Arbitration Back in the Limelight: Bill Introduced to Limit Arbitration for Consumers

Last week, Senator Sherrod Brown (D-OH) introduced the Arbitration Fairness for Consumers Act (S. 630) in the Senate Banking, Housing, and Urban Affairs. The bill seeks to amend the Consumer Financial Protection Act of 2010 by limiting mandatory arbitration for consumers.

In a press release issued on Friday, Sen. Brown states:

Forced arbitration is about big companies silencing victims and giving more power to corporations that already have too much power over the lives of working Americans. Ending the use of forced arbitration in student loans, credit card agreements, and employment contracts gives working Americans a fighting change against powerful special interests.

The press release cites the invocation of the Congressional Review Act in 2017 to axe the Consumer Financial Protection Bureau’s Arbitration Rule, which had a similar goal to this bill. The Congressional Review Act allows Congress to review and repeal new regulations issued by federal agencies. If Congress overrules a regulation, the Congressional Review Act prohibits reissuing a substantially similar rule in the future. The Congressional Review Act only relates to regulatory rules, not to new legislations, so it would have no impact on this new bill.

The bill currently has no co-sponsors according to the Senate bill tracking website, but Sen. Brown's press release states that it is supported by several consumer groups.

[article_ad]

insideARM Perspective

There is an interesting balance at play with arbitration in the context of debt collection. On one hand, as Sen. Brown articulates in his press release, consumers should have a tool to hold bad actors accountable. On the other, there is a litigation dilemma that debt collectors face: plaintiffs’ attorneys taking advantage of the outdated nature and gaps within the Fair Debt Collection Practices Act (FDCPA) in order to file high volumes of litigation against debt collectors over hyper-technical issues. It’s gotten to the point where legitimate debt collectors, who are in good faith trying to do right by the consumer in compliance with laws and regulations, are being forced to settle lawsuits even when it is extremely unlikely that a violation of the FDCPA occurred. This is because it is cost prohibitive to defend each lawsuit that comes through the door considering the one-sided nature of the FDCPA’s attorney fee provision. Debt collectors know this. Most, if not all, plaintiff’s counsel know this. Hopefully legislative representatives and regulators are starting to notice this too.

Currently, debt collectors can invoke on behalf of the creditor if the underlying credit agreement is drafted in a way that allows it. Removing arbitration clauses from credit agreements would likely result in more class actions (and thus higher settlement amounts) against debt collectors, including those who are trying to do the right thing. This results in a higher cost of collecting past due accounts for creditors, which could very well result in lowered access to credit for consumers. While improbable, revisiting the attorney fee provision and the strict liability nature of the FDCPA would be one way to solve for this imbalance.