The exit of a major player from the consumer arbitration industry is threatening to shake up the debate in Congress over whether to ban mandatory arbitration provisions in consumer contracts.
The National Arbitration Forum announced Sunday that it would stop doing business in consumer arbitration by the end of this week, as part of a settlement with the attorney general of Minnesota. The settlement came less than a week after the attorney general there filed suit in state court accusing the Forum of deceptive trade practices by failing to disclose its interests in debt collection while claiming to be a neutral arbiter between consumers and corporations.
Much of the Forum’s business comes as a result of provisions in contracts requiring consumers to try to settle disputes through arbitration, rather than through the court system.
Congress has for years debated whether to ban such provisions, but momentum to do so has grown this year with the inauguration of a Democratic president and larger Democratic majorities in Congress. A ban is at the top of the trial lawyers’ agenda on Capitol Hill, and their lobby, the American Association for Justice, jumped on the settlement today as evidence of malpractice in the arbitration industry.
“This settlement underscores why Congress must pass legislation that makes arbitration voluntary, not forced upon consumers by slipping it into the fine print of everyday contracts,” said Les Weisbrod, president of the American Association for Justice, in a statement. “Attorneys have long used voluntary arbitration and mediation as an effective and efficient manner to resolve disputes. But when arbitration is forced upon consumers in a pre-dispute, non-negotiable contract, it becomes an abusive weapon.”
A House Judiciary subcommittee held a hearing on the topic in May. Another subcommittee has scheduled a hearing for Wednesday, and among those invited to testify are Lori Swanson, the Minnesota attorney general, and Mike Kelly, CEO of a Forum-affiliated company called Forthright.
Kelly, in a statement, said the Forum decided to pull of out of the consumer arbitration business in part because of “increased legislative uncertainty surrounding the future of arbitration.” He called for some kind of resolution to the current debate in Congress. “Until Congress resolves the legal and legislative uncertainty, the cost is simply too high for users and providers of consumer arbitration,” he said.
Until then, Kelly warned, “The consequence to American consumers is that there will be no meaningful alternative to costly and unpredictable litigation.”