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Wednesday, April 8, 2020

Bill to limit use of forced arbitration clauses reintroduced

By Jessica Karmasek | Mar 22, 2017


WASHINGTON (Legal Newsline) - A group of Democrats this month reintroduced federal legislation aimed at limiting the use of forced arbitration clauses, arguing they prevent Americans from seeking justice through the court system.

U.S. Sens. Al Franken, D-Minn., and Patrick Leahy, D-Vt., along with U.S. Rep. Hank Johnson, D-Ga., introduced the Arbitration Fairness Act of 2017 March 7.

The legislation, previously introduced in 2011 and 2015, would eliminate forced arbitration clauses in employment, consumer, civil rights and antitrust cases.

“For years, I've been fighting to re-open the courtroom doors to consumers, workers, and small businesses in Minnesota,” said Franken, a member of the Senate Judiciary Committee. “Our legislation, the Arbitration Fairness Act, would help restore everyday Americans’ right to challenge unfair practices in court and ensure meaningful legal recourse.

“We’re at a point where big corporations can write their own rules and insulate themselves from liability for wrongdoing. That needs to change.”

Forced arbitration has been a hot topic in recent months, with the Consumer Financial Protection Bureau still looking to finalize its proposed set of rules prohibiting such clauses that prevent class action lawsuits.

Under the CFPB’s proposal, companies would be prohibited from putting mandatory arbitration clauses in new contracts.

Many contracts for consumer financial products and services contain such clauses, which are a way to resolve disputes outside the court system.

Companies would still be able to include arbitration clauses in their contracts. However, for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court.

The proposal would provide the specific language that companies must use.

The proposal also would require companies with arbitration clauses to submit to the CFPB claims, awards and certain related materials that are filed in arbitration cases. This would allow the bureau to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers.

The bureau also is considering publishing information it would collect in some form, so the public can monitor the arbitration process as well.

“Forced arbitration closes the courthouse doors to Americans wishing to seek justice for a variety of civil claims, including sexual harassment and workplace discrimination,” Johnson said. “These arbitration clauses are often unwittingly entered into by consumers when they sign everyday contracts such as cell phone, car rental, credit card and nursing home agreements to name a few.”

The Georgia congressman argues forced arbitration undermines fundamental rights and protections guaranteed by the Constitution, federal and state law.

“Contrary to popular belief, arbitration decisions are final, binding, non-appealable, and strongly in favor of corporations,” he said. “The result is a secretive and rigged process that prevents citizens from exercising their fundamental 7th Amendment right to a trial by jury.”

Leahy agreed.

“These dangerous provisions force us to abandon our Constitutional right to protect ourselves in court, and instead send hardworking Americans to face wealthy corporations behind closed-doors in private arbitration,” he said. “This must change.”

The Arbitration Fairness Act, like the Federal Arbitration Act’s original intent, would require agreements to arbitrate employment, consumer, civil rights or anti-trust disputes be made after the dispute has arisen.

The bill, the lawmakers noted, would not prohibit arbitration, but instead ensure that individuals have a meaningful choice about how to proceed with their claim.

The legislation has been read twice and referred to the Senate Judiciary Committee.

Americans for Financial Reform, a progressive non-profit organization that advocates for financial reform, applauded the bill, saying it would work “hand-in-hand” with the rule proposed by the CFPB.

The group was among the more than 300 that wrote a letter to the CFPB last month, lauding the proposed rule and urging the bureau to finalize it as quickly as possible.

“Forced arbitration strips Americans of any meaningful way to hold companies accountable for fraud or abuse, and grants Wall Street an effective license to steal from consumers to pad its own bottom line,” said Lisa Donner, AFR’s executive director. “It has no place in any system that is fair to consumers.”

The group also applauded U.S. Sen. Sherrod Brown, D-Ohio, for reintroducing a related piece of legislation that would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge.

The Justice for Victims of Fraud Act of 2017 -- a previous version of which was introduced in December -- would allow victims of Wells Fargo’s fraud to seek their day in court even if they signed contracts that included arbitration for their legitimate accounts in the past.

In September, Wells Fargo reached agreements with the CFPB, the Office of the Comptroller of the Currency and the Office of the Los Angeles City Attorney regarding allegations that some of its retail customers received products and services they did not request.

Some Wells Fargo employees reportedly opened as many as 2 million accounts without customers’ knowledge or permission in order to meet sales quotas.

Specifically, the bank agreed to pay a $100 million fine to the CFPB’s Civil Penalty Fund; a $35 million penalty to the comptroller’s office; $50 to the city and county of Los Angeles; and $5 million in customer remediation.

“Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences,” CFPB Director Richard Cordray said in a Sept. 8 statement.

Wells Fargo, facing various lawsuits for its improper sales practices, recently asked a Utah federal judge to force nearly 60 of 80 named plaintiffs in one suit to bring their claims in arbitration.

The bank argued its agreements are clear.

“The Consumer Account Agreements state that ‘[i]f you have a dispute with the Bank, and you are not able to resolve the dispute informally, you and the Bank agree that upon demand by either you or the Bank, the dispute will be resolved through the arbitration process as set forth in this part,’” it wrote in its motion. “The agreements then define ‘dispute’ as broadly as possible to include any disagreement between the customer and the bank: ‘A dispute is any unresolved disagreement between you and the Bank.’

Brown, who has been leading the effort in the Senate to push Wells Fargo to end its practice of using forced arbitration clauses against defrauded customers, said such forced arbitration is shielding the bank from being held accountable.

“Wells Fargo’s customers never agreed to sign away their right to fight back against fraud and deceit,” the Ohio senator said. “We need to give customers back their ability to seek justice in court so they can be made whole again.”

Brown’s bill, also introduced March 7, has been referred to the House Committee on Financial Services.

From Legal Newsline: Reach Jessica Karmasek by email at

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U.S. House of RepresentativesConsumer Financial Protection BureauU.S. SenateWells Fargo & Company