“A scourge on consumers when abusively applied.” Senator Richard Blumenthal 10/13/11
Buried within the pages of your cell phone, credit card, employment agreement and many, if not most consumer contracts, you’ll find an obscure provision (if you can find it) known as a Pre-Dispute Binding Mandatory Arbitration clause. It’s a mouthful and one clause that most consumers ignore until a dispute arises, only to discover that they’ve signed away their rights.
These clauses require that any dispute that should arise out of the contract must be settled by binding arbitration rather than by filing suit in a court of law. Nearly always, the result is worse for the consumer when faced with a dispute that cannot be amicably resolved. Instead of a jury weighing the evidence, consumers find themselves in a proceeding run by a private service, picked by the company with whom they have the dispute, and bound by the results of the proceeding.
Arbitration is supposed to be a low-cost, fast alternative to regular litigation and in many cases it has been found effective. But the reality of pre-dispute binding arbitration is far different. In this privatized system most of the protections taken for granted within the courts such as fairness, accountability and neutrality do not exist. The playing field is invariably slanted toward corporate interests. Usually these proceedings limit the discovery process, which allows parties to demand information and documents from one another. Without discovery defendants can withhold evidence and conceal their actions, thus avoiding legal liability with little or no opportunity for the consumer to have the decision reviewed or appealed by a court of law.
When Congress passed the Arbitration Act over eighty years ago to allow for an alternative forum for two business or corporate parties to resolve their disputes, it assumed that the parties would be on roughly equal footing – with both sides having the knowledge and expertise to amicably resolve their dispute. But a series of SCOTUS decisions over the last several years have changed the intent of the original Act to now extend to disputes between parties of greatly disparate economic power. We now have consumers v. corporations, and arbitrators with an inherent financial interest to rule in favor of their corporate clients.
Earlier this year, Senators Franken and Blumenthal introduced the Arbitration Fairness Act of 2011 (AFA) and, as recently as last week, both Senators co-sponsored the Consumer Mobile Fairness Act of 2011 (CMFA). Both bills came as a result of recent SCOTUS decisions tilting the playing field toward corporations and away from American consumers.
On April 27 when the U.S. Supreme Court ruled that companies can ban class action suits in their contracts, Senator Al Franken released the following statement; “This ruling is another example of the Supreme Court favoring corporations over consumers. The Arbitration Fairness Act would help rectify the Court’s most recent wrong by restoring consumer rights. Consumers play an important role in holding corporations accountable, and this legislation will ensure that consumers in Minnesota and nationwide can continue to play this crucial role.”
Responding to the same Court decision, Senator Richard Blumenthal said; “Powerful companies who take advantage of ordinary consumers must be held accountable. Today’s misguided Supreme Court ruling is a setback for millions of Americans, denying injured consumers access to justice. The Arbitration Fairness Act would reverse this decision and restore the long-held rights of consumers to hold corporations accountable for their misdeeds.”
The AFA would effectively invalidate pre-dispute arbitration agreements if they require arbitration in the areas of employment, consumer and civil rights disputes. The CMFA, introduced on October 4, 2011 would prohibit arbitration clauses in contracts for mobile services.
On October 13th the Senate Judiciary Committee held an information hearing entitled “Arbitration: Is it Fair When Forced.” The hearing highlighted both bills and announced support by over 40 Consumer Groups as well as the AARP.
Neil Ferstand has been managing organizations for the last 30 years — when he’s not at his day job he spends a good deal of time turning over rocks.
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