Forced Arbitration Is Ubiquitous, New Public Citizen Study Finds

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Forced Arbitration Is Ubiquitous, New Public Citizen Study Finds

Research Points to Urgent Need for Congress to Act

WASHINGTON - Mandatory binding arbitration, or "forced arbitration," is ubiquitous in many industries, according to a study released today by Public Citizen.
Seventy-five percent of companies in eight industries use forced
arbitration, the organization found in a study released a day before a
key congressional subcommittee holds a hearing on whether mandatory
binding arbitration is fair or voluntary.

In most cases, consumers are stripped of their right to go to court
over disputes when they open a bank or credit card account, obtain cell
phone service, hire a stockbroker or buy a house. The same is true
about half of the time when consumers buy computers or obtain cable or
Internet service.

The study, "Forced Arbitration: Unfair and Everywhere," is based on
inquiries of major credit card providers, banks, cell phone providers,
computer manufacturers, cable/Internet providers, auto dealers,
brokerages and home builders. The majority of data in the report was
obtained by Public Citizen researchers inquiring as consumers about
businesses' arbitration policies.

"Even though forced arbitration has been exposed as grossly unfair
to consumers, the practice remains ubiquitous in many industries," said
David Arkush, director of Public Citizen's Congress Watch division.
"This means that millions of Americans have been stripped of their
right to hold corporations accountable in court."

Forced arbitration requires consumers to settle disputes before
secretive, private tribunals instead of courts. A 2007 Public Citizen
report revealed that arbitrators working for the National Arbitration
Forum (NAF) had ruled against consumers 94 percent of the time.
Consumer advocates have long alleged that forced arbitration is unfair
because it undermines corporate accountability and deprives people of
core protections against corporate wrongdoing. Americans believe they
should have the right to legal recourse - including a judge, jury and
the ability to appeal - and demand that decisions be based on law,
according to recent polling conducted by Lake Research Group. The same
poll also found that a majority of Americans - six in 10 - oppose
forced arbitration.

In July, Minnesota Attorney General Lori Swanson sued NAF, alleging
that it was financially connected to credit collection companies that
provided NAF with the bulk of its business. Swanson also alleged that
NAF had stopped referring cases to arbitrators who did rule in favor of
businesses and recruited individuals likely to rule against consumers
to serve as its supposedly "neutral" arbitrators. Five days after the
lawsuit was filed, NAF, the nation's largest arbitration firm
specializing in credit collection cases, announced it was closing its
massive consumer arbitration practice.

Just one day later, the American Arbitration Association (AAA) said
it would suspend its credit-collection practice because of "legitimate
concerns" raised by Swanson. Soon after, two major banks, Bank of
America and JPMorgan Chase announced that they, too, had dropped
binding mandatory arbitration from credit card contracts.

AAA has not suspended consumer arbitrations that do not involve debt
collection. A third leading arbitration firm, JAMS, has not suspended
any part of its consumer arbitration business. Today, Public Citizen
and its partners in the Fair Arbitration Now Coalition
(www.fairarbitrationnow.org) sent letters to AAA and JAMS urging them
to discontinue all forced arbitrations of consumer cases.

Despite NAF's settlement and AAA's concessions, forced arbitration
remains widespread in certain industries. Moreover, it can be difficult
or even impossible to learn many companies' policies on arbitration
before obtaining a product or service, Public Citizen found. The vast
majority of auto dealers Public Citizen contacted were unable or
unwilling to disclose their arbitration policies, often explaining that
they will not disclose that information until the final paperwork for a
sale is being signed. Most credit card companies refuse to disclose the
terms of their arbitration clauses until a consumer applies for a card
- a step that can jeopardize one's credit rating.

Public Citizen found ample evidence of arbitration's unfairness. One
major credit card provider twice referred to the NAF - a purportedly
neutral and independent company - as its "arbitration provision
division" and referred Public Citizen investigators to NAF for
information about the credit card provider's arbitration policies. A
cellular telephone provider reserves the right to sue its customers in
court while prohibiting its customers from suing it in court. Most
businesses that impose arbitration prohibit the use of class actions,
which are usually the only viable way for victims of systemic fraud to
obtain redress.

The continued use of forced arbitration coupled with overwhelming
evidence of the processes' unfairness points to the need for Congress
to pass the Arbitration Fairness Act, which would prohibit businesses
from forcing arbitration on consumers and employees. The Lake Research
public opinion polling showed that Americans support the Arbitration
Fairness Act by a margin of more than two-to-one, including majorities
of men and women, as well as Democrats, independents and Republicans.
As Swanson noted, NAF's consent judgment "cannot solve the systemic
problems with mandatory pre-dispute arbitration clauses in fine-print
consumer contracts."

Arkush urged Congress to act quickly to protect consumers.

"After our report about the one-sided rulings issued by NAF, the
U.S. Chamber of Commerce begged Congress to postpone taking action
until more information could be obtained," Arkush said. "Since then,
what we've learned about NAF is far worse than we could have imagined.
It is time to end the era of lawlessness and ensure that consumers can
hold corporations accountable for wrongdoing."

READ the report and letters. 

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Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.

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