Let's Fix This Country

Maybe You’ll Have Your Day in Court Again

Report criticizes another of Supreme Court's dreadful decisions

Hopefully you've never had a serious dispute with any of your credit card companies, or your bank, your investment broker, your mortgage lender, your cell phone service, your cable television provider, or increasingly just about everyone you contract with, even local merchants such as a gym or a tanning salon. Because deep in the legalese behind the checkbox that you clicked on the Internet labeled “Accept”, or in the text you never read before you signed a paper contract, is a policy that over half of U.S. businesses have adopted that says you can't take them to court if you have a disagreement. You can only submit to "arbitration".

Arbitration clauses began their proliferation in corporate contracts when the business-friendly Supreme Court in 2011 approved companies mandating it as the only option for settling a dispute. Of the 50 largest banks, by the following year 28 had already limited their checking account holders to arbitration. In a survey of 350 companies, the percent that allow only arbitration to 43% last year from 16% in 2012. In some categories, there is virtually no exception: 99.9% of cell phone users have — unwittingly, no doubt — agreed to arbitration as have 92% of prepaid cards and 86% of private student loan borrowers.

In a 2013 case, the Court then doubled down, allowing corporations to add a rule that forbids us from joining a class action to seek relief in a dispute. The Court said that we should not expect a "guarantee of an affordable procedural path".

The result, of course, is that consumers are left on their own to pursue a complaint — even though it may be a problem shared by hundreds or even thousands of others — because they are barred from joining the others to form a class by the rules the company forced upon them. The cost of a lawyer to battle as an individual a battalion of attorneys at giant corporations is prohibitive. Consumers are forced to leave the money on the table and surrender. "Forget it. It's impossible. Not even worth trying", says a lawyer with Public Justice, a D.C. non-profit. [3]

The effect of the Supreme Court's decision is to hand victory over consumers to corporations without a fight. The number of arbitration claims for amounts under $1,000 have been driven almost to extinction.

a voice for the people

The Consumer Finance Protection Bureau was created by the Dodd-Frank reform law, and it required that the new agency study the arbitration question. It took three-years to produce a just-issued 728-page report that concluded what anyone who has been subjected to arbitration could have come up with over a lunch break, namely, that arbitration lets businesses act against customers with impunity and customers regularly lose. If the CFPB does what it was created for, we could at least see a bitterly fought battle against business interests and their lobbying organization, the U.S. Chamber of Commerce. At least the practice is finally being contested in the open, or so it should be hoped.

But for the years any improvement will take, the deck is stacked in favor of business. Companies are now even making acceptance of arbitration for dispute resolution a condition of employment, stifling employees who may at some pint have claims of wage theft, discrimination or other labor law matters. The suppression of their complaints serves to make illegal conduct by businesses invisible.

Under arbitration the complainant and the corporation's representative go before usually a single individual from a firm that specializes in judging disputes. The arbitrator hears both sides and renders a binding decision. So much simpler and economical than a court trial. Problem is, the arbitration firm chosen and hired by the corporation. If that firm decides against the corporation more than a token number of times, they lose the corporation as a client. A 2011 “Frontline” documentary on PBS showed the example of First USA, a company that handles credit card transactions. It had won 19,618 cases in arbitration. How many cases did card users win? 87.

it’s class action that matters

When a bank or corporation demands that we agree not to join a class action should we ever have a dispute, we cannot exactly go down the street to another bank, or search out another credit card company because they have developed what could be called a monopoly of policy that shuts us out if we don't submit. As an example of what is lost in the Supreme Court's several decisions that chip away at class action, consider the case brought against a major bank a few years back. Say you pay several bills at once online which in total will accidentally lead to an overdraft. The bank's computer algorithms were written to process the biggest payments first so as to reach overdraft quickest, and then charge an overdraft penalty such as $35 for each of the smaller payments that were deliberately processed last. In a class action against Wells Fargo in 2010 the bank's clients were awarded $203 million for such practices. By its 2013 ruling the Supreme Court is effectively saying to consumers, stop whining. Just pay the multiple fines to the bank and move on.

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1 Comment for “Maybe You’ll Have Your Day in Court Again”

  1. David Barnett, Ph.D.

    Here is a reform to press for:

    Consumer conditions that appear far down the list should be unenforceable. How far is far? Further down the list than can reasonably be read in the time allotted to peruse a consumer agreement.

    That would force companies to put everything that might materially affect a consumer’s decision in the first few lines. Then they would have to compete on these conditions, and some might well break ranks for PR reasons.

    Another reform, specifically re arbitration, would be a statute requiring the arbitrator to be agreed mutually between the parties at the time of arbitration. It is absurd that one party should get to dictate the judge of the dispute. You might just as well have a clause saying “you can’t sue us ever”.

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