White House Proposal Includes Authority to Ban Forced Arbitration

by Deepak Gupta

Included in President Obama's proposed Consumer Financial Protection Agency Act of 2009 is the following provision giving the new agency the authority to ban pre-dispute mandatory binding arbitration clauses:

SEC. 1025. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

The Agency, by rule, may prohibit or impose conditions or limitations on the use of agreements between a covered person and a consumer that require the consumer to arbitrate any future dispute between the parties arising under this title or any enumerated consumer law if the Agency finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of consumers.

This is a big step forward for arbitration fairness.

The measure follows up on a specific recommendation in the Treasury Department's blueprint for financial regulatory reform, which also suggests that the SEC should explore banning forced arbitration . (Jump to pages 62-63 and 72 of the report.) The Wall Street Journal wonders whether this is "The Beginning of the End of Mandatory Arbitration."

NPR's All Things Considered recently ran this excellent report on the forced arbitration debate, featuring Public Citizen's David Arkush.