In the past three weeks, both state and federal lawmakers have taken steps to advance legislation that would affect arbitration clauses in consumer contracts. That legislation threatens to limit or outright prohibit binding arbitration agreements between businesses and consumers.
On September 10, 2009, the Maine Bureau of Consumer Credit Protection (Bureau) convened a working group at the behest of the Maine Legislature Joint Standing Committee on Judiciary. The working group was slated to consider LD 897, An Act to Prohibit Mandatory Binding Arbitration, and LD 1256, An Act to Prohibit Predispute Mandatory Binding Arbitration Clauses in Consumer Contracts. At present, Maine's Uniform Arbitration Act, like the Federal Arbitration Act (FAA), provides that written arbitration agreements are presumed to be valid, enforceable, and irrevocable. LD 897 would strike that language entirely and provide that all written arbitration agreements "must be optional." LD 1256 takes a slightly narrower approach, proposing to add language providing that consumer contracts "may not contain a provision mandating arbitration."
The working group is expected to inform the Committee of its findings in January 2010. According to the Bureau, the working group has been tasked specifically with "ensur[ing] that arbitration is required only when appropriate and when the procedures are fair," and has been asked to report on "the provision of arbitration clauses that are likely not preempted by federal law." The Bureau has already proposed a list of specific requirements for consumer arbitration proceedings, including such mandates as "reasonable" discovery, that the working group is expected to consider.
On September 15, 2009, the Subcommittee on Commercial and Administrative Law of the U.S. House Judiciary Committee held a hearing entitled "Mandatory Binding Arbitration-Is It Fair and Voluntary?" Representative Henry (Hank) Johnson (D-GA) testified about the "Arbitration Fairness Act of 2009" (H.R. 1020), which he introduced in February of this year. The bill would amend Section 2 of the FAA to prohibit so-called pre-dispute arbitration agreements in employment, consumer, and franchise contracts. Currently, the "savings clause" in Section 2 of the FAA ensures that arbitration agreements are treated like all other contracts. Rep. Johnson's bill would remove the "savings clause" and introduce language rendering pre-dispute agreements to arbitrate in employment, consumer, and franchise contracts per se invalid and unenforceable.
In addition to the testimony of Rep. Johnson, the hearing largely consisted of a debate between two witnesses regarding the merits of pre-dispute mandatory arbitration provisions. The Subcommittee's opinion of such provisions generally followed party lines, with Democrats opposing the use of such clauses, and Republicans supporting them. Given the current political make-up of Congress, passage of the bill is a distinct possibility, particularly in the House.