Forced Arbitration Disadvantages Consumers

By: Beth Stephens, Senior Director of Public Policy and Advocacy, and Zoe Condon, Law Student Extern – Daily Report

Georgia Watch has advocated for consumers’ access to civil justice for 15 years. Recently, we have been hard at work at the federal level to protect nursing home residents from mandatory arbitration clauses that limit the rights of loved ones to seek redress if residents are abused or neglected.  We also have been defending a recent Consumer Financial Protection Bureau rule that guarantees consumers the right to hold banks and lenders accountable in class action lawsuits when they break the law.

While the Constitution guarantees Americans the right to their day in court, big business has continued to close the courthouse doors through forced arbitration and lobbying efforts to curtail protections. Large companies like Wells Fargo and AT&T include arbitration clauses in their take-it-or-leave-it consumer contracts which effectively block consumers from suing in court. Instead, consumers are forced into arbitration where the process is stacked against them.

Arbitration takes away many features of a trial that help individuals:  evidence rules do not apply; discovery is limited; there are no juries, and appeals are nearly impossible. Though arbitration is often praised for allowing disputing parties to design their own proceeding, consumers generally do not receive this benefit. They often do not choose the arbitrator, forum, or procedures. To make matters worse, arbitration is shrouded in secrecy, as proceedings are largely confidential.

Businesses often design their arbitration agreements to create an alternate system of justice. Though some argue that arbitration providers like the American Arbitration Association have ‘due process’ protocols in place to ensure fairness, there is no guarantee that businesses follow these rules. Arbitrators, who may do repeat business with companies, replace judges and juries. In 2015, the New York Times conducted interviews with arbitrators regarding their relationships with companies. The Times reported that over three-dozen arbitrators felt beholden to companies, and beneath each decision was the threat of losing business.

It is unsurprising that businesses almost always win. Consumers obtain relief in only 9 percent of disputes, according to the Economic Policy Institute. In comparison to class action lawsuits, the outlook is dim for consumers involved in arbitration. The EPI found that while on average 6,800,000 consumers receive cash relief in class actions per year, only 16 receive relief in arbitration. The Wells Fargo situation demonstrates how few individuals win. The bank has forced victims of its fraudulent account scheme into arbitration.  Of the 215 proceedings against Wells Fargo between 2009-2016, consumers won only seven times. Only 8 of those 215 proceedings were initiated by Georgia consumers, according to Level Playing Field.

Class action waivers in arbitration clauses prevent aggrieved individuals from joining together and seeking justice, thus reducing the number of cases brought by consumers. Often the value of a claim is too small for an individual to afford pursuing a case. A CFPB study of 2010-2012 data found that only about 25 consumers per year with claims worth under $1,000 pursued arbitration when class actions were prohibited. This leaves many Americans without recourse and allows companies to circumvent justice.

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Source: Daily Report