A Closer Look: Arbitration Under House Version of CFPA
The Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, passed by the U.S. House on December 11, 2009, contains provisions that could have a significant limiting effect on the enforcement of consumer arbitration provisions.
Section 4208 of the Act, entitled "Authority to Restrict Mandatory Predispute Arbitration," gives the Director of the proposed Consumer Financial Protection Agency the power to issue regulations to "prohibit or impose conditions or limitations on" a pre-dispute arbitration provision if the Director "finds that such a prohibition or imposition of conditions or limitations are in the public interest and for the protection of consumers." This provision mirrors the arbitration limiting provisions of the Arbitration Fairness Act, and could effectively prohibit the enforcement of mandatory arbitration provisions in consumer finance agreements.
"Arbitration Fairness Act" Rises Again
The Arbitration Fairness Act of 2007 has been re-introduced as the Arbitration Fairness Act of 2009 (H.R. 1020). The 2009 version, the same text as the 2007 version, has been referred to the Subcommittee on Commercial and Administrative Law.
If passed in its current form, the bill would expressly invalidate arbitration agreements—retroactively—in employment, consumer, or franchise disputes and in any “dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power.”
"Arbitration Fairness Act" Still Looming
The Act would expressly invalidate arbitration agreements—retroactively—in employment, consumer or franchise disputes and in any "dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power." Specifically, in the context of a "consumer dispute," broadly defined, the Act would make a "predispute arbitration agreement" invalid and unenforceable. Significantly, the Act would also expressly assign the task of determining the enforceability of arbitration agreements to courts under federal law, not to arbitrators, contrary to a long line of federal cases holding the opposite. Federal courts have long held that attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are to be determined by the arbitrator. The Act provides that its "effective date" would be the date of enactment, but also provides that it "shall apply with respect to any dispute or claim that arises on or after such date." This effectively makes the Act retroactive, since it would invalidate predispute arbitration agreements that a party sought to enforce in certain disputes after the Act's effective date.
The Consumer Bankers Association has issued a public letter urging opposition of the Act.
