WASHINGTON, August 30, 2015 − Do you have a credit card, checking account, student loan, cell phone or cable television account? Do you use the Internet or have health insurance or an employment contract or even a Starbucks card?
If you have any of the above, you have agreed to what is known as forced arbitration if there is a dispute.
If something goes so wrong that it seems the only solution is to file a lawsuit, guess what? You cannot do that. Because of contracts you signed, contracts that you had no say in negotiating, contracts where “legalese” and fine print are standard features, disputes that you may have with the credit card company or with Starbucks will be handled by a process called arbitration.
Arbitration is supposed to be a process for resolving disputes in a less formal manner than litigation, and it was originally designed to be faster and less expensive than filing a lawsuit.
Arbitration should be fair. The problem is, due to the pressure exerted by big business organizations, the United States Chamber of Commerce and most state chambers, arbitration today has become highly tilted in favor of businesses. As a result, the consumer has virtually no chance at winning a dispute.
- The contracts you sign require you to agree to arbitration.
- The cards are stacked against you. The business wins, virtually all of the time.
The reasons why arbitration is not fair are quite simple.
- The business, not the consumer, chooses the location for the hearing. This can be an immediate obstacle for the consumer. PayPal requires consumers to arbitrate in California, no matter where they live or what resources they have for travel.
- The business, not the consumer, picks the arbitrator. Sometimes, the business allows the consumer to pick an arbitrator from a list the business provides. But the consumer’s “chosen” arbitrator is clearly financially beholden to the business for supplying that business. It follows, then, that ruling against the business in question would likely result in an end of the repeat business gravy train for that arbitrator.
- The business can change the rules mid-stream if it chooses, employing tactics such as cancelling the agreement with the consumer or allowing or disallowing certain types of evidence to be presented. This is akin to moving the goalposts closer in a football game when you are on offense, and moving them farther away when you are on defense. The consumer does not have this advantage, either.
- Consumers, who are already at an extreme financial disadvantage when compared to the business, must pay all their own costs in arbitration. Worse yet, they do not get to recoup these expenses even if they win in arbitration. This often forces consumers to abandon even the thought of fighting back against the business.
Corporations conduct extensive market research to design the arbitration provisions in their contracts in a way that makes them easy for consumers to miss or ignore, often with deceptive information headers such as “there’s nothing you need to do.” It is almost impossible to spot these clauses before applying for a credit card or purchasing a product. This effectively means that just by “receiving” the product or service, one is “agreeing” to sign away all legal rights and protections.
To make matters worse, consumers do not gain anything from “agreeing” to waive their rights. Consumers do not get better rates or faster service or enjoy any other form of passed-on savings.
Even if you knew about these clauses, there is little you can do but be bound by them. Example: at least 30 million U.S. employees have been forced to sign away their rights just so they can work.
A nurse at the Princeton Medical Center in Birmingham, Alabama, refused to sign an arbitration agreement, but continued to work. When she was fired after three years for missing one day of work (to attend a continuing education class), she sued. The hospital successfully argued that by coming to work, she “agreed” to the forced arbitration clause and her lawsuit was thrown out. She then lost in arbitration.
Most people, even if they know about the arbitration provisions, do not pay much attention to them, nor do they believe them to be important. Clearly they do not understand that these clauses cover all types of harms − fraud, abuse, discrimination − meaning they cannot “get their day in court.”
The current problem is hiding in plain sight and is outrageous. Arbitration groups like the American Arbitration Association (AAA) own millions of dollars in the shares of companies that are also their clients. Corporations have also paid millions directly in “memberships” and arbitration contracts. Conflict of interest, you say? Exactly.
In one study conducted, banking company First USA paid an arbitration group, NAF, several million dollars in fees to arbitrate more than 50,000 collection cases. The bank won 99.6 percent of the cases.
More proof of the extent of this problem, this time from a PEW 2012 report:
- 71 percent of checking accounts at the 10 largest U.S. banks include a clause requiring arbitration.
- 95 percent of credit card disputes end up with the credit card business winning.
- Arbitration filing fees run upwards of $750, and consumers must share the arbitrator’s fees, usually more than $400 per hour.
Finally, arbitration clauses routinely prohibit public disclosure of the results of arbitrations. If you go to court, the results are public, and the misdeeds of others are available to the public. If a business is guilty of fraud and the matter is arbitrated, the public will never know about it.
In 2012, more than 500 Wall Street brokers who mishandled investors’ money had the records documenting their offenses erased by arbitrators, meaning future investors would have no knowledge of their prior misconduct.
An important element of the civil justice system is its key role in uncovering information that shows misconduct, negligence and wrongdoing. Arbitration allows cover-ups.
Do you want to know the worst thing about all of this? The Supreme Court has consistently ruled that these arbitration clauses are legal, because they are “bargained for.” Really? The powerful influence of big business and the Chamber of Commerce over the government and the courts is amazing.
Caveat emptor: buyer beware. You may not have a realistic choice in these matters. But at the very least you should know about them in advance.
Paul A. Samakow is an attorney licensed in Maryland and Virginia and has been practicing since 1980. He represents injury victims and routinely battles insurance companies and big businesses that will not accept full responsibility for the harms and losses they cause. He can be reached at any time by calling 1-866-SAMAKOW (1-866-726-2569), via email, or through his website.
His new book “Who Will Pay My Auto Accident Bills?, The Most Comprehensive Nationwide Auto Accident Resolution Book, Ever” can be reviewed on http://www.completeaccidentbook.com and can be ordered there, or obtained directly on Amazon: Click here to order
Mr. Samakow’s “Don’t Text and Drive” campaign, El Textarudo, has become nationally recognized. Please visit the website http://www.textarudo.com and “like” the concept on the Facebook page http://www.facebook.com/textarudo.