Proposed Legislation Banning Consumer Arbitration Agreements

The Consumer Fairness Act of 2007, H.R. 1443, introduced March 9, would amend the Consumer Credit Protection Act, 15 U.S.C. §§ 1601 et seq., to bar the use of mandatory pre-dispute arbitration clauses in most consumer contracts. Basically, a binding arbitration agreement in a consumer contract would be unenforceable and deemed “an unfair and deceptive trade act or practice under Federal or State law." For purposes of the act, a "consumer contract" is "any written, standardized form contract between the parties to a consumer transaction." A “consumer transaction” means "the sale or rental of goods, services or real property, including an extension of credit or the provision of any other financial product or service to an individual entered into primarily for personal, family, or household purposes." Submissions to arbitrate existing disputes are enforceable under the act.

Previous attempts to legislate in this arena haven’t made it out of committee; however, with Democratic and presumably a more consumer-friendly House, the likelihood of passage is much better. If this bill passes, it is likely that similar legislation addressing pre-dispute arbitration agreements in employment will be proffered.

Thanks to John Allgood and ADR World for the “heads-up” on this.