Jan. 20, 2012 at 7:38 AM ET
Would you give away your right to sue a company in court simply to get a product or service you want?
Chances are you’ve already agreed to arbitrate any dispute rather than sue -- whether you realize it or not -- if you have a credit card, bank account or cell phone. Many medical facilities now require patients to agree to arbitration.
Last week, in a decision that received surprisingly little news coverage, the U.S. Supreme Court issued the latest in a series of rulings that allow companies to put mandatory arbitration clauses in their contracts.
Consumer advocates are deeply disappointed in the high court.
“It’s just another example of the Supreme Court ruling in favor of corporations and against consumers,” says Ira Rheingold, executive director of the National Association of Consumer Advocates.
This latest case involves a credit repair firm CompuCredit Corp. of Atlanta. It offered people with poor credit the Aspire Visa card. The card, which was issued by Columbus Bank and Trust (now a division of Synovus Bank), had a $300 credit limit. It was marketed as a way to “rebuild your credit” and “improve your credit rating.”
Unhappy customers claim the promotional material said “no deposit required.” But the Aspire Card came with $185 in fees that were assessed before the customer even received the card.
A group of customers sued CompuCredit, accusing the company of deceptive marketing. A lower court said they had the right to sue. But in an 8-to-1 decision the justices said the cardholders could not -- even though federal law (the Credit Repair Organization Act) specifically gives credit repair clients the right to sue. The high court said the arbitration clause in their contracts trumped that.
“The idea that they agreed to arbitration, they agreed to this provision in the fine print and buried it in a long, dense mouse-print kind of contract, is just ridiculous,” said Chi Chi Wu, staff attorney for the National Consumer Law Center. “These people had no idea that they were agreeing to arbitration.”
I contacted both CompuCredit and Synovus for a response. Synovus would not comment. I never heard back from CompuCredit.
Many business groups are pleased with the court’s rulings in support of mandatory arbitration. They see it as a cost-effective way to handle small disputes. The U.S. Chamber of Commerce believes lawyers often abuse the class action lawsuit. It calls arbitration “a faster, cheaper, and fairer alternative to litigation.”
Nessa Feddis, a spokesperson for the American Bankers Association, says people who arbitrate usually do better than if they go to court.
“It’s not that banks don’t want customers to have the right to sue,” she insisted. “They just don’t like the class actions which primarily benefit the plaintiffs’ attorneys. Consumers usually get pennies on the dollar.”
Why consumer groups don’t like mandatory arbitration
Companies often describe arbitration as an unbiased ruling from a neutral party. And they point out that the customer does not have to pay.
But consumer advocates say forced arbitration is unfair. They claim it favors the companies paying the arbitration service.
“It’s like a kangaroo court,” noted Kathleen Day with the Center for Responsible Lending. “If you look at arbitration cases where there’s a consumer claiming a financial institution has done them wrong, you’ll see that very rarely does the system ever rule in the consumer’s favor. It’s really a stacked deck.”
While lawsuits are public, binding arbitration is a secret tribunal. Neither the accusations nor the outcome is released. And the arbitrator’s ruling cannot be appealed.
“Arbitration is controlled by powerful special interests,” said Ed Mierzwinski, consumer program director at U.S. PIRG. “You are stuck with whatever the outcome is and too bad for you that the outcome almost always favors the company.”
Ira Rheingold with the National Association of Consumer Agency Administrators believes companies favor arbitration because it allows them “to engage in lots of unfair practices without anybody holding them accountable.”
Sen. Al Franken (D-Minn.) has written a bill -- the Arbitration Fairness Act of 2011. If passed, it would make a pre-dispute arbitration agreement invalid and unenforceable for an employment, consumer or civil rights dispute.
My two cents
There is nothing wrong with voluntary arbitration -- when both parties agree to it. In this case, either side can ignore the arbiter’s decision and go to court. But that isn’t the case with forced arbitration.
I have a real problem with this being forced down my throat as the only way to settle a dispute.
These mandatory arbitration clauses are often hidden in lengthy contracts that few people read or can understand. And even if you do spot it, there’s nothing you can do if you want that product or service. It’s a case of take it or leave it.
That’s just not fair.
When Congress created the Consumer Financial Protection Bureau (CFPB), it told the new consumer watchdog to study forced arbitration and decide whether to ban it or regulate it in some way. The Supreme Court’s recent decision makes it all the more urgent for the CFPB to complete the study and take action.
I hate it when class action lawyers sue a company, make millions in fees and get almost nothing for the individual consumer. But something needs to be done to level the playing field between big businesses and you, the customer.
If you are wronged, you should have a right to your day in court.