Coming soon -- the freedom to sue
You may not realize it, but you probably can't sue your credit card company and other businesses you deal with. That may be ending. Here's why it matters.
Talk to a lawyer, and he'll tell you: You can sue anyone for any reason at any time. It's your constitutional right. (And other people can sue you as well, even for Internet posts. Check out "When free speech gets expensive.")
While it may be theoretically possible to sue on a whim, in the real world it's not as easy as it may seem -- at least not if the target is your bank, broker, cell phone provider or many other businesses you deal with. That's because, before they agree to do business with you, many of those companies require you to accept a contract provision waiving your right to sue in favor of arbitration. Why didn't you know that? Because it's in the fine print you never read.
Check out this recent news story, and you'll see why I've been complaining about mandatory arbitration since 1999.
So, it looks like mandatory binding arbitration may finally be fading. A provision in the massive new Wall Street reform bill has already killed mandatory arbitration in mortgages and home equity loans, and it further allows the new Consumer Financial Protection Bureau to potentially nix it in most other consumer contracts as well.
Here's the letter of the law:
SEC. 1028. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) STUDY AND REPORT -- The (Consumer Financial Protection) Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.
(b) FURTHER AUTHORITY -- The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a).
Arbitration is generally much less expensive, less complicated and less time-consuming than going to court -- which typically makes it a more appealing way to resolve a dispute. But critics have long argued that the arbitration panels deciding these cases often include current or former industry insiders, potentially stacking the odds in favor of big business.
That's one reason consumer advocates, including me, have long argued against making arbitration mandatory. But here's a more important reason: Not allowing lawsuits keeps consumers from banding together and filing class-action lawsuits. And class-action lawsuits are sometimes the only thing that can actually change how a corporation does business.
Example: Just last week Wells Fargo was ordered to pay $203 million in connection with this class-action suit that accused it of deliberately rearranging customer checks and account debits to maximize overdraft charges.
What Wells Fargo was doing -- and many banks still are doing -- is clearing big checks first, which may reduce a checking account to zero, then clearing the smaller checks and debit charges made on the same day in order to maximize the number of overdraft charges.
Think that's fair? It's been going on for years. Would going to arbitration with Wells Fargo over your batch of overdraft fees have changed this practice? No way. Even if they lost the arbitration, what's perhaps a few hundred bucks in overdraft fees to Wells Fargo? But gather hundreds of people together and cost Wells Fargo $203 million, and now you've got their attention. (In this specific case, however, nothing's changed yet, because the bank is appealing the judge's ruling.)
Bottom line? While you may not know a lawsuit from a swimsuit, this new potential prohibition against mandatory arbitration could help protect you from abuse. It's not a done deal yet, but we'll be staying on top of it. I'll let you know what happens.
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