Mandatory Binding Arbitration Is Almost Dead

A provision buried deep within the recently passed Wall Street reform bill has the power to finally kill off mandatory binding arbitration, one of the more dangerous anti-consumer practices still sanctioned by law. While the bill includes a limited provision banishing arbitration agreements from mortgages and home equity loans, it also gives broad powers to the Securities and Exchange Commission and the new Consumer Financial Protection Bureau to kill off arbitration in all other consumer financial products.

There are two things standing between us and an arbitration-free world. The bill explains:

SEC. 1028. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

(a) STUDY AND REPORT.—The Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.

(b) FURTHER AUTHORITY.—The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a).

Congress could have imposed an outright ban on mandatory binding arbitration altogether, but hey, we’ll take the study. Whether the rule that follows the study actually protects consumers depends on who runs the new agency. That’s why the President should appoint a pro-consumer advocate like Elizabeth Warren to head the new Consumer Financial Protection Bureau. Let him know how you feel by calling (202) 456-1111.

The Dodd-Frank Wall Street Reform Act: Mandatory Arbitration Provisions [Consumer Law & Policy Blog]