How the Obama Administration Can Unilaterally Strike a Blow Against Arbitration Clauses

by Jeff Sovern

A theme of the President's state of the union address was that if he cannot achieve his goals by working with Congress, he will pursue those goals unilaterally, to the extent he can, through executive action.  One tool presidents have is the purchasing power of the United States.  The US buys about $500 billion worth of goods and services annually, more than anyone else.  As this Sunday Times Review essay by Ian Urbina notes, presidents, including President Obama, have used this tool to effect social change.  Urbina explained:

In 1941, for example, President Franklin D. Roosevelt issued an executive order prohibiting racial discrimination by defense contractors after it became clear that federal legislation would be impossible because of the stranglehold that Southern Democrats had on Congress.

Since then, the government has used its purchasing power to promote an array of other social goals, including ending forced child labor, promoting recycled paper, incentivizing the hiring of disabled people and opposing apartheid.

President Obama has made one major foray into this realm. In September 2012, he issued an executive order strengthening rules preventing federal agencies from using factories that relied on forced labor or trafficked workers. * * *

Suppose the president ordered that federal agencies not do business with companies that use predispute arbitration clauses.  Businesses like Citibank  that both do business with the government (see here and here) and use arbitration clauses would have to choose which one was more valuable to them.  The result might be fewer consumer contracts subject to arbitration clauses. And the president wouldn't have to wait for Congress to pass the Arbitration Fairness Act to get there.

What's the downside?  Urbina reports that some critics charge that using government purchasing power to accomplish substantive goals helps contractors who are better at gaming the system.  Yet those who use arbitration clauses have already demonstrated skill at gaming the system, and so presumably no company using arbitration clauses would be disadvantaged in that way. Other critics claim that such strategies might increase costs to the government.  But some major businesses, including JPMorgan Chase with its credit cards, are already eschewing the use of binding arbitration clauses, and there's no evidence that their prices are not competitive. 

This president has already done a lot for consumers by signing the Dodd-Frank Act and creating the Consumer Financial Protection Bureau.  He can add to that legacy by using the government's purchasing power to do still more.

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