Coalition to Preserve Arbitration Letter Opposing SA 3779 and SA 3780, Anti-arbitration Amendments Expected to be Offered to S. 3217, the "Restoring American Financial Stability Act of 2010"

TO THE MEMBERS OF THE UNITED STATES SENATE:

The undersigned members of the Coalition to Preserve Arbitration strongly oppose SA 3779 and SA 3780, anti-arbitration amendments expected to be offered to S. 3217, the "Restoring American Financial Stability Act of 2010." We urge you to vote against these anticonsumer amendments.

S. 3217 already includes harmful and unnecessary anti-arbitration measures that would authorize both the Securities and Exchange Commission (SEC) and the newly-created Consumer Financial Protection Bureau (CFPB) to regulate, and even prohibit, the use of arbitration in the securities and consumer financial products industries. See Secs. 921, 1028. In so doing, the bill threatens a time-honored dispute resolution system that allows consumers and investors to bring many financial claims that would otherwise be too costly to pursue in court.

Sen. Feingold's SA 3779 and SA 3780 make these existing provisions even more harmful.

• SA 3779 would require the CFPB's study of consumer arbitration—the basis for any eventual regulatory action—to be performed within 180 days after enactment of the CFPB. This unrealistic deadline for the brand-new agency virtually ensures that the study will be rushed and poorly executed. Moreover, unnecessarily commandeering the new agency's initial resources will prevent it from focusing on the more pressing issues that are the alleged basis for its creation.
• SA 3780 goes even further. Whereas the underlying bill at least preserves discretion for the SEC and/or CFPB to choose not to interfere with our current system of arbitration, SA 3780 tilts the playing field against arbitration. Instead of permissively allowing the CFPB to regulate arbitration as it deems necessary, the amendment would mandate regulations (so long as certain fungible conditions are met). It also mandates that the SEC conduct a rulemaking on the use of broker, dealer, municipal securities dealer, and investor advisor arbitration agreements—whether or not the Commission first finds that it would be in the public interest to do so. In short, the amendment would hamper the Commission's discretion to maintain a positive (or even neutral) stance towards the highly-regarded FINRA arbitration program. These backdoor attempts to use the new bureaucracy to undermine the longstanding congressional policy in favor of arbitration should be rejected.
• In addition, both these amendments would eliminate the "effective date" provision in Section 1028, which makes clear that any new CFPB regulation will apply only to agreements entered into 180 days after the regulation's effective date. This opens the door to sweeping, unfair retroactive regulations and empowers the CFPB to potentially invalidate millions of existing contracts.

These amendments would harm consumers and investors. For years, arbitration has been enormously successful at providing investors with a fair, low-cost, and efficient forum for resolving securities disputes. Approximately 70 percent of consumer cases arbitrated last year through the Financial Industry Regulatory Authority (FINRA) resulted in a recovery for the investor. In fact, many recent FINRA arbitrations have resulted in awards and settlements in the millions of dollars.

These same advantages also make arbitration a valuable resource for consumers of financial products. Leading arbitration providers like the non-profit American Arbitration Association have pioneered the adoption of rules and protocols to protect consumer rights and make it easy for consumers to resolve small-dollar claims. Those advances have led to high consumer win rates in arbitration at a fraction of the cost and time that would have been required to pursue the same claims in court. In fact, without arbitration, many consumers with small to modest-sized claims would have difficulty finding a lawyer, and would thus be left with no recourse at all.

Despite arbitration's proven benefits, plaintiffs' lawyers continue to fall back on longdiscredited claims that arbitration is unfair or even biased against consumers. What they fail to mention is that empirical studies show the opposite; and furthermore existing law protects consumers against potential abuses. For example, the Federal Arbitration Act (9 U.S.C. § 2) authorizes courts to police arbitration agreements to ensure that they are fair to consumers, and courts do not hesitate to strike down unfair provisions.

Arbitration serves an essential role for consumers and investors. By effectively eliminating arbitration as a means of resolving disputes, Sen. Feingold's proposed amendments will only further harm the interests of the consumers and small investors that the Restoring American Financial Stability Act is meant to protect. Accordingly, we ask you to oppose these amendments.

Sincerely,

American Bankers Association
American Financial Services Association
American Health Care Association
American Tort Reform Association
Assisted Living Federation of America
International Franchise Association
International Institute for Conflict Prevention & Resolution
National Association of Home Builders
National Association of Manufacturers
Obstetricians & Gynecologists Risk Retention Group of America, Inc.
Pediatricians Insurance Risk Retention Group of America, Inc.
Property Casualty Insurers Association of America
Securities Industry and Financial Markets Association
Society for Human Resource Management
The Financial Services Roundtable
U.S. Chamber Institute for Legal Reform
U.S. Chamber of Commerce