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'Forced Arbitration' Report by Public Citizen; Another Congressional Hearing Today (Web)

Public Citizen, a Washington, D.C., nonprofit, yesterday released a "Forced Arbitration: Unfair and Everywhere,” advocating the ban of arbitration clauses in consumer contracts.

The Sept. 14, 2009, report arrives as House Judiciary Committee’s Subcommittee on Commercial and Administrative Law holds a hearing  titled “Mandatory Binding Arbitration - Is it Fair and Voluntary?”  (Accessible at this link now as of this post).

The report states that the use of binding arbitration is widespread.  Public Citizen researched major providers in the credit card, banking, cellphone, computer manufacturing, cable, brokerage, and home-building industries, finding found that “75 percent use mandatory binding arbitration, and nearly two-thirds force consumers to accept these terms as a condition of doing business.”

Eight of the top 10 credit card providers have a mandatory arbitration provision in their consumer contracts, the report found.  Bank of America and JPMorgan Chase stopped requiring their consumers to settle disputes in binding arbitration this summer. [Original web post on JPMorgan Chase here.]

Bank of America and Chase both ended their arbitration practice after Minnesota ADR provider National Arbitration Forum signed a consent agreement in which it agreed to shut down its consumer arbitration division.  Minnesota Attorney General Lori Swanson filed suit against NAF for consumer fraud, alleging, among other things, that NAF was financially connected to debt collection firms that furnished it with the bulk of its business.  [Details here and here.]

In the new report, Public Citizen notes that consumers have a difficult time protecting themselves by researching arbitration policies before purchasing products. They found that some credit card companies require that a customer apply and be approved for a credit card before the arbitration terms can be reviewed.

The report advocates a nationwide ban on arbitration clauses, stating that “forced arbitration creates a systemic bias in favor of businesses while offering few, if any, meaningful deterrents against negligence or even foul play.”

–Erika Myrill, CPR Intern