NEW YORK (MainStreet) — The arbitration clause--or the arb clause--is often the bane of many consumers who want to seek redress for a grievance against a company in court. Arb clauses turn up anywhere from payday loan contracts to college enrollment agreements and prevent customers from suing. Rather than facilitate good-faith mediation, arb clauses have increasingly put the power to settle disputes in the hands of a company selling a product or service.

For-profit colleges have routinely included anti-student arb clauses in enrollment agreements. A bill introduced in Congress last week called the Court Legal Access & Student Support (CLASS) Act would attempt to stop this arbitration land grab by prohibiting schools from receiving federal student aid dollars that restrict students’ ability to pursue legal claims, individually or as part of a class action lawsuit.

The bill's proponents say that if the CLASS Act had been law, students defrauded by Corinthian colleges, which was shut down last week, would have been able to sue the school directly to have their student loans written off rather than take the more problematic route of going through the Department of Education (ED).

“For years, unscrupulous for-profit colleges have enriched themselves by devouring billions in federal student loan dollars while leaving students with worthless degrees and a mountain of debt,” said Senator Dick Durbin (D-Ill.), who introduced the bill with Rep. Maxine Waters. (D-Calif.)

“Students have had little to no recourse, unable to hold these companies accountable in court because of the fine print in enrollment contracts,” Durbin stated.

“This legislation will help put an end to the use of mandatory arbitration clauses in federally funded school enrollment agreements – a trend that does nothing but protect the predatory institutions that are harming our children,” said Waters.

According to Lauren Saunders, managing attorney at the National Consumer Law Center, the bill would invalidate the arbitration clauses, which hamstring the customer when it comes to seeking redress in the courts by denying them access while the lender calls the shots.

"The fine print of many contracts prohibits consumers from taking a company to court if the company violates the law," said Saunders. "Instead, the dispute must be resolved before a private arbitrator who is usually paid by the company, does not have to follow the facts or the law, and is not reviewed by an impartial judge." The fine print also typically bans class actions and prevents a court or the arbitrator from ordering a company to compensate all of the people who were harmed.

Trying to get consumer-friendly legislation through the Republican-dominated Congress may be a fraught exercise, but leveling the playing field for students has become a bi-partisan pre-occupation, especially for for-profit colleges that have been getting over on taxpayers.

What's more, ECMC Group, a student loan debt collector and a not-for-profit company, bought 56 former Corinthian College campuses before last week’s shutdown of its remaining locations. ECMC Group, which has created its Zenith Education subsidiary to run the former Corinthian schools, has adopted similar provisions that limit arbitration in its enrollment agreements.

--Written by John Sandman for MainStreet