Wednesday, September 4, 2002


Consumers Union Urges Governor to Support Reform Measures

SACRAMENTO, CA – Among the many bills recently approved by the California legislature now awaiting action by Governor Gray Davis are a package of proposals aimed at reforming the practices of arbitration provider firms. The bills are designed to enhance disclosure of potential conflicts of interest and curb some of the problems associated with arbitration that favor businesses and make it difficult for consumers to get relief when they have a dispute with a company over goods or services.

“Mandatory arbitration can make it challenging for consumers to resolve complaints over illegal business practices and contract violations,” said Gail Hillebrand, a Senior Attorney with Consumers Union’s West Coast Regional Office. “We urge Governor Davis to support these proposals to help make the arbitration process more fair for consumers.”

When consumers sign contracts to obtain a credit card, health insurance, bank loan or other goods and services, they typically agree to mandatory arbitration in the event that they later have a dispute with the company in question. These contract clauses can prevent consumers from being able to seek relief in court.

“Because the outcome of arbitration is kept private, it interferes with the development of consumer law and fails to provide the kind of deterrence that can be provided by a consumer lawsuit,” said Hillebrand. “Often businesses have close relationships with the dispute resolution provider organization that may create a conflict of interest. Arbitration can impede the quality and effectiveness of relief available to consumers.”

The arbitration reform bills now awaiting action by Governor Davis are:

AB 2656 (Corbett), which will provide greater accountability for arbitration provider organizations by requiring providers to plainly disclose to the public information such as the number of arbitrations handled for a particular business and the outcome of those arbitrations. Public disclosure of arbitration results is particularly important because of the risk that a business which is a “repeat player” in arbitration might receive more favorable treatment in the arbitration than an individual consumer who may only have one arbitration with an arbitration provider.

AB 3029 (Steinberg), which further addresses the “repeat player” issue by allowing the parties to choose a different arbitration provider than the one which the business pre-selected in the form contract. The bill also requires arbitration providers to disclose other business relationships, such as consulting, that they have with companies that are parties to an arbitration.

AB 2574 (Harman), which makes it unlawful for an arbitration provider to administer a consumer arbitration if the provider has a financial interest in one of the parties, or if one of the attorneys or parties has a financial interest in the arbitration provider.

AB 3030 (Corbett), which requires arbitration providers to give back administrative fees paid by consumers if the arbitrator violates certain protections mandated by other reform proposals.

AB 2915 (Wayne), which would prevent a requirement that a consumer who loses an arbitration has to pay the other side’s arbitrator’s fees. Elimination of the “loser pays” rule in consumer cases would eliminate one of the ways in which arbitration can be more costly for consumers than the court system. AB 2915 also will address another aspect of the high cost of arbitration by requiring that each arbitration provider organization waive fees for lower income consumers who submit a sworn statement of qualifying household income.

“Our current system of arbitration is plagued by secrecy, potential conflicts of interests, unfair costs and other problems that put consumers at a distinct disadvantage,” said Hillebrand. “Governor Davis should sign these proposals into law so that we can begin to have public accountability in this private system of justice.”


Gail Hillebrand

Consumers Union, publisher of Consumer Reports, is a nonprofit testing and information organization serving only the consumer. We are comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.