Advice Goddess Blog
« Previous | Home | Next »

When "Arbitration" Is A Very Bad Thing
That's when it's a thing called "mandatory arbitration," and you didn't agree to it, it just slipped by you in the mess of ads and small print with your credit card bill, to name just one example. From the National Consumer Law Center:

It may be in tiny print among the ads stuffed into your credit-card bill. Or a few lines buried in a multi-page health insurance agreement, home-repair contract or college loan. The language is often dense legal-ese, but make no mistake: It translates into a giant trap door for consumers.

Welcome to the astonishingly unfair and undemocratic world of mandatory arbitration clauses. All that small print and buried verbiage boils down to this: that by simply continuing to use your credit card or health plan, for instance, you’ve suddenly agreed to resolve all disputes arising with that company - even very serious ones - through binding arbitration.

This passive consumer “agreement” to arbitration is a rather shocking way to obtain what passes for “informed consent” to a truly momentous waiver of rights. And it’s only the start of the problem.

So beginning today, and in light of recent nationwide developments on this issue (details below), NCLC is calling on consumers and the news media to focus far more attention on the consequences of these clauses, which are spreading like wildfire across America.

A look at how businesses are using mandatory arbitration clauses says more about why they’re so disturbing. The kind of passive “notice” that locks consumers into arbitration increasingly ties them to a system that thoroughly stacks the deck when serious disputes arise. Companies alone select the arbitration service – often one dependent on them for repeat business. Those same companies often write the arbitration rules, and unsurprisingly those rules often demand complete secrecy about the proceeding and its outcome while limiting what evidence consumers can present. Consumers usually pay more for arbitration proceedings than they would for a public court proceeding. If they lose there’s no appeal -- that means even legal errors in an arbitrator’s decision are frequently beyond remedy. And if they refuse to participate in this rigged game these clauses often dictate they’ll automatically lose the dispute with no further recourse.

National Consumer Law Center advocates believe these clauses are the single biggest threat to consumer rights in recent years, a de-facto rewrite of the Constitution that undermines a broad range of consumer protections painstakingly built into law. No other consumer issue hits so many Americans where they live every day.

Some people see the clause but can't help but agree to it. For example, from the NCLC link above:

An NCLC staff member recently -- and after the fact -- discovered such a clause in the “sign-in” papers of his elderly, desperately-ill father, who was being sent from a hospital to a rehabilitation center in Florida. What fair-minded person believes any family member would take issue at such a moment – or choose to go shopping for another facility than the one the hospital chose? The family member who’d traveled from afar to accompany the sick man says she never even noticed the clause when signing him in. She may well not have recognized its significance if she had.

To make things even more interesting the sick man’s medication regimen was somehow mixed up for the first week at the rehab center. Luckily no serious harm was done, but if there had been serious harm the rehab center would have already all-but-dictated the process for settling damage claims -- against itself. That’s a little like letting one side set the rules for the World Series, except the sportsmanship’s missing.

The business community loudly proclaims that these clauses are merely a private-sector alternative to the courts, a way of streamlining and speeding up the judicial process while controlling costs.

But one party to a public court proceeding doesn’t get to pick the judge, write the rules, limit the evidence and demand that testimony and outcomes never come to light. Unlike many arbitrators, judges aren’t dependent on one side for future business. And the costs of arbitration proceedings for plaintiffs at least -- according to a report by the consumer group Public Citizen -- are “almost always higher than the cost of instituting a lawsuit.” It can cost a consumer several thousand dollars just to have a complaint heard – a situation that remains true today despite industry claims that arbitration fees have fallen. Public Citizen says such costs “have a deterrent effect, often preventing a claimant from even filing a case……high arbitration costs can be used to bludgeon an adversary.”

How well does arbitration usually work out for the consumer? Well, here's one example, from a Jim Hightower piece:

Consumer Reports magazine notes that the credit card firm, First USA, paid an arbitration firm $5 million to arbitrate some 19,000 cases with its customers . . . and customers won only 87 times!

So, at the very least, when you can, listen to my dad who said never sign anything until you’ve read and made sure you understand the whole thing. I'm awaiting word from the NCLC as to whether they've got anything else going. You might contact your elected lobbyist tool representative and tell them how you feel about this practice.

Posted by aalkon at March 3, 2007 10:03 AM

Comments

Wasn't this practice opened up even more by the banking bill passed by the Congress last year?

In business law classes the issue of signing into an emergency room actually being a contract was in question and had been for many years, IIRC.

