “Arbitration Fairness Act of 2007.” Whether it goes anywhere depends on the public interest in things which sound boring but affect millions of consumers — and virtually everyone reading this blog. A voice and a vote can change the world.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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