Home News House Passes Bill to Ban Forced Arbitration

House Passes Bill to Ban Forced Arbitration

On September 20, 2019, the U.S. House of Representatives voted on the “Forced Arbitration Injustice Repeal Act or “FAIR Act,” which would prohibit pre-dispute arbitration agreements.

The U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act (H.R. 1423) on Friday, which prohibits pre-dispute arbitration agreements for consumer, employment, antitrust or civil rights claims. The FAIR Act passed mostly across party lines in a 225-186 vote.

If it were to become law, the bill would likely have far-reaching implications for the brokerage and securities industries, which rely upon mandatory arbitration clauses in advisory, brokerage, and investment contracts. FINRA arbitration would be considered voluntary as brokerage disputes are handled through its arbitration system.

Yet, it is likely to face headwinds in the Senate as it only received support from two House Republicans, Rep. Matt Gaetz (R-FL) and Rep. Chris Smith (R-NJ).

“I am convinced that big business’ overutilization of mandatory arbitration clauses impairs people’s access to something that is fundamentally American, and that is having a judge and jury make a decision regarding your dispute,” Rep. Gaetz, the only Republican co-sponsor of the bill, said during mark-up in the House Judiciary Committee.

He added, “As a matter of fact, I think this may be the most America-First bill to have been brought forward in the House Judiciary Committee this Congress. Because the ability to go before a jury of your peers, to go before a judge is so important to us thematically as a country that it has been picked into our bill of rights, and I’m well aware of the Supreme Court precedent that has created space for mandatory arbitration, but that doesn’t mean it’s consistent with our values.”

The president would likely veto the bill if it passed the Senate in its current form. In a statement last week, the Office of Management and Budget said, “As written, the FAIR Act disregards the benefits of resolving disputes through arbitration, including lower costs, faster resolution, and reduced burden on the judiciary. By limiting contractual options, this bill would hurt businesses and the very consumers and employees it seeks to protect.”

Another bill, the “Investor Choice Act,” has been drafted by Rep. Bill Foster (D-IL) which would prohibit forced arbitration clauses used in advisory and brokerage contracts.

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