Arbitration: Congressional Study Underway, Source Doubtful of Change
(Story by Carol Thompson) As a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress instructed the Consumer Financial Protection Bureau to study the use of pre-dispute arbitration contract provisions in connection with the offering or providing of consumer financial products or services and to provide a report to Congress on the same topic.
The Bureau conducted a preliminary study on the use of arbitration in American society in relation to consumer financial products. The 168 page report states, “Pre-dispute arbitration has become a contentious legal and policy issue. Following a series of Supreme Court cases interpreting the 1925 Federal Arbitration Act (the “FAA”), courts regularly enforce pre-dispute arbitration clauses in consumer, employment, and other contexts in which the relevant contract is not subject to negotiation between the contracting parties.”
Pre-dispute clauses are in almost every facet of consumer transactions. Employers and insurance companies often use an arbitration clause, as well as credit card companies, banks, cellular phone providers, and even the terms of service of some websites and apps will contain an arbitration clause.
Other studies have estimated that between 69.2 and 76.9 percent of consumer financial contracts contain an arbitration clause, yet few consumers are aware of them. They are generally included in the fine print, and the Bureau noted that the language often is written in more legalese than other parts of the contract.
The preliminary study found that the word count for the credit card arbitration clauses ranged from 78 to 2,410 words. The mean was 1,098 words and the median was 1,074 words. On average, the arbitration clause made up 14.1 percent of the words in the credit card contract, with the median at 13.1 percent, ranging from 1.2 percent to 27.5 percent of the words in the contract.
While there are several arbitration firms, the preliminary study found that the American Arbitration Association (AAA) monopolizes the industry.
“Counting clauses in which AAA is at least an option yields 91.8 percent of checking account arbitration clauses, 83.3 percent for credit card arbitration clauses, and 94.1 percent of prepaid card arbitration clauses.”
In contrast, the comparable numbers for JAMS, another arbitration firm, are 34.4 percent for checking accounts, 40.9 percent for credit cards, and 52.9 percent for prepaid cards.
Over 98 percent of the relevant account value—whether insured deposits, credit card loans outstanding, or prepaid load—are subject to arbitration clauses in the samples listed the AAA as at least one possible administrator, the study noted.
The Bureau’s preliminary report was completed primarily using information provided by AAA.
Although the Bureau study is continuing, it’s questionable as to whether Congress will take any steps to change the current system that has been marred with controversy.
When asked if a change could result from the study, a Congressional source told VNN, “On background, unless this is something that catches fire in the media or there is a groundswell of attention being called to it by constituents, it’s unlikely.”
The source added, “The majority on the financial services committee could decide that they don’t like it and continue to punt it.”
According to the AAA’s website, Congress is one of their many government clients.
“… the Association’s strong history of neutrality, independence, and integrity, (sic) have often been of service to Congress and a number of federal, state, and local departments and agencies with advice, information, and alternative dispute resolution services. Every year, the Association administers thousands of cases under governmental authority, reducing the burdens on agencies and court systems throughout the country.”
(Image: Flickr | dionhinchcliffe)