Articles

How Arbitration Screws Customers

On Thursday December 12, 2013 the Consumer Financial Protection Bureau will hold a field hearing on Forced Arbitration Clauses, which have been called “Corporate America’s Most Successful Dirty Secret.”As many of you know, Arbitration Clauses are now found buried in the fine print of almost EVERY consumer contract you sign — cell phones, insurance, credit cards, vehicle purchases, etc. When you sign such a contract, Courts now find you have “agreed” to whatever it contains — including giving up the rights given you under state and federal consumer protection laws. That means you can be completely (and intentionally) screwed yet find yourself effectively powerless to do anything about it.

By so disarming you, Arbitration Clauses allow corporations to engage in the very practices the laws were designed to prevent, with relative immunity.

So, how did Corporate America get away with it?

Like a seemingly harmless date that turns bad, Corporate America romanced the Courts into thinking it was a nice guy. By the time the Court realized otherwise, the weight of precedent made it too late. Here’s the 5-step process in a nutshell:

Step 1:

Talk a Good Game: Corporate America created a 3-part Myth that went like this: 1) Courts are overburdened (by frivolous lawsuits by greedy consumers). 2) Arbitration is simply an alternate forum — equally fair — to resolve these disputes. 3) Consumers will have all the same rights there as they would in Court, but it will be cheaper and faster for all concerned.

Step 2:

Make it All Seem Fine: Corporate America backed up its game by burying (in the fine print) arbitration clauses that seemed “fair” – leaving fundamental rights (including punitive damage and class action rights) unaffected and offering to pay some or all of the costs of arbitration. How nice, right? And plus isn’t the right of a consumer to enter into any kind of contract he or she wants quintessentially American? By now, Courts were digging arbitration, dismissing consumer’s cases and sending them to “alternate but equally fair” arbitration forums.

Step 3:

Co-Opt the Forum: With the case safely moved from the Court’s eyes, the real fun began. Unlike a jury of 12 citizens from different backgrounds, the “arbitrator” was a business friendly guy, made even friendlier by the facts that 1) the Corporation was footing the bill for the case; and 2) the Corporation was sending several hundred or thousand other cases to the arbitrator as well (and paying him to decide those). Not exactly neutral.

Step 4:

Strip the Rights: After Courts — and appellate Courts — had fully invested in the Arbitration Myth, it was time for Corporate America to do a little revision to the Arbitration Clauses themselves — to remove some of those pesky Consumer’s rights. First to go was Class Actions. Corporations that screw thousands or millions of people a little bit faced no real threat from any one of those individuals — it’s only when those individuals band together in a Class that a threat arises. Corporate America didn’t like that, so it installed “Class Waivers” into its arbitration clauses wherein consumer “agreed” not to begin or participate in any class action. Next to go was punitive damages. Next (and in progress) are limitations on actual damages and attorney’s fees. Sometimes the Courts did not like these provisions but, by now, there was a huge body of precedent upholding arbitration clauses. The Courts continued to enforce them even where important federal or state rights were taken away.

Step 5:

Move the Forum out of Reach: The next step — and the nail in the coffin of consumer’s rights — moves the Forum out of reach. Instead of allowing the arbitration to take place in the Consumer’s city or state, move it to the Corporation’s home state. Or some other state (or better yet, country) that’s really far from most Customers. Once upon a time, Courts wouldn’t allow “forum selection” clauses in consumer contracts. By packing such requirements into arbitration clauses, however, it’s totally up for grabs. How about it, Mr. Consumer? Are you up for traveling to Arizona to arbitrate your $300.00 cell-phone bill dispute? PS –you have to pay the arbitrator’s $500.00 filing fee — and all of both parties’ costs if you lose. Sound good?

Step 6:

Make it Universal: The final step (which, like step 5 is in progress) puts arbitration clauses into EVERYTHING. Click on a website? You just agreed to their arbitration clause. Eat at a restaurant? Ditto. I have joked about putting a bumper sticker on my car that says “by striking this vehicle you agree to binding arbitration.” But we are close to that reality. This means, no more of those pesky rights for you.

What You Can Do About It:

As consumers, the best solution outlaws these clauses entirely. As I mentioned above, the CFPB has the power to ban forced arbitration clauses in the institutions (like banks) it oversees. You can sign a Petition to the CFPB here. In the meantime, you can try to avoid signing contracts with arbitration clauses in them. Try slashing through the arbitration clause at your car dealer and see what happens (maybe he won’t sell you the car, but one of his competitors might). Make it a term of negotiation. Or better, simply not do business with companies that require them (use a “no contract” cell phone instead, e.g., of signing Verizon’s agreement). It’s tough to do. Because these clauses are everywhere. But we have to roll it back someplace. And since it’s “all about the money” to these corporations, we might as well start by not giving them any more of ours.