Groups Call On AmEx, Chase, Citi, Toyota, Others To Stop Forcing Customers To Sign Away Their Legal Rights

Once upon a time, if a company wronged a customer — not just by screwing up an order or having poor customer service, but by actually breaking the law — that customer could file a lawsuit and try to hold the company accountable. And if the company wronged lots of customers in the same way, they could join together in a class action. Now, thanks to the U.S. Supreme Court, companies can get away with breaking the law by simply including a few handy lines of text in their customer agreements and contracts. But just because the company can use this “get out of jail free” card, doesn’t mean it should.

That’s why a coalition of more than 30 groups — including our colleagues at Consumers Union — have sent a letter [PDF] to the CEOs of American Express, General Electric, JPMorgan Chase, Sears, Citigroup, Toyota, and Discover Financial Services — all of whom use these “forced arbitration” clauses — to stop stripping their customers’ of their legal rights.

Though we’ve covered the issue of mandatory arbitration quite a bit here on Consumerist, it never hurts to remind people of how it works.

You purchase a new cellphone (or get a checking account, or a credit card, or pay-TV service, or stay in a hotel room, or buy a car… you get the idea) and somewhere deep in that contract/user agreement/terms of use/license are a paragraph or two — often under the heading of “dispute resolution” — where you give away your right to have legal disputes heard in court. Instead, all disputes are to be heard in front of a supposedly independent arbitrator.

But, as today’s letter notes, the independence of the arbitration process is often illusory, as “corporations write the arbitration rules, including choosing the arbitration firm and location for the proceeding… Meanwhile, arbitrators’ decisions are rarely appealable, even in a situation where an arbitrator makes a clear error.”

And customers often have no way to alter or remove these arbitration clauses. A few companies include the ability to opt-out of arbitration, but those often require mailing a very specifically worded letter to a very specific mailing address within an incredibly limited timeframe. By the time most people find out they probably can’t sue their bank, credit card company, or cable provider, that opt-out window has long closed.

If this sounds illegal or unethical to you, tell the Supreme Court justices who sided with AT&T in 2011, ruling that it’s perfectly A-OK to force customers into arbitration via contractual fine print.

Making matters worse, that SCOTUS ruling upheld a tactic used in many arbitration clauses that explicitly bar customers from joining together with other, similarly wronged consumers to have their cases heard as one.

The groups say that such terms are “particularly harmful” because they allow for “wrongful corporate actions that cause widespread or systemic harm.”

The letter gives the example of a company that illegally places unauthorized, small-dollar charges on customers’ monthly bills. Sure, a handful of individual customers may brave the rough waters of arbitration to resolve this dispute, but they will have to do so on their own. That limits the damages paid out by the company — effectively minimizing the punishment for its illegal activities.

And sometimes companies get away without a scratch because it would simply cost too much money for a single wronged customer to put together a case.

Which brings us to the other recent SCOTUS ruling that handed companies a “license to steal.” In 2013, in the matter of American Express v. Italian Colors Restaurant, a group of AmEx-accepting merchants claimed that the only way they could afford to mount an antitrust lawsuit against the credit card giant was to pool their resources. But a narrow SCOTUS majority held there was no “effective vindication” exemption to these arbitration agreements, even if they allowed companies to break the law.

“The inordinate costs of pursuing these claims individually means the wrongdoing goes unchecked and the aggrieved are left without remedies,” reads the letter. “Meanwhile, the illicit business practice risks wider damage to the marketplace and the economy.”

The Consumer Financial Protection Bureau is currently considering rules that would limit financial institutions from using these class action bans, but Congress — at the urging of bank lobbyists — is attempting to scuttle that pro-consumer effort by, among other tactics, forcing the CFPB to redo the work it spent three years on.

So if regulation won’t work, perhaps making a plea for basic decency to these companies might?

“Given the experience we now have with forced arbitration — that it deprives workers and consumers of the right to seek justice — we urge you to become part of the solution,” reads the letter to the CEOs. “You can set an example as a responsible company in the marketplace by ending your own use of forced arbitration clauses in all consumer and employee contracts. We also invite you to join us in calling on Congress to enact the Arbitration Fairness Act, which will make forced arbitration clauses unenforceable in consumer, civil rights, employment and antitrust disputes.”