Legal arbitration, in which the resolution of a dispute between two parties is relegated to private decision-makers, or “arbitrators,” rather than the courts, has a long history in the American legal system. Arbitration must be consensual, chosen by the parties involved, neutral, confidential, and binding, and can be both cheaper and faster than a court decision.
While arbitration may seem to have few pitfalls, using this means of dispute resolution to come to an agreement with aggrieved consumers has recently been described as a “far-reaching power play by American corporations,” and perhaps with good reason.
Whether in credit card, cable, internet, or cell phone contracts, or when making purchases online, the “fine print” of many agreements often relegates consumers to arbitration as their only means of challenging the terms of a contract or issue they encounter. In addition, the “off-the-record” nature of arbitration decisions can negatively impact transparency. So are arbitration clauses in contracts truly beneficial to all parties? And to what extent can consumers “opt-out” of arbitration clauses, should they object to this extra-legal means of dispute resolution?
Who Benefits from Arbitration Clauses?
Obviously corporations do not act in their own disinterest, and thus those which have chosen arbitration as a means of dispute resolution expect some benefit to their operations. The question, then, is not who benefits, but rather if consumers benefit equally - and if not, whether or not the inability to choose a different path or be forced to go without the service or goods in question is fair and just.
Along with efficiency and lowered costs, arbitration can also be beneficial to both parties in that it limits the amount of complicated legal paperwork and hours of litigation proceedings. However, one major advantage is limited to corporations - arbitration may prevent individuals from joining together in class-action lawsuits, the primary means by which illegal business practices can be fought.
According to the NY Times, businesses use mandatory arbitration to circumvent the court system and derail legal claims alleging predatory lending, wage theft, discrimination and other violations. At the request of Congress, the Consumer Financial Protection Bureau (CFPB) did a study on this issue and found that most individuals unknowing sign away their rights with arbitration clauses and that this practice encourages unscrupulous business conduct. In May of 2015, more than 50 U.S. Senators and Representatives sent a letter to the Consumer Financial Protection Bureau, seeking to make the organization “issue strong rules to prohibit the use of forced arbitration clauses in financial contracts.” The CFPB announced in October 2015 that it was considering enacting regulations that give consumers more protection when it comes to arbitration clauses in contracts.
Can consumers opt-out of arbitration?
Consumers are generally unable to choose to reject the arbitration aspects of the contracts they sign - a major issue, given their prevalence in many consumer contracts, including Amazon, Verizon, car loan providers, insurance, credit groups, and many others. Known as forced arbitration, these contracts are generally take-it-or-leave-it in nature (aka adhesion contracts); if consumers refuse to give up their right to sue, file a class-action lawsuit, and/or dispute the results of an arbitration, they are simply unable to access the service or product.
With the Arbitration Fairness Act of 2015, however, this may change. This act would “make arbitration clauses in contracts unenforceable for consumer, civil rights, employment, and anti-trust disputes.” In addition, the CLASS Act, would make arbitration clauses similarly unenforceable when related to college enrollment contracts. However, in spite of the actions of the CFPB and Congress’ recent attention to this issue, the outcome of these bills is not clear. There is corporate opposition as well as opposition in the U.S. Chamber of Commerce.
What, if any, recourse is available to consumers?
Unfortunately, there are currently very few effective actions that can be taken to work around forced arbitration clauses in contracts. Short of “shopping around” for an alternative or attempting to negotiate the terms on your own, it is difficult to avoid signing a contract that includes forced arbitration.
In order for change to be seen, legislation must be passed to limit the use of these restrictive, anti-consumer measures used by corporations. If you have a dispute with a business and are worried about the outcome via arbitration, or are seeking to negotiate the terms of a contract that includes forced arbitration, contact us today to learn more about your options.