Two bills making their way through Congress are taking aim at the practice of including binding arbitration agreements in consumer-facing contracts, particularly those in financial industry contracts.
In March, Sen. Sherrod Brown, D-Ohio, introduced the Arbitration Fairness for Consumers Act (S. 630) in the Senate Committee on Banking, Housing, and Urban Affairs. Sen. Brown's bill proposes amendments to the Consumer Financial Protection Act of 2010 (CFPA) by prohibiting mandatory arbitration and class action waivers in contracts that relate to a "consumer financial product or service." The bill would apply prospectively "to any dispute or claim that arises or accrues on or after the date of the enactment of this Act."
In October 2017, Vice President Mike Pence cast an eleventh-hour, tie-breaking vote to nix a Consumer Financial Protection Bureau regulation that would restrict financial institutions, such as banks and credit card companies, from imposing mandatory arbitration agreements on customers. In a statement released concurrently with his new bill, Sen. Brown expressly referenced Vice President Pence's vote and stated that "[e]nding the use of forced arbitration in student loans, credit card agreements, and employment contracts gives working Americans a fighting chance against powerful special interests."
While Sen. Brown's bill would impact the dispute-resolution practices of many financial institutions, another bill introduced late last month proposes even greater controls on arbitration agreements in consumer contracts. The Forced Arbitration Injustice Repeal Act (the FAIR Act), introduced by Rep. Hank Johnson, D-Ga., and Sen. Richard Blumenthal, D-Conn., in the House (H.R. 1423) and Senate (S. 620), would bar businesses from including mandatory arbitration clauses in contracts with employees and consumers. The bill also proposes restrictions related to the use of mandatory arbitration agreements in civil rights and antitrust matters.
Unlike Sen. Brown's bill, which proposes amendments to the CFPA, the FAIR Act takes aim at the source of federal arbitration law: the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq. Specifically, the bill would amend the FAA to (1) invalidate arbitration agreements and class action waivers in consumer contracts and employment contracts on a going-forward basis and (2) invalidate current arbitration agreements/class waivers that have already been signed, but only regarding disputes that arise after the law goes into effect.
The FAIR Act House and Senate bills are each pending with their respective judiciary committees, while Sen. Brown's bill is pending in the Senate's Banking, Housing, and Urban Affairs committee. We are keeping a watchful eye on these two bills and other updates in the case law and regulatory space around the enforcement of arbitration agreements in the consumer financial services space.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
