Beware of Hidden Arbitration Clauses

I attended a seminar recently where the speaker asked, "How many of you would voluntarily give up your right to a jury trial?" Not one of the many lawyers who filled the room raised his or her hand. He then asked, "How many of you have, within the last two years, opened up a new bank account, obtained a new charge card, taken out a loan, contracted for cell phone service, rented a car, taken a new job or arranged for a parent to enter a nursing home?" Nearly every person in the room raised a hand. The speaker said, "Every one of you who raised a hand has waived his right to sue because somewhere in the paperwork you signed is a mandatory arbitration clause. If the corporation does something improper that causes you harm, you cannot take it to court. You've waived that right."

Mandatory arbitration is the stealth tidal wave that corporate lawyers have unleashed on the public to combat the effectiveness of class action suits. Let's say a credit card company is improperly computing interest owed by its cardholders but that the average individual overcharge in a given year is five dollars. Most people wouldn't get worked up over that if they knew about it, and most people would never know about it because who reads all the documentation that goes with a new credit card? But let's say this company has five million customers, all of whom are being overcharged. That's $25 million illegally taken from the public's pockets by a multi-billion dollar corporation. But no individual is going to take on Citibank or American Express for his five dollars. The solution is to bundle all these small claims into one giant class action suit. Now, the claim has clout, and the corporation must face a lawsuit worth a huge sum of money. Most often, these lawsuits settle, each wronged customer getting a very small check, but the corporation suffering a sizeable loss. The bad conduct comes to a stop.

Take away the right to go to court and those million dollar rip-offs perpetrated by large corporations go unopposed, a remedy unavailable. That's what mandatory arbitration is all about. Two of the many class actions quashed were against the companies I mentioned, Citibank and American Express. Citibank had been accused of duping its customers into buying insurance they'd never be able to use. American Express had been charged with unreasonably high processing fees. Both issues were swept away.

Bad enough, but the arbitrations themselves overwhelmingly find for the corporation, so even if David wants to fight Goliath he must do so with one hand tied behind his back.

Early this May, the Consumer Financial Protection Bureau proposed a rule that would eliminate mandatory arbitration and restore the consumers' rights to go to court. The proposal applies only to bank accounts, credit cards and other types of consumer loans, but it's a start. Congressional approval of the CFPB's recommendation is not required, so it's likely to go into effect. The CFPB was charged by the Dodd-Frank Wall Street Reform Act to study this mater and issue regulations in the public's interest.

Corporate lawyers claim consumers actually do better with the arbitrations, a claim not tightly tethered to fact. Arbitrations routinely and overwhelmingly result in decisions favorable to the corporations. A CFPB study released in 2015 showed that about 160 million consumers were eligible for some kind of class relief over a five year period, and that class actions settled during that time totaled about $2.7 billion. It is inconceivable that had all these individual claims been denied access to the courts and relegated to arbitration, that even a small fraction of that sum would have been generated, and the sums generated must be large or the corporations will not pay attention, which is exactly what they want.

Your right to go to go to court to have your grievance determined by a judge and jury is protected by the seventh amendment to our Constitution. It shares space in our Bill of Rights with freedom of speech, freedom of religion, freedom of the press and freedom of association. That's how important the Framers thought it was. They certainly did not intend for the rich and powerful to sneak a clause into the fine print that closes our courthouse doors.

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