Statement of U.S. Senator Russ Feingold
At a Press Conference with Public Citizen on Protecting Consumers
from Unfair Credit Card Contracts
September 27, 2007
Good afternoon. I’m pleased to join my friends from Public
Citizen in announcing the release of this eye-opening report.
The report provides solid evidence of the abuses that take place when
consumers are forced into binding mandatory arbitration agreements.
Arbitration is often touted as a more efficient and less expensive
alternative to litigation. That can certainly be the case, but
only in situations where both parties freely choose arbitration on terms
that ensure a level playing field. Unfortunately, more and more
companies are requiring people to enter into binding mandatory arbitration
agreements as a condition to obtaining a job, a credit account, or a
franchise. The practice is so widespread, and individual consumers
or employees have so little bargaining power in these transactions,
that they are effectively forced to accept a mandatory arbitration clause.
The problems with forcing arbitration on consumers and employees are
made crystal clear by this report. The most glaring problem is
that the playing field in these cases is anything but level. An
arbitration firm that receives millions of dollars in repeat business
from a company has a powerful incentive to rule in the company’s
favor. And that is exactly what happens in a shocking percentage
of cases. We learn in this report that one arbitration firm in
California ruled in favor of credit companies in 94 percent of the disputes
it resolved. Few consumers would voluntarily choose arbitration
when faced with those odds.
Consumers who lose their arbitrations have little recourse. Courts
are allowed to reverse an arbitrator’s decision only in the most
egregious cases. The mere fact that the decision was wrong is
not a sufficient basis for appeal. That makes it easier for arbitrators
to interpret laws in a way that favors the companies who are giving
them repeat business. Mandatory arbitration clauses thus threaten
to undermine the statutory protections that Congress has so carefully
provided for American workers, investors, and consumers.
Fortunately, there is a solution, and this report points the way.
We need to restore choice to the consumer, and we can do that by enacting
legislation that prohibits pre-dispute arbitration clauses in contracts
between parties with unequal bargaining power. In July of this
year, I introduced legislation, the Arbitration Fairness Act of 2007,
that would do just that. The legislation is cosponsored by Senator
Durbin and it has been introduced in the House by Representative Hank
Johnson from Georgia. Under our legislation, contracting parties
would still be allowed to choose arbitration, but that choice would
have to be freely made after the dispute arises. It would no longer
be presented to the consumers as a precondition of doing business –
an offer they cannot refuse.
This will help in two ways. First, it will enable to consumers
to exercise their right to go to court, if that is the route they choose.
Second, if consumers have the right to decline arbitration, arbitration
firms that simply rubber stamp the actions of companies may find themselves
out of business. This legislation will ultimately make arbitration
a more fair and desirable option.
I hope that Public Citizen’s excellent report serves as a wake-up
call. It’s time to restore choice to consumers and employees,
and restore the effectiveness of the laws Congress has passed to protect
them. Thank you.
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