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Sen. Franken's Floor Statement on Arbitration Fairness for Students

Wednesday, September 19, 2012


Senator Al Franken (as prepared for delivery)

M. President, I rise today to talk about a bill I've just introduced, the Arbitration Fairness for Students Act, and why it's so important to protect our nation's students. Access to higher education is becoming increasingly important in our nation. In 2018, 70% of jobs in Minnesota will require some postsecondary education. But we must also make sure that access to higher education remains a positive force, rather than a damaging one. Colleges and Universities need to deliver on the promises they make to students, and if they don't, students need to be able to hold them accountable.

That's why I've introduced this bill today with Senator Harkin and six cosponsors. It would prohibit any school participating in the Title IV federal student aid system from forcing its students to forgo access to the courts when they have a valid dispute, and instead forcing them into private arbitration proceedings

This bill is about accountability. It's about the basic American right to seek justice in our court system: a right that is unfortunately being denied to thousands of students today after the landmark Supreme Court decision in the AT&T Mobility v. Concepcion case.

A recent report from Public Citizen and the National Association of Consumer Advocates highlights how that decision is harming students. Before that decision, thousands of students who had attended a chain of culinary schools formed a class action lawsuit, alleging that the school had exaggerated the salaries of its graduates, and they won. The students received payments of up to $20,000 each, which they desperately needed since, according to the lawsuits, these students typically had more than $40,000 in student loan debt.

But that was before the Concepcion decision, which now allows corporations to block class action lawsuits through the use of mandatory arbitration clauses. Now, a group of students that can prove that they were lied to by their college can be barred from accessing our court system. I think that's wrong, and my bill would change that.

But don't just take it from me. Take it from judges who are ruling in the post-Concepcion world, and who feel that students are being hurt. In one recent case, students alleged that a school misrepresented basic facts like the cost of education and the school's accreditation status. The students even showed that they had to sign the enrollment contract, which contained the mandatory arbitration clause, before they were allowed to speak to financial aid counselors.

The court ruled against the students, citing the Concepcion decision. According to the court, "the argument had considerable validity and the court would likely have found the Arbitration Agreements at issue here unconscionable ... if it were issuing this decision pre-Concepcion." The court also said that Concepcion "likely foreclosed the possibility of any recovery for many wronged individuals."

As I said, this bill is about accountability. It's also about college affordability. Our higher education system often requires students to take on tens of thousands of dollars in debt. In exchange for this debt, students believe they are receiving an education that will allow them to pay that money back, often because that's exactly what the school is telling them. But what if the school is lying? Students need to be able to hold those schools accountable for their actions. Otherwise, what's going to stop other schools from charging whatever they want and convincing their students that they can afford it? We can stop these anti-consumer, anti-student contracts, and my bill would do just that.

Congress has acted several times to protect individual industries from abuse of mandatory arbitration clauses. In 2001, Congress heard from William Shack, a long-time automobile dealer from Nevada. He told his story to Congress, about how he and a partner had been working together to open a Saturn dealership, investing a lot of money, when Saturn suddenly pulled the deal.

As a result of the arbitration clause in their contract, Mr. Shack and has partner were required to arbitrate the dispute. In his testimony, he said that federal legislation was the only remedy available to protect auto dealers from the imposition of these unfair contract provisions, and to preserve state procedural and substantive protections. He explained, "We reject categorically the idea that we ‘‘voluntarily'' agreed to submit to mandatory binding arbitration."

The most compelling portion of Mr. Shack's testimony was this: "[The] dispute drove home to us in a drastic fashion just how one-sided the mandatory binding arbitration process can be for dealers. We were surprised to learn that, despite the great system of justice that we have in this country, we could be deprived of the basic right to an impartial decision on the merits of our case. That is a grave injustice."

In response to stories like Mr. Shack's, Senator Hatch introduced the Motor Vehicle Franchise Contract Arbitration Fairness Act. The bill had 66 cosponsors - an equal number of Democrats and Republicans. Unsurprisingly, there was opposition to this legislation-the Chamber of Commerce testified against it. But Congress decided to prioritize the rights of auto dealers to seek justice in our courts, and in November of 2002, Congress passed this bill.
Today, auto dealers cannot be bound by mandatory arbitration provisions in their contracts with their manufacturers. This change didn't result in floods of litigation-it simply provided some equal footing for small auto dealerships to bargain with the large manufacturers. Once Congress determined that this particular industry was subject to abuse, it took action to protect the vulnerable party.

Congress acted again in 2007 to protect members of our armed services. Congress heard from military leaders that predatory lending targeted at our nation's service members was impairing our country's military readiness. In response, Republican Senator Jim Talent, along with his colleague Senator Bill Nelson, introduced an amendment to the 2006 National Defense Authorization bill. Their provision prohibited predatory lending practices, including a prohibition on enforcing mandatory arbitration clauses, in financial agreements with service members. This amendment passed the Senate unanimously, and went into effect in 2007. Despite strong opposition from the Wall Street lobby, Congress came together in a bipartisan manner to target abuses against our service members.

In addition to auto dealers and service members, Congress has also taken up the plight of poultry growers. In a 2007 hearing in the Senate Agriculture Committee, one witness shared this terrible story. Gertrude Overstreet was a 67 year old contract poultry farmer. She operated two chicken houses, so her total monthly income, including food stamps, was less than $1,000 per month, for her and her husband. Mrs. Overstreet had a 10th grade education.

When the poultry processor for which she worked violated the terms of their agreement, that company required Mrs. Overstreet to bring her claim into arbitration, where she was required to pay $20,000 in upfront costs before she could even get a hearing. Mrs. Overstreet did not know what arbitration was, or that her legal remedies had been stripped from her. This is an elderly couple who could not afford the costs of their medication, much less $20,000 in upfront arbitration fees.

This might be the most compelling example of disparate bargaining power. A giant poultry processor versus Mrs. Overstreet. But Senator Grassley took up this cause and introduced the Fair Contracts for Growers Act. Thanks to his efforts, when the Farm Bill passed the following year, it included provisions that enabled poultry farmers to opt-out of mandatory arbitration clauses imposed by the big processors.

Most recently, Congress took up an amendment that I introduced to the National Defense Authorization bill in the fall of 2009. Some of the most offensive uses of mandatory arbitration clauses I've seen are by overseas military contractors against women who've been victimized on the job. Too many women working for military contractors have had to endure unimaginable workplace harassment and violence. Those women deserve their right to a day in court, just like the auto dealers, the service members, and the poultry farmers. Once again, this amendment passed with broad bipartisan support. Once again, Congress took steps to tackle the most egregious abuses of mandatory arbitration.

When confronted with a group who has been victimized by mandatory arbitration clauses, Congress has repeatedly taken steps to protect the little guy and the right to a day in court, and we have done so on a bipartisan basis. I believe Minnesota's students and students across the country deserve the same protection we have afforded to auto dealers, service members, poultry farmers, and employees of military contractors. The Arbitration Fairness for Students Act would provide that protection, and I urge my colleagues to support it.

Thank you M. President, I yield the floor.


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