You Used To Be Able To Take Them To Court

Dave Johnson

If a company does something bad to you, you can sue them, right? Actually, thinking that is so 1970s.

These days, gimmicks called “arbitration clauses” in contracts you are forced to sign basically let companies do what they want and keep you from taking them to court. But the Consumer Financial Protection Bureau (CFPB) has proposed a new rule to protect us from forced arbitration clauses in consumer financial contracts.

Forced To Sign Arbitration Clauses

These days, before you can use an electronic device or software, get a loan or credit card, or do so many other basic things of modern life, you are handed – or have to click on – what seems like a 300-page contract. You have to because if you don’t agree to the terms (written in incomprehensible language that no one has time to read) you can’t get the loan, download the software or use the product. It’s not as if there are competitors to turn to – government enforcing regulations requiring competition is so 1970s…

When you click on or sign those agreements, there is something called an “arbitration clause” buried in the fine print. This is also known as a “Ripoff Clause” and for good reason. These clauses sign away your right to take these companies to court.

Instead of taking companies to court you are forced to agree to go to arbitration.

With arbitration, the companies get to decide who will arbitrate the case, what rules will apply, and how much it will cost you. On top of that, the arbitrators hired by the company understand that their careers depend on ruling against you. Obviously if they rule against the company, no company will use them again. (They probably signed arbitration clauses.)

I wrote about arbitration clauses as part of a larger context of corporations stripping citizens of the means to protect themselves back in 2008, in Another Corporate Gimmick — Arbitration:

Think about what is happening here. First the big corporations fought against “regulations” which are the rules that We, the People set up requiring safe workplaces or environmental standards, or products that do not injure people, etc. Then when fewer regulations of course resulted in worker or consumer injuries or toxic spills or other harms the inured parties filed more lawsuits asking the companies to make good. So in response to these lawsuits the corporate-financed “tort reform” movement came along, working to limit the ability of citizens to be compensated for the results of corporate bad behavior. The result has been fewer regulations preventing harms and more restrictions on citizen access to courts where we can seek damages after we are harmed.

I didn’t even bring up the corporate-conservative movement efforts to install their own business-friendly judges in the courts.

But even those erosions of our access to justice has not been enough for the greedy corporations. Now there is arbitration: clauses that show up in contracts and agreements that remove your ability to take a dispute to the courts at all! And the judges in these courts are dependent on the corporations for their livelihood!

Deregulation, tort reform and now arbitration that is rigged against the consumer. Drip, drip, drip. One after another the big corporations are eroding the rights of citizens.

Corporations paid politicians to gut regulations and limit lawsuits with “tort reform,” and then set up arbitration clauses to keep you from being able to go to court at all.

CFPB Doing Something About It

The CFPB is coming to our rescue – at least for financial contracts. Lisa Gilbert, director of Public Citizen’s Congress Watch and Lisa Donner, executive director of Americans for Financial Reform, bring us some good news in The Hill, in a commentary headlined “‘Rip-off clause’ in contracts lets Wall Street effectively steal from consumers“:

“By stripping people of any meaningful way to hold companies accountable for fraud or abuse, forced arbitration grants Wall Street an effective license to steal from consumers to pad its bottom line.” [. . .]

But the era of the “rip-off clause” may soon come to an end — at least in consumer finance. When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, legislators specifically addressed the growing harm of forced arbitration. In addition to creating a new consumer watchdog in the Consumer Financial Protