Two Democratic senators have introduced a bill that would cut companies' ability to push consumers with a grievance into arbitration instead of court.

More and more, companies have clauses in their agreements with customers that force disputes into private arbitration, which often favors the companies. A series of U.S. Supreme Court decisions have backed this so-called mandatory arbitration.  

The bill from Senators Patrick Leahy (D-Vermont) and Al Franken (D-Minnesota) would prevent companies from imposing forced arbitration in cases covered by consumer protection laws, as well as in employment discrimination and other civil rights matters.

"This bill restores the Federal Arbitration Act to what Congress intended, arbitration as a way for businesses to decide to handle their business disputes, but not as a way to insulate their misconduct from accountability to consumers," said George Slover, senior policy counsel at Consumers Union, the policy and advocacy arm of Consumer Reports.

Paul Bland, the executive director of the consumer-rights law firm Public Justice, said that the proposed legislation would allow consumers to take a company to court even if it has a mandatory arbitration clause in its terms.

Arbitration clauses are in the fine print of many car loans and leases, credit cards, checking accounts, employment contractsinsurance policies, investing accounts, student loans and even online store and nursing home agreements. The clauses block consumers from taking companies to court to resolve any legal disputes.

Disputes instead go to a private arbitrator, typically someone chosen by the company. The final decision is usually kept confidential, and there’s little basis for an appeal.

Arbitration clauses also often bar consumers from joining with other people in class-action lawsuits, an effective way to fight widespread illegal or deceitful business practices.

A series of Supreme Court decisions have backed mandatory arbitration clauses, citing the Federal Arbitration Act of 1925, which was originally enacted to allow businesses to agree to use arbitration to resolve contract disputes between themselves. For instance, a 2013 ruling the Court found that a company can use its arbitration agreement to stop class-action suits, even if the amount of an individual claim is so small that it is too costly to effectively pursue it as a separate claim.

The proposed legislation states that the Federal Arbitration Act “did not, and should not have been interpreted to, supplant or nullify the legislatively created rights and remedies which Congress … has granted to the people of the United States for resolving disputes in State and Federal courts.”  

If you’d like to ask your senators and representatives to support this bill, you can find contact links here.

For more information on the Supreme Court's arbitration decisions, read this explanation by our colleague, Chris Morran, at the Consumerist.