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.
Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.