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.

Comments

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  1. Tim says:

    Like I always say: if arbitration is so great, why can’t consumers choose to enter into it when the dispute actually arises?

  2. Guppy06 says:

    “There is legislation currently pending in Congress that would eliminate the use of most forced-arbitration clauses”

    H.R.1873 and S.987, both titled “Arbitration Fairness Act of 2011.”

    Not to be confused with Senator Jeff Sessions’ “Fair Arbitration Act of 2011″ (S.1186), which looks like an attempt at trolling the other two bills.

  3. Velvet Jones says:

    I’m not sure how this is legal in any way, shape, or form. It basically allowing any entity to bypass any sort of civil liability by simply placing a BA clause in their contracts/EULAs. We commit fraud? Too bad, you need to go to binding arbitration. One of our employees raped your child? Too bad, you need to go to binging arbitration.

  4. Harry Greek says:

    The company I work for, has a Universal Master Business Agreement, that was created with language for the purposes of eventually bilking suppliers and service providers out of money we paid them.

    The corporate world is no longer about keeping employees, partners and customers; it’s about making as much money as possible without getting caught and/or in trouble. I would like to think the corporate world was loyal to it’s hardworking employees and paying customers – but, I I am pretty sure it was just for a short time.

  5. ARP says:

    How does the 10th Amendment factor into this decision? States should have the power to declare certain agreements against public policy, but AT&T essentially did away with that. I’m looking for the clause in the Constitution that discusses that contracts between two parties trumps state law, but I’m having trouble finding it. Is there something on point?

    • MrEvil says:

      Illegal contracts cannot be enforced is my understanding. If there are state laws saying MBA is illegal then the Concepcion decision doesn’t factor in. All SCOTUS did was rule that the courts didn’t have the power to make such a judgement.

    • aerodawg says:

      LOL, any meaning the 10th amendment had was killed long ago by people who felt the feds needing to have their nose in everything.

      Good luck making any 10th amendment arguments at all…

      • Booga Booga says:

        “LOL, any meaning the 10th amendment had was killed long ago by people who felt the feds needing to have their nose in everything.

        Good luck making any 10th amendment arguments at all…”

        Rather, the power of the 10th amendment has been largely negated by the ease with which intra-state commerce (indeed, international commerce) takes place in the modern world.

    • Guppy06 says:
    • humphrmi says:

      Specifically to the 10th, the amendment states (I may be paraphrasing here) “powers not granted to the federal government nor prohibited to the States by the Constitution are reserved to the States or the people.”

      In this case, the operative term here is probably “nor prohibited to the States”, which then feeds into the whole interstate commerce clause of the constitution, which has become (IMHO) overly broad over the last ~20 years. The Supremes probably believe that they have legally “prohibited to the States” the ability to overturn a contract with an interstate provider based on the General Welfare clause.

  6. deathbecomesme says:

    I’d love to hear what John Cornyn has to say about this. He’s one of the biggest opponents to the pending legislation. I’d like to hear those “talking points” he was so good at spouting at the special hearing.

  7. Jawaka says:

    Lawyers have probably lost more because of forced arbitration than consumers

    • daemonaquila says:

      Hardly – lawyers are making out like bandits because of the gigantic industry of arbitration. There’s the lawyers who draft the arbitration clauses, the ones who work for the companies to ensure that no consumer ever overturns one, the ones who are paid exorbitant fees as arbitrators, the ones hired by consumers and employees able to afford one (and there are a LOT, especially in potential class actions) to overturn arbitration clauses, and on and on. The consumers and employees affected by arbitration clauses are the only big losers in the deal. Corporations use arbitration clauses for one reason only: they know they’ll have to spend time and money protecting themselves from legitimate lawsuits stemming from egregious behavior, and they’ll do anything to prevent that from happening. It’s all about choosing the forum controlled by arbitrators THEY pay for, who know that if they rule the “wrong” way, their fat paychecks will evaporate and they’ll have to look for new business.

  8. HogwartsProfessor says:

    The main problem with forced arbitration is that the arbitrators are chosen by the corporation. Tell me again how that is impartial? There’s no way in hell they are going to side with consumers even if it’s obvious they are right.

  9. daemonaquila says:

    I am generally against most types of Alternative Dispute Resolution, with the exception of mediation if the parties are coming from more or less equal positions of power and are equally willing. I will not sign any contracts with binding arbitration clauses unless I feel the likelihood of it ever mattering is negligible.

    The most telling thing I have ever seen about arbitration happened in law school. I was taking a class in ADR (good to know about the evil side of the law) taught by a prof who was a fanatic cheerleader for it. One day, her husband had a falling out with his fellow shareholders in a closely-held corporation. They had agreed to arbitrate, but she wound up hiring her most talented fellow business law prof to represent him in the fight… starting with invalidating the arbitration clause. Why? Because she felt arbitration (she is a professional arbitrator) can not be trusted. So apparently, it’s FABULOUS for EVERYONE ELSE… but if you’re being forced to arbitrate, it’s horrible horrible horrible. Being the nasty devil’s advocate that I am, I pointed out the hypocrisy in class, and that’s the last we had of cheerleading for ADR – at least until the end of our course.

  10. B2BigAl says:

    This just blows my mind they can get away wih this. No mutual contract is ever supposed to be able to trump state or federal law. If I put some fine print in a contract that said I can take your first born if you don’t pay me, it would still be illegal no matter if you agreed to it or not. This is lunacy.

  11. Jevia says:

    This and many other examples of how corporations are taking away consumers’ rights are depicted in the movie Hot Coffee.

    The reason arbitration clauses are upheld? Because corporations financed the election of business friendly judges. They buy the lobbyists, they buy the legislators, they buy the judges. They pay little to no taxes. They pay as little in wages and benefits as possible. They pay their CEOs and board members millions.

    And some wonder why our economy sucks?

  12. dush says:

    The best class-action is for all of us to just stop being customers.

  13. thehunter818 says:

    AT&T is a terrible company. They regularly lie to their consumers, conceal prices, and extort money from the public in any manner possible.