Have you gotten a new credit card lately? If so, you were almost certainly asked to sign an agreement with really small print and an abundance of words in suspiciously small print. Unfortunately, when you signed that agreement, you may have voluntarily given up crucial consumer rights.
Increasingly, service contracts and purchase agreements include what are called “arbitration clauses,” and they most definitely are not stacked in your favor as a consumer. Fortunately, consumer advocacy and protection groups are taking a stand against forced arbitration and standing up for your rights. But what can you do in the meantime?
You agreed to what?
We are so accustomed signing our name to complete purchases and other common transactions that we often don’t pay attention to the details of what we’re actually agreeing to with our signature. Every time you buy a wireless phone, apply for a credit card, or subscribe for cable or satellite TV, you are presented with a contract—if you don’t sign it, then you don’t get your phone, or card, or television programming. So you agree to all the legal mumbo-jumbo without a second thought.
But many (dare we say most?) such contracts now contain wording that says you agree you won’t (in fact, can’t) take the company to court if a dispute arises. Called a “forced arbitration clause,” the language states that you agree that the company can force any disputes into the arbitration process to be settled.
Say, for example, that you entered into a contract for satellite TV service for $19.95/month, but six months later, without notice, your price triples, quadruples, or worse. You may not like it, but if you signed a forced arbitration clause, then you can’t take the TV provider to court.
Arbitrator versus judge
What does that mean? It means you can’t sue the company in front of an impartial judge; rather, you will plead your case to an arbitrator. The arbitrator, more often than not, is chosen by the company with which you have a dispute—and can be located anywhere. If the company sends repeat business to that particular arbitrator, doesn’t it follow that it’s in the arbitrator’s best interest to find in the company’s favor?
While a judge is required to follow the law, an arbitrator is not. Furthermore, the arbitrator’s decision, which the company is allowed to keep secret, can’t be appealed. And should you discover that other consumers have similar complaints, the clause—remember, this is in a contract that you have signed—prevents you from joining them in a class action suit.
Class action suits are ideal for situations in which your costs for individually pursuing a claim are greater than the amount you might recover. As a “class,” those costs are spread out to make legal action more affordable. But if you’ve agreed (as affirmed by your signature) to the forced arbitration restriction, you can’t take advantage of this process and the company is protected. In effect, you’re letting the offender off the hook.
Forcing out forced arbitration
A 2015 report by the Consumer Financial Protection Bureau, a consumer watchdog in Washington, D.C., revealed that the restrictions placed on consumers by forced arbitration clauses are worth tens or hundreds of millions of dollars annually, and that’s just for financial service companies. The report showed that more than 75 percent of consumers surveyed don’t know whether or not they’ve agreed to a forced arbitration clause, and fewer than 7 percent of those who do recall entering into such an agreement actually understand what the clause means.
The CFPB, however, is pushing for new rules, which would prevent companies from forcing consumers to rely on private arbitration. The current proposal will specifically focus on eliminating arbitration clauses that block class action lawsuits. This proposal applies to agreements that accompany credit cards, prepaid cards, bank accounts, money transfer services, installment loans, payday loans, private student loans, and certain car loans.
This first step wouldn’t completely eliminate forced arbitration clauses, but it would force the clauses to state that they “do not apply to cases filed as class actions unless and until the class certification is denied by the court of the class claims are dismissed in court.” Additionally, the proposal would require companies that do use arbitration for individual disputes to submit to the CFPB the claims filed and awards issued.
Beyond that, the bureau will look to extend similar new rules to other companies that force consumers into arbitration, such as cell phone and TV service providers. The ultimate long-term goal is to completely eliminate forced arbitration clauses.
Stand up for your rights
Want to file a complaint about a contract with an arbitration clause? Visit the Consumer Financial Protection Bureau website or call their help line at 1-855-411-2372. And if you find yourself in a dispute over an agreement, consider reaching out to an attorney who specializes in consumer protection.