For years, the banking industry has padded its profits by forcing consumers to sign a “forced arbitration” agreement denying them to right to sue the bank in a real court, and instead forcing any disputes between the bank and a lender into a biased, corporate-run forum that rules in favor of the banking industry 95% of the time. As the Wonk Room reported last month, however, this practice was dealt a severe blow after the industry’s principal accomplice in this scheme, an arbitration firm known as the National Arbitration Forum (NAF), shut down its consumer arbitration business as part of a settlement with the Minnesota Attorney General. A few days later, the NAF’s main competitor announced that it was also no longer take most of the banking industry’s cases.
Last week, consumers scored another victory as Bank of America announced that it “will no longer require credit card, bank account and auto loan customers to sign away their right to sue.” Bank of America is the nation’s third-largest credit card company, and the first major credit card provider to quit using forced arbitration to immunize itself from accountability under the law.
Hopefully, Bank of America’s decision will lead the remainder of the industry to stop using forced arbitration in order to compete. Certainly, informed consumers should prefer a credit card company that doesn’t think that it is immune from the law. But even if the entire banking industry abandons forced arbitration, this toxic practice remains pervasive. Many employers refuse to hire workers unless they sign away their right to sue the employer for anything from wage discrimination to creating an unsafe workplace; cell phone companies sneak forced arbitration clauses into their contracts as a matter of practice; some nursing homes have even been caught tricking their residents into signing them immediately after they suffer a stroke. After KBR employee Jamie Lee Jones was gang raped by her co-workers in Iraq, KBR tried to shut down Jones’ suit against the company by invoking an arbitration clause in her contract.
Worse, the imposition of forced arbitration on consumers should never have even happened. In the 1920s, Congress unanimously passed a law called the Federal Arbitration Act to allow sophisticated merchants to arbitrate their disputes in fair and neutral forums. Sixty years later, the Supreme Court twisted this law to allow companies to force consumers and workers into biased arbitration. Bank of America’s step away from forced arbitration is a good step; but it ultimately will rest with Congress pass legislation protecting consumers from widespread and pervasive forced arbitration clauses.