Those arbitration clauses that are a part of nearly every financial contract we sign are depriving consumers of their rights and it’s resulting in fewer cases being brought as consumer claims are suppressed by companies’ increased use of forced arbitration clauses, says the Consumer Protection Financial Bureau.
The writing is on the wall: Arbitration clauses are everywhere, consequently causing consumer claims to disappear. This is causing big problems for some consumers who feel trapped.
Many may recall the controversial U.S. Supreme Court decision between AT&T Mobility and Concepcion last year. The courts made it even easier for companies to shield themselves from class action suits by allowing them to put specific language into their contracts that make it all but impossible for wronged customers to seek legal protections in a court of law. According to a report from the Public Citizen and National Association of Consumer Advocates, judges have used that case in their decisions that prevented at least 76 potential class action suits from moving forward. This applies to credit cards, student loans, mortgages and most any other type of financial contract.
The report includes a survey of 350 consumer attorneys in 46 states. It’s reported that 84% of all consumer attorney respondents said that they have evidenced claim suppression. There were more than 250 stories collected during the research efforts by lawyers that were able to provide instances where consumer claims were not allowed to move forward because arbitration clause and now, many judges are citing Concepcion.
For the past twenty five years, American courts have ruled that a company can exercise its arbitration clauses in order to settle disputes in a less-legal environment, such as with a mediator. In the Concepcion lawsuit, the courts went even further. Now, instead of a consumer still having the right to file a lawsuit if arbitration isn’t successful, a company can instead block that consumer from filing a legal case. If you’re thinking that sounds un-American, it is.
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.
This recently released report included several examples, including these alarming events:
A member of the Army reserves returned an automobile before the expiration of his lease because he was deployed overseas. The Servicemembers Civil Relief Act (SCRA) clearly permits service members to terminate car leases without penalty and to recoup the pro-rated share of payments they have made in advance. But the auto company refused to reimburse the prepaid amount to the reservist. He sought a class-action lawsuit on behalf of an estimated 1,000 service members in similar situations. But, citing Concepcion, a judge ruled that he could pursue redress only for himself, not on behalf of a class.
A cell phone user’s frequent use of his so-called “unlimited” data plan triggered T-Mobile to slow down his service. T-Mobile had inserted a forced arbitration agreement into the contract it required the user to sign when he bought the phone, but he said he never saw it and sued T-Mobile in 2009. The company convinced the judge to suspend the case until Concepcion was decided; the court then rejected the user’s argument that the class-action ban in the arbitration agreement was unenforceable. Not only was this unfair to the consumer, but it brings to light questions about the fairness of the courts around the country these days.
To be sure there are millions of consumers who are being impacted as a result of that once case. They are no longer able to seek remedies in the courts their tax dollars pay for. Delicia Reynolds, the legislative director with the National Association of Consumer Advocates (NACA), said,
Good class actions, which might have provided needed injunctive relief and curbed bad behavior, are not moving forward.
Another lawyer said,
Unless brought collectively through a class action, many consumers with small dollar claims against a company will have no incentive to bring their claim in arbitration or otherwise. Whether it’s because the contract has a class action waiver or because the consumer declines to arbitrate their claim due to excessive fees or an inability to travel long distances, it means that companies get a free pass to violate consumer rights without repercussions.
In the financial sector especially, these class-action lawsuits have been a way to level the playing field. One example that was mentioned was illegal payday lending practices, where consumers often aren’t aware there are avenues they can pursue and it’s not until they’re educated that they realize there’s another way out. Since Concepcion, however, consumers often are left without a viable way to challenge such deceptive practices.
But this isn’t limited to just financial services and products. They’re found in health insurance contracts, gym memberships, cable television contracts and even nursing home contracts. The survey revealed the top reasons arbitration was seen as disadvantage to consumers to be first, an uneven playing field, followed by limited recourse for the consumer and questionable objectivity of the arbitrator. Lack of transparency was also cited. Few consumer attorneys – less than 5% according to the survey – report to have experience representing consumers in arbitration.
The one bright spot, albeit an inconsistent one, is the authority both Congress and federal agencies have to ban “forced” arbitration efforts in some contracts. The problem is it’s a very narrow avenue that these agencies can intervene. The CFPB has stepped up to the plate and says it’s beginning to investigate the practice with the goal of finding a different solution that will nullify Concepcion – at least to some degree. The study is a prerequisite to the CFPB writing rules on the issue. The Arbitration Fairness Act pending in Congress would eliminate forced arbitration in consumer and non-union employment contracts.