Supreme Court Upholds Mandatory Commercial Arbitration Clauses
Monday, February, 13, 2012
In the case of CompuCredit vs. Greenwood, the US Supreme Court affirmed the company's right to have mandatory commercial arbitration clauses in user agreements. This has many consumer groups taking up the issue with the Consumer Financial Protection Bureau (CFPB). The Dodd Frank Act directs the CFPB to perform a study and inform the US Congress on how to properly regulate mandatory arbitration clauses (Section 1028). However, there are 86 other studies that the CFPB is required to make, and there is no specified time frame to fulfill Section 1028.
Consumer Groups Urging Priority of Arbitration Clauses
Given that there is no particular time frame for the CFPB to address restrictions on arbitration clauses, the fulfillment of Section 1028 of Dodd Frank could be on the back burner indefinitely. Meanwhile, according to consumer groups such as the National Consumer Law Center (NCLC), more consumers could become victims of predatory practices by corporations. Consequently, they are urging the CFPB to make Section 1028 a priority.
According to Lauren Saunders, the NCLC's managing attorney, “Forced arbitration puts a thumb on the scales of justice in favor of predatory lenders...” They contend that entities with more bargaining power, such as corporations, have an unfair advantage in arbitration.
Amendments to Federal Arbitration Act on the Horizon
Changes to mandatory arbitration are not being considered by the CFPB alone. Amendments to the FAA are awaiting the end of the election year to be considered by Congress. The Arbitration Fairness Act of 2011 is the title of two companion bills (HR 1873 and S 987) before the House and Senate respectively. The central idea is that mandatory commercial arbitration is enforceable between parties of comparable bargaining power, such as corporation to corporation or individual to individual, but not between parties with disparate bargaining power, such as corporation to individual.