Congress is set to consider a bill this week that would increase costs for consumers and leave people with small damages claims without any remedy but a costly court battle.
The deceptively-named Arbitration Fairness Act of 2007 will wipe out arbitration provisions in hundreds of millions of consumer contracts -- for everything from credit-card agreements to cell phones to health-insurance policies, even a contract for the purchase of a kitchen sink, Christine Varney, a partner at Hogan & Hartson, writes in a Wall Street Journal op-ed. Varney was a commissioner on the Federal Trade Commission from 1994 to 1997, and was also an assistant to President Clinton and Secretary to the Cabinet.
The bill is so sweeping that it wouldn't apply just to contracts consumers may sign in the future. It will cancel arbitration agreements agreed to in the past.
"This legislation is a top priority of plaintiffs' lawyers, since arbitration keeps big-dollar disputes out of the courtroom," Varney writes. "But it's a bad deal for consumers. The law will not make arbitration 'fairer'; it will make it go away, because it is very difficult to get two sides of a dispute to agree to much of anything once a dispute has started. That inconvenient reality is one that some of our lawmakers are simply ignoring."
She notes other subtle ways that Congress is chipping away at arbitration, a quick, effective, and cost-saving way to resolve disputes: The recently-passed farm bill prohibits mandatory arbitration to resolve disputes over livestock and poultry contracts. The same House subcommittee is considering a bill that would eliminate arbitration agreements between auto dealers and buyers.
"Congress should think long and hard before discarding it in favor of more lawsuits -- which may benefit lawyers but will leave most consumers out in the cold," Varney said.
The legislation is scheduled to be marked up by a subcommittee of the House Judiciary Committee tomorrow and could be taken up by the full committee on Wednesday.