House Committee Holds Credit Card Arbitration Hearing
On Tuesday the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held a hearing entitled "Federal Arbitration Act: Is the Credit Card Industry Using It To Quash Legal Claims?" (Committee site here.) The witnesses included consumer attorney Mike Donovan, Public Citizen’s David Arkush, and Professor Rich Frankel of Drexel Law School.
The House passed a credit card reform measure last week, and the Senate will be taking up their legislation soon. Our position on the issue can best be summed up by this excellent statement by Ed at US PIRG: "[O]wning a credit card company will still be a license to steal, and credit card companies will still be above the law, until we pass the Arbitration Fairness Act." The hearing was very well-attended, particularly on the Republican side, and the discussion was lively. More details after the jump.
Democrats on the panel made some eloquent, impassioned opening statements. In particular, freshman Rep. Dan Maffei (D-N.Y.) told the story of one of his constituents, Anastasiya Komarova, who was told by one debt collection company that they had an arbitration judgment against her, even though she never had a credit card. (Anastasiya also appeared in Public Citizen’s 2007 report.) The Congressman was right-on when he said that "many have gone beyond the congressional intent of the Federal Arbitration Act and abused the system, effectively tilting the scales of justice in their favor."
Some of the most salacious details came from Donovan, who described one of his consumer class actions in which he discovered that a credit card company had been intentionally embedding the wrong zip code in the bar code of its payment envelopes, causing payments to be received late, and allowing the company to charge late fees. He also described meetings between banking lawyers at ABA conferences, in which they drew up arbitration provisions together and allegedly agreed to include forced arbitration provisions in all credit card contracts. This issue is currently being litigated in federal court.
Several Republican members were hostile to the idea of consumer choice. Reps. Trent Franks (R-Ariz.) and Lamar Smith (R-Texas) both expressed a negtive view of the plaintiffs’ bar. Rep. Darrell Issa (R-Calif.) had reservations about interfering with what he called 200 years of jurisprudence on contracts. Rep. Howard Coble (R-N.C.) was difficult to read, and expressed genuine interest in the issue of arbitrator bias.
Rep. Bobby Scott (D-Va.) later pointed out, in response to Rep. Issa’s statements, that credit card arbitration is hardly a 200-year-old practice, as credit card companies began forcing consumers into arbitration in the late 1990’s, early 2000’s. Rep. William Delahunt (D-Mass.) also took issue with the idea that credit card agreements are really contracts. After all, the Congressman argued, these "agreements" are completely non-negotiable, and credit card companies are allowed to change the terms at any time, for any reason.
The minority witness, Professor Drahozal from University of Kansas Law School, did not agree with several common industry arguments for forced arbitration. For example, when asked if arbitration lowered the price of goods, Drahozal admitted that it is very difficult to determine what effect, if any, forced arbitration has on the price of goods and services. (Professor Frankel observed that the value of goods that employ forced arbitration might actually be lower than those that do not.) Prof. Drahozal also said that he believes class action lawsuits are good "in theory," and disagreed with the premise that lawyers are the only people who benefit from class actions – an assertion that we know to be false.
We are grateful to Subcommittee Chairman Steve Cohen (D-Tenn.) for holding this important hearing, and we here at the FAN coalition are looking forward to more public discussions of how forced arbitration is harming Americans.