It's that time of the year when when many of us are out buying gifts as part of our holiday celebrations. The vast majority of those will be purchased with debit or credit cards. Later this month and continuing next month the statements for those cards will be arriving – in mailboxes or in-boxes across the state. And, if you have a dispute with the bank – such as additional fees being tacked on that you didn't know about that caused you to go over your limit and incur even more charges – you will likely find that buried in the fine print of your account agreement is a provision requiring that all disputes with your bank must go through arbitration.
Arbitration is a legal process to resolve disputes between parties without using the court system. Provisions for arbitration are usually contained in a contract between two parties. Those contract provisions set out the rules for the arbitration, including what parts of the contract will be subject to arbitration, how an arbitrator will be chosen, which of the parties will pay for the arbitration services, and where the arbitration proceeding will take place.
Congress passed the Federal Arbitration Act in the 1920's as a means to enforce arbitration provisions in contracts between large corporations. At the time that made sense - corporations would be on roughly equal footing, having the business and legal expertise to knowingly waive the right to take disputes over contracts to court.
Arbitration provisions have steadily proliferated into all contracts, to the point now where you would be hard pressed to find a single consumer, whether they know it or not, who is not subject to a mandatory arbitration clause in a consumer contract. If you have ever purchased or rented a cell phone, a car, or a computer, you probably have unknowingly waived your right to take to court a dispute about that product, and agreed to mandatory binding arbitration. The same goes for services, chances are your credit cards, bank accounts, retirement accounts, and other services have a mandatory arbitration clause that waives your right to pursue a remedy in court.
Now, arbitration itself is not necessarily bad. Arbitration can be an easy, low cost way to resolve disputes over products and services that parties can agree to - once a problem arises. The problem is that when agreement to arbitration is mandatory and required before any dispute arises, the consumer is always at a disadvantage. Mandatory, pre-dispute arbitration clauses can never be fair, when the parties do not have equal bargaining power, equal experience in arbitration, equal ability to understand contract language, particularly the ramifications of the rights being waived, and an equal ability to insist on clauses being included or excluded in the contract.
Arbitration procedures now severely weight the scales of justice toward large businesses and away from consumers, employees and small businesses. Consumers are not on equal footing with corporations, they are presented with “take it or leave it” contracts and the arbitration process is weighted in favor of the corporations - the corporations get to choose who the arbitrator is and where the arbitration takes place, and the cost of arbitration is often oppressive.
The U.S. Supreme Court, over the last few years, has repeatedly declined to uphold an individual's right, under the 7th Amendment, to have civil disputes decided by a jury. Given the Court's decisions and the financial realities that inhibit individual arbitrations, consumers have tried to band together and bring class action arbitrations. While no individual could afford to spend thousands of dollars to recover $30, thousands of consumers could find an attorney to take a case with a percentage from each consumer's $30 to pay the attorney's fee. This year the Court again sided with corporations, leaving consumers with no recourse, and giving corporations an arbitration free pass – no accountability, unless someone is willing to spend more money than they could ever hope to recover.
Now, after all that “coal in your stocking” reporting, there is reason for a little cheer this holiday season - the possibility for some relief from abusive arbitration provisions for financial contracts, like bank and credit contracts. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, charges the Consumer Financial Protection Bureau with studying the use of pre-dispute arbitration contract provisions in consumer financial products or services. The Bureau is in the process of conducting that study right now. It has compiled a preliminary study, started having public hearings last week and proposed a course for further investigation before reporting to Congress. There is even a petition out there to urge the Bureau to stand up for consumers and fight to stop forced arbitration in consumer financial contracts.
Congress is also looking at reigning in forced arbitration provisions in other consumer contracts. U.S. Sen. Al Franken and U.S. Rep. Hank Johnson have introduced the Arbitration Fairness Act of 2013 (AFA) [S.878 / H.R.1844] to restore Americans’ rights. The AFA would eliminate forced arbitration in employment, consumer, civil rights, and anti-trust cases.
Links to more information on these efforts can be found at at our website – www.monttla.com – or in the written version of this commentary at www.KUFM.org.
This is Al Smith for the Montana Trial Lawyers wishing you a merry Christmas and a safe and happy New Year!
Consumer Financial Protection Bureau - initial Arbitration Study
Petition to Consumer Financial Protection Bureau -
Take Justice Back - “The Fine Print” - http://www.takejusticeback.com/TheFinePrint
Arbitration Fairness Act of 2013 (AFA) [S.878] - http://beta.congress.gov/bill/113th-congress/senate-bill/878?q=%7B%22search%22%3A%5B%22S.878%22%5D%7D