The Obama administration has sought to eliminate legal arbitration, the means by which private parties resolve disputes outside of the courts. As one would expect, the beneficiaries of this shift away from arbitration are trial lawyers, not consumers.
Prior to Republicans’ gaining control of the House in 2010, Congress played a critical role in creating an influx of litigation costs. “Lawyers and law firms have been the largest special-interest political contributors to Congress in each electoral cycle in the 21st century, with such donations concentrated among Democrats,” explains James Copland, the director of legal policy at the Manhattan Institute, in “Trial Lawyer Inc: Arbitration,” a report published on Thursday.
Copland concludes in his report that the Obama administration made significant strides toward eliminating arbitration in disputes involving labor law, consumer finance, and nursing homes — and that it did so despite Republican control of Congress.
In January of 2012, for example, the National Labor Relations Board (NLRB), a federal agency that enforces labor laws, ruled that arbitration clauses prohibiting class-action wage-and-hour lawsuits would not be enforced. By deeming arbitration illegitimate in this area, the NLRB’s decision will cause a surge in litigation that could be resolved in a far less costly, and more prompt, manner. (An appeal is pending before the U.S. Supreme Court.)
Similarly, in May of 2016 the Consumer Financial Protection Bureau, another federal agency, wrote a proposal prohibiting the insertion of arbitration clauses; this time, arbitration clauses were forbidden in consumer-finance contracts.
The Obama administration’s intent to eliminate arbitration stretches to the Centers for Medicare and Medicaid Services, which created a rule in July of 2015 to forbid nursing-home contracts to require arbitration in the event of legal disputes. (In November, a federal judge blocked the rule, but this is subject to change.)
Advocates of the Obama administration’s push toward settling all legal disputes in court argue that arbitration reduces defendants’ incentives to fulfill their obligations under the law. But Copland’s evidence indicates that legal obligations under the law would still be upheld, and “individual consumers were more likely to prevail in arbitration than in court.”
The Obama administration successfully implemented rules that benefited trial lawyers and burdened consumers. But as Obama’s time in office dwindles and these rules have yet to be solidified, we hope Trump will reverse course.