Relates to arbitration organizations

Summary of specific provisions

This bill would require private arbitration organizations involved in consumer arbitration cases to make certain information regarding those cases available to the public on its website and on paper upon request. The information required to be disclosed for each consumer arbitration would include the name of the non-consumer party; the type of dispute involved; whether the consumer was the prevailing party; and on how many occasions, if any, the non-consumer party has previously been a party in an arbitration administered by the private arbitration organization. No Private arbitration organization would have any liability for collecting/publishing, or distributing such information.

The bill would provide for enforcement by the Attorney General of the arbitration information disclosure provisions, as well as the existing prohibition against the inclusion of mandatory arbitration clauses in certain consumer contracts. The Attorney General would be empowered to seek an injunction against violators and/or a civil penalty of up to $2000 for each violation. Each contract offered and entered into in violation of the mandatory arbitration clause prohibition would constitute a separate violation.

Justification

The proliferation of binding mandatory arbitration clauses in consumer contracts, including contracts for credit cards/ telephone service, home loans, health care and consumer goods, over the past twenty years has led to a significant increase in the number of consumer disputes referred to arbitration. The vast majority of these proceedings are handled by arbitrators working for private organizations that administer arbitration programs for private businesses.

In recent years, consumer advocates have raised concerns regarding the fairness of private arbitration proceedings. Many advocates maintain that consumers may not be able to get a fair hearing since arbitrators have a financial incentive to rule in favor of the businesses paying for his or her services.

According to a 2007 report issued by Public Citizen, between January 1, 2003, and March 31, 2007, arbitrators working for one of the largest private arbitration organizations ruled in favor of businesses in ninety-four percent of the cases involving California residents that it examined.

The report also found that:

* In one fiscal quarter, an arbitrator working for a large private arbitration organization handled eighty cases brought by banks against consumers, and ruled for the bank in all eighty cases. In all of the cases, except two, she gave the bank one hundred percent of the amount it claimed;

* Another arbitrator working for a large private arbitration organization handled sixty-eight cases in a single day - an average of one every seven minutes, assuming an eight-hour day - and ruled for the business in every case, awarding one hundred percent of the claim. According to Public citizen, the same arbitrator is an attorney with his own practice serving business and corporate clients;

* In several cases, arbitrators from a. large private arbitration organization entered awards in favor of a large national bank and other lenders against identity theft victims who did not, in fact, owe any debts; and

* Arbitrators who rule against businesses and in favor of consumers have been known to be blackballed from serving as arbitrators in future cases.

This bill would shed light on the private arbitration industry and provide for greater accountability for private arbitration organizations by requiring such organizations to collect and make available to the public basic data regarding the nature and outcome of consumer arbitrations. This would ensure that consumers who are given the choice of pursuing a claim in the courts or in arbitration are able to obtain access to relevant information, such as the number of cases a private arbitration organization has handled for a particular business and whether the business or the consumer won most of those cases. The bill would also help to improve fairness in arbitrations for consumer forced into arbitration pursuant to a contract containing a binding mandatory arbitration clause.

Prior legislative history

2011-12: S.1471/A.8431 - Referred to Consumer Protection 2009-10: S.7270A/A.7943B - REFERRED TO RULES

Fiscal implications for state and local governments

None.

Effective date

180 days after enactment.