Wondering if there is an issue with this in that tip story I sent you this AM :)

Posted by: Guy Montag at March 3, 2007 5:12 AM

I think in Virginia, no one can take your right to a trial away, so those parts of contracts are void. Here, anyway.

Then again, I'm no lawyer, and I read that when I was reading up before signing a lease. When I saw the arbitration clause in the lease, I ignored it, because of my understanding of the law. I hope I never need to deal with it, or if I do, that I'm right...

Posted by: Brenda at March 3, 2007 5:58 AM

Brenda,

I think you are correct, but there might be an issue if it is a contract with a federal insured banking entity, like most credit card companies, making it federal law over State law.

Either way, I need to add one of these clauses to the Montag Carbon Credit Card Program (M-CCCP) :)

Posted by: Guy Montag at March 3, 2007 6:18 AM

Well, at the moment, I've been reading a real potboiler -- the Telephone Consumer Protection Act of 1991 -- I'll be posting about a great site (André-Tascha's) in relation to that in the next few days...just been working away on my book, and I want to write a good post. Anyway, what I'm wondering is, many states have state laws against telemarketing. In a state court, which law prevails? A friend of mine recently sued a junk faxer and lost -- even though she was in the right and the law was on her side. PS Apparently, downtown LA court frequently decides on the side of the telemarketer out of a feeling that such suits are "frivolous." Grrr.

Posted by: Amy Alkon at March 3, 2007 8:16 AM

Hey Amy. I am going to be posting information on these issues soon (and how to counter them with case history and FTC and FCC decisions.

There have also been recent attempts to utilize the recently passed proposition (cannot recall the number) against frivolous lawsuits to kill these TCPA actions. These have been sporadically successful primarily because the plaintiffs have not been appropriately prepared to counter them and do not realize that this change to California does not apply to these TCPA cases. More in the next week or so on my site.

On the binding arbitration issue: I like your crossed off "lobbyist tool". From my experience, totally appropriate. The only way to truly fix this issue is enabling federal legislation. States can attempt to protect consumers, but as Guy rightly pointed out, federal charters can make such problematic.

Posted by: André-Tascha at March 3, 2007 8:42 AM

And I'm running out to write at a no-internet/no cell phones cafe, but here's another thing I'm wondering about -- whether an "affirmative defense" means you get no money; ie, when they say they've implemented proper procedures for telemarketing.

And it's sad how many of our reps are exactly that. I'm sick of it. I wish more people were.

Posted by: Amy Alkon at March 3, 2007 8:50 AM

The TCPA and resultant case law is quite specific: regardless of whether or not they have implemented proper procedures, they are required to follow them. A plaintiff in this case who has appropriately prepared their evidence can tear a major whole through any such argument.

Posted by: André-Tascha at March 3, 2007 8:54 AM

Anyway, what I'm wondering is, many states have state laws against telemarketing. In a state court, which law prevails?

Not sure how many, but in a State court the only infraction that should be prosecuted is an intrastate infraction. Some States disagree with me, but the realm of interstate commerce is federal and intrastate is State in my understanding.

Like the Lewinsky and Trippe thingie, it was across State lines by phone, so the federal rules and the State of origin cont, no others. Oddness there, in MD, if one is not aware of the law they are immune to it as codified in the law, but that is a confusing distraction here.

If VA says it is illegal for you to call me to sell me stuff, you are in violation if we are both in VA. If you are in WI then I doubt that it is an issue, unless WI makes it illegal for you to call me.

Posted by: Guy Montag at March 3, 2007 5:02 PM

Guy, I would generally agree with you, but the TCPA is a federal law which specifically grants the aggrieved party (the person that is being called) the right to sue in a state court. intra/inter state issues do not apply. HOWEVER, there was a recent judicial ruling in california as pertains to these junk faxes which have thrown a monkey wrench into the works. I am researching this presently

Posted by: André-Tascha at March 3, 2007 6:32 PM

I ran into a lawyer this afternoon (in a cafe, not in my car) and she said federal law trumps state law unless state law is MORE restrictive.

Posted by: Amy Alkon at March 3, 2007 8:12 PM

Ayep...basic ConLaw...

Did you spill coffee on her?

Posted by: André-Tascha at March 3, 2007 8:34 PM

I find that hot coffee in the lap makes for a poor payment for free legal counsel...you?

Posted by: Amy Alkon at March 3, 2007 8:56 PM

Leave a comment