Russ Feingold recently wrote this comment on the problems with mandatory arbitration clauses in consumer contracts:

There’s nothing fair about some of the arbitration proceedings that consumers are forced into. A major arbitration firm actually advertised its services by pointing out how arbitration favors its corporate clients because arbitrations are secret, and consumers or employees have very limited rights to discovery and might even have to pay the costs of the arbitration if they lose.

Arbitration should be a choice, not a mandate. It is only an adequate alternative to the courts in cases when both sides are willing participants. That is why I introduced legislation to prevent Americans from being forced to agree to arbitrate employment, consumer, franchise, or civil rights disputes. This will ensure Americans who participate in arbitration of these kinds of disputes are doing so voluntarily.

… The rule of law means little if the only forum available to those who believe they have been wronged is an alternative, unaccountable system. We must make sure that all Americans can still have their day in court.

http://www.wisopinion.com/index.iml?mdl=article.mdl&article=14209

Meet Sharon Kruse, a 63-year-old widow from Dundee, Michigan, and the US Chamber of Commerce’s latest poster child. Last month, Kruse headlined a new video the chamber released at a press conference devoted to preserving big business’ use of binding mandatory arbitration clauses in consumer and employment contracts. That’s the small print that forces people to waive their right to sue in order to get a cell phone or medical care or even a job. Such clauses require any disputes to be heard by a private arbitrator, usually hired by the alleged wrongdoer. Consumer advocates and many congressional Democrats have blasted the clauses for forcing people to give up their constitutional rights in exchange for ordinary goods and services, a practice they find not just unfair but un-American. Kruse, though, believes otherwise.

From Mother Jones, May 2008.

http://blogs.wsj.com/health/2008/04/11/nursing-homes-push-arbitration-reduce-lawsuits/?mod=WSJBlog

But, because I found out in time that home buyers with a government backed loan (FHA and VA) didn’t have to arbitrate with a third party warranty company, I was able to escape the problems of private industry run arbitration that so many homeowners are forced into to their disadvantage. The federal regulation that I used was 24 CFR 203.204(g). This is Title 24, Housing, Code of Federal Regulations, section 203.204(g), which states that court has to be an option along with arbitration in a dispute with a warranty company. Because I had to figure out how to enforce this on my own, it didn’t happen easily or overnight. But once the warranty company and bulder realized we could retain our right to sue, they eventually all settled with us. Prior to getting to that point, the warranty co was offering a fraction of our actual damages and the builder was offering nothing.

We definitely came out better than the homeowners I’ve seen who had to arbitrate their disputes. We were essentially “made whole” while others often lose a great deal, even lose everything.

There was little understanding of the impact of binding arbitration clauses on homebuyers at the time I began working with the group.

Now it is understood that while many of the foreclosures today are due to subprime, predatory, or faudulent lending, there are foreclosures due to substandard construction and binding arbitration clauses in builder contracts and/or the worthless third party warranties that builders “give” their home buyers. Homeowners who contact us consider arbitration to be a kangaroo court that always favors the homebuilder who is a repeat user of the arbitration service. I have yet to meet a homeowner that was awarded enough to pay attorney fees let alone do tens of thousands of dollars to repair defects.

Jordan Fogal, a homeowner from Houston, TX testified before a subcommittee of the House Judiciary Committee about her experience with binding arbitration. They have been unable to collect the small award the arbitrator gave them, the home required $150,000 in repairs and ended up in foreclosure in spite of the fact that they had an affordable 30 year mortgage and perfect credit scores. The cost of repair was prohibitive and they couldn’t sell the home for enough to pay off the mortgage due to legally required disclosures.

I hope that everyone will support this legislation and other consumer protection legislation that is needed in every state to protect the largest purchase a family ever makes, their home.