Democratic Senators Patrick Leahy and several other Democratic Senators have cosponsored a bill that would place new limits on the use of arbitration agreements.  According to Senator Leahy’s press release, the “Restoring Statutory Rights and Interests of the States Act of 2016,” responds to the New York Times’ publication last November of a series of three articles that were highly critical of arbitration.

The bill would amend the Federal Arbitration Act to:

  • Make the FAA inapplicable to forced arbitration of claims brought by individuals or small businesses “arising from the alleged violation of a Federal or State statute, the Constitution of the United States, or a constitution of a State.”
  • Provide that the grounds “at law or in equity for the revocation of any contract” that allow an arbitration agreement to be declared invalid include “a Federal or State statute, or the finding of a Federal or State court, that prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.”
  • Require the determination of whether the FAA applies to an arbitration agreement to be made by a court.

We expect that in the first half of 2016, the CFPB will issue its proposal for regulating the use of arbitration agreements in certain consumer financial services contracts.  Last October, the CFPB convened a SBREFA panel to review the proposals under consideration.  Because of the bill’s overlap with the CFPB’s proposals, we do not expect the bill to get any traction until the CFPB completes its arbitration rulemaking.