Is an End Near for Forcible Arbitration?

Update: This was, lamentably, the last item in The Weiss File, due to Portfolio's closing. Updated contact information is at the end of this item.

One of the very few really black-and-white investor and consumer issues out there, at least as far as I am concerned, is forced arbitration. That is, take-it-or-leave-it clauses in consumer and brokerage contracts that deprive customers of their right to take a dispute to court.

Every couple of years, most recently in 2007, some good-hearted members of Congress have proposed legislation to end this truly horrendous practice, which forces arbitration on customers of  everything from stockbrokers to credit cards to nursing homes. There is a great hue and cry and then absolutely nothing happens.

Why? Because the growing list of businesses that benefit from forcible arbitration lobby against it -- and, apparently, don't have to lobby very hard.

If I seem cynical it's because I've been writing about this issue for approximately twenty years, and arbitration has not only continued unchecked, but has spread to a host of previously untouched industries. Now even cell phone providers, banks and even (gulp) doctors in some states require that disputes go to arbitration, with consumers deprived of their right to their day in court. An almost-full list (I'll be coming to the "almost" part in a moment) can be found here.

This year's ritualistic anti-arbitration law is the Arbitration Fairness Act of 2009.  Consumer groups are making a big push for the bill this year, and  their website is proclaiming April 29 as Arbitration Fairness Day, with a host of p.r. events to draw attention to this issue.

As I said, I'm a bit skeptical about efforts to overturn this entrenched and immensely unfair system, which--particularly in the case of credit card customers--often puts consumers in the clutches of horrendous pro-industry panels that don't even make a pretense of fairness. But with the Democrats having almost a filibuster-proof majority in the Senate... well, maybe this year will be different.

Oh, back to the word "almost" I used earlier. The bill does not explicitly mention investors, and the problem of securities industry arbitration is not mentioned in the website of the consumer groups that are pushing this bill. However, the bill will probably cover brokerage customers, and Sen. Russ Feingold (D-Wisconsin) said that was the intent of the identical 2007 bill.

Still, it seems a bit strange that investors are not mentioned in the bill --particularly at a time like this. There's no good reason to give the brokerage industry wiggle room that it can exploit if the bill becomes law. It also seems a bit odd that the consumer groups backing this bill don't seem to recognize, judging from their website, that investors are consumers too.

Postscript: Condé Nast Portfolio ceased publication on April 27. Portfolio.com is being discontinued, as is this blog. See you back at my old blog, garyweiss.blogspot.com.

Please note that my email address is garyweiss dot email at gmail dot com. My Portfolio.com email address is no longer operative, and emails sent there cannot be accessed.