A federal watchdog agency has the opportunity to protect consumers in a big way.
The Consumer Financial Protection Bureau has proposed a rule that would bar companies from forcing customers and clients to resolve disputes through arbitration. This practice has reached epidemic proportions in recent years, with entities ranging from banks to nursing homes to landlords and cable and cellular telephone providers sneaking mandatory arbitration language into contracts that many consumers sign without reading.
Even if they do read and understand the arbitration provision, what can consumers do? If they want a service and the provider requires arbitration, consumers have little choice but to sign their rights away. That’s exactly what mandatory arbitration does. It takes away a person’s right to seek redress through the courts (except small-claims courts), and more important, it bars consumers from coming together in class-action lawsuits that are especially effective for bringing companies to account for wrongdoing and changing their behavior. In a recent letter to the bureau, dozens of social justice and consumer organizations described mandatory arbitration as a “license to steal.”
No wonder companies love it.
But the writing — or in this case, the fine print — is on the wall. The use of mandatory arbitration has become so prevalent, and the potential for abuse so widespread, that the bureau has proposed limiting it. Under the proposed rule, companies would not be able to keep customers from initiating or joining class-action suits, though individual suits could still be precluded.
The bureau was created in 2008 amid a recession triggered partly by predatory lending practices. Its job, it says on its website, is “rooting out unfair, deceptive or abusive acts.” Forced arbitration is all three. A long list of organizations, including the NAACP, the Center for Justice & Democracy and the Southern Poverty Law Center, have lined up in support of the rule, which is at least months away from being implemented.
Forced arbitration should be entirely banned from consumer contracts. But a rule allowing class-action lawsuits will do for now.
The Center for Justice & Democracy is the only national consumer organization in the country exclusively dedicated to protecting our civil justice system. If you'd like more information, please contact us.
