Senate Committee Addresses Mandatory Arbitration in Financial Service Products

At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs (the "Committee"), witnesses addressed the use of mandatory arbitration clauses in financial service products.

Witnesses (and their submitted testimony) included: Paul Bland, Executive Director, Public Justice, Remington A. Gregg, Counsel for Civil Justice and Consumer Rights, Professor Todd J. Zywicki, George Mason University Scalia Law School Professor, Steven Lehotsky, former executive vice president and chief litigation counsel for the U.S. Chamber of Commerce Litigation Center, and Professor Myriam Gilles, Professor of Law, Cardozo law School.

In general, those in support of forced arbitration agreements argued that:

• arbitration is a fair, less complicated, and a lower-cost alternative to going to court;
• multiple studies have shown that consumers generally "do better" in arbitration than in court;
• restricting arbitration agreements would likely drive up the costs of financial services;
• there are extensive common law rules governing arbitration to ensure that arbitral processes are fair and effective at vindicating consumers' rights; and
• courts have the authority to invalidate arbitration agreements that impose unfair procedures.

Committee Ranking Member Patrick J. Toomey stated: "Restricting arbitration would be little more than a government-sponsored bonanza for trial lawyers and certain liberal advocacy groups, at the expense of consumers seeking a fast and fair resolution of their disputes"

Generally, those against forced arbitration agreements argued that:

• forced arbitration takes away consumers' rights and gives more power to corporations;
• corporations "game the system" by choosing the venue and arbitrator without consumer input;
• arbitrators hear disputes behind closed doors, thus keeping corporate misconduct largely out of public view;
• consumers - not corporations - should be able to decide whether they want to go through the public court system, through mediation, or through arbitration; and
• complicated and misleading contracts containing arbitration agreements in fine print lead to consumers unknowingly signing away their rights.

Committee Chair Sherrod Brown stated: "Mandatory arbitration or forced arbitration is a powerful tool that big corporations use to take away people's choices, and to make it easier for them to scam customers and workers, and get away with it."