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Shocker - forced arbitration is bad for consumers
Turns Out That Forcing Customers Into Arbitration Is Not Good For Consumers
A year ago this week, the U.S. Supreme Court issued a landmark ruling in the AT&T Mobility v. Concepcion case. It decided that a company could force customers into arbitration ? and effectively pre-empt any class-action lawsuits ? by including a tiny clause in their contracts. At the time, AT&T had the gall to claim that this was all for the benefit of you, the consumer, but a new study proves what you probably already guessed: AT&T was full of it.
In the year since the Concepcion ruling, a growing number of companies ? from banks to cable and satellite providers to video game producers ? have inserted forced arbitration clauses into their contracts. As a result, claims the study released by Public Citizen, at least 76 possible viable lawsuits have been stopped dead in their tracks.
Previous to Concepcion, a court could invalidate a forced arbitration clause or class-action ban if it deemed the terms unconscionable or overly one-sided and oppressive. But the Supreme Court ruling effectively takes that power away from the courts.
So even though the trial judge in a lawsuit brought by a Missouri plaintiff against a payday lending company found the lender's arbitration agreement to be "unconscionable and unenforceable because its class waiver deprives borrowers of a meaningful remedy," an appellate court had to overturn that decision, observing that, "post-Concepcion, courts may not apply state public policy concerns to invalidate an arbitration agreement even if the public policy at issue aims to prevent undesirable results to consumers."
Similarly, when two students of a for-profit college in Colorado sued the school alleging deceptive sales tactics and other violations of the state's consumer protection statute, a Colorado district court stated that the plaintiffs' "argument ha(d) considerable validity and the court would likely have found that the Arbitration Agreements at issue here unconscionable ... if it were issuing this decision pre-Concepcion... There is no doubt that Concepcion was a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals."
"Class actions are indispensable for allowing consumers to seek redress when a company's practices harm thousands of consumers, particularly when the harm results in a small-dollar loss for each consumer," said Christine Hines, consumer and civil justice counsel with Public Citizen and co-author of the report. "Under Concepcion, those cases can't go forward, leaving millions of consumers without a remedy for corporate wrongdoing."
There is legislation currently pending in Congress that would eliminate the use of most forced-arbitration clauses, and the Consumer Financial Protection Bureau has, as mandated by the Dodd-Frank financial reforms, begun looking into the use of forced arbitration in financial products and services.
However, even if lawmakers or regulators are successful in enacting some sort of rule change, we expect that the many corporations benefiting from forced arbitration will fight tooth-and-nail to keep the status quo.
You can read the full Public Citizen report [PDF] here, and be sure to check out the Rogues Gallery of companies with forced arbitration clauses at Citizen.org.
Re: Shocker - forced arbitration is bad for consumers
my read shelf:
Not sure who the floor contractor is, but I don't see why arbitration in this case would be so horrible. You can plead your case in arbitration and potentially get money just like you would in court. It doesn't stop you from having complaints, it just tells you where you can go to get redress.
The subtext I got from skimming the article was that it was a problem especially in class actions.
I review contracts for my company. Forced arbitration for all disputes before resorting to the courts is pretty common. What's more surprising, to me, is that since AT&T Mobile v. Concepcion, I've seen several contracts where the company tries to say something like "you agree that you will not bring, join or participate in any class action lawsuit against company and it's employees, board members, etc, etc, etc." Well, okay, that's not too surprising. But it always makes me raise an eyebrow and I always reject that section!
ETA: obviously these are business-to-business agreements and therefore no party is at a particular disadvantage. Just kind of interesting, IMO.
40/112
Actually you are correct (surprise!
). It depends on the contract, I've seen both mediation AND straight arbitration. But I think there are instances, like seeking injuctive relief, where one would have to obtain an actual court order, but would still default to arbitration for most legal disputes. That's probably what I'm confusing in my head and what's allowed in agreements mandating arbitration.
40/112
Ditto everything. It's actually a great idea for many types of business to business litigation.
The single biggest problem is no true injunctive relief. So let's say you win in your arbitration against AT&T for cramming sh!t on your phone bill. Great, right? Well, not really because they can just do it again the next month. Then you have to go back to arbitration to get them to stop. Even if you get an agreement for them to stop doing it to you in the future, there's not really anything to hold them accountable to that. You have to just keep going back to their hired arbitrator to make it stop over and over and over again.
This is why the class action waivers are so problematic. Because individual damages are so small, consumer class actions are more about stopping the bad behavior and deterring companies from engaging in other types of bad behavior than compensating people for their losses. Forced arbitration with class action waivers completely undermines every single consumer protection law on the books because of this.
If you do not believe me, think about the airline industry. The airline industry is probably among the sh1ttiest for its treatment of consumers. Years and years ago, airline deregulation made airlines exempt from most state consumer protection laws. As a result, it's virtually impossible to sue an airl!ne for you. That's why passengers are treated like cattle, and things like compensation for lost bags is crap. They have you by the balls.
The Supreme Court has turned consumer services into the airline industry.
There's also no such thing as estoppel or issue preclusion in arbitration. If I went to court individually, and got a judgment that my cell phone company falsely advertised something, then the next person could go to court and try to have that judgment applied to them, and would likely be successful. In arbitration, it's every man for themselves.
Unlike a court proceeding, arbitration is secret. Anyone who cares about a free market should be against it in consumer contracts, as there is no public record of wrongdoing, making it impossible for a consumer to vote with their feet.
Finally, these consumer contracts containing arbitration are always one sided. That means the company can sue you in court, but you can't sue them. Why would a company want to sue you in court? Well, if you have an unpaid balance on your credit card and they want to collect, they need a way to do that. They have more leverage shaming you, preying on your fears, and more likelihood of obtaining a default judgment if they can do it in open court. The one-sided nature of the agreement completely escaped a certain five members of the Supreme Corp.
Good god, I could go on all day about this topic. It enrages me like few other things do.