8/20/2012 2:15 PM ET|
Arbitrate your life away
Mandatory-arbitration clauses are bad news for consumers who would otherwise take a company to court over a dispute. They're also a disturbing sign of growing corporate power.
America is a land of choices.
We don't have just one or two breakfast cereals on supermarket shelves; we have dozens. Want a credit card? Thousands of offers await. A cellphone? Choose from a dizzying array of options, and then pick how many minutes, how many texts and how much data you want to consume each month.
To buy that phone, though, you usually have to sign a contract giving up your right to go to court if you later have a dispute with the carrier. Same deal with many credit cards. Mandatory arbitration clauses are now part of employment deals and brokerage service agreements -- plus, they're standard if you want health care.
You don't have to agree to mandatory arbitration if you want cereal. At least not yet.
As much as we Americans enjoy our freedoms and our ability to choose, it's kind of baffling how we're giving up our right to the justice system with hardly a peep.
Our Supreme Court certainly isn't helping us stand up for ourselves. In two recent decisions -- CompuCredit vs. Greenwood last month and AT&T Mobility vs. Concepcion last year -- the justices endorsed the idea that corporations can force customers into mandatory arbitration, pretty much no questions asked.
Then again, this Supreme Court views corporations as people. Maybe the justices don't want to hurt corporations' tender feelings.
I've got no such compunction. Corporations are being bullies, and I really, really hate bullying. The problem is that most of us aren't going to realize we've been bullied until it's too late.
"We're a click-through society" is how Delicia Reynolds Hand, the legislative director for the National Association of Consumer Advocates, explains it. "People are clicking through (the mouse-print legal agreements) to get to what they need. . . . When they have a dispute with a company, they've already signed away their right to go to court."
Even if you realize what you're giving up, you don't really have much choice if you want the phone or the credit card or the job or the medical treatment. The other carriers, issuers, employers and doctors typically have the same clause. Your choice is to sign or do without.
It's that mismatch of power that burns my buns.
I might feel differently if there were any proof that mandatory binding arbitration offers a fair outcome. Consumer advocates laugh out loud at the notion that it might, since it's the companies that select the arbitration companies, and he who pays the piper calls the tune.
But we really have no way to know. That's because arbitration proceedings and their outcomes are typically kept secret.
In California, the only state where arbitration outcomes have to be disclosed in detail, the results aren't encouraging, at least in the debt collection field. A Public Citizen study found that the National Arbitration Forum, a company that handled collection disputes, had ruled in favor of creditors 94% of the time.
The ratio was even scarier when it came to arbitrations with Bank of America customers. A lawsuit filed by San Francisco's city attorney alleged the bank had forced people who were behind on payments into mandatory arbitration that was rigged in favor of the bank. The arbitrator decided in favor of consumers in only 30 cases out of 18,000, or 0.2% of the time, according to the lawsuit. The bank recently agreed to pay a $5 million fine to the city without admitting guilt.
The National Arbitration Forum may have been the worst offender, of course. It was sued by Minnesota's attorney general, who alleged the company had business ties to major collection firms and wasn't the impartial arbitrator it had claimed to be. The company agreed to stop handling consumer cases, and, in the wake of the scandal, several major credit card issuers agreed to temporarily stop enforcing the mandatory-arbitration clauses in their contracts.
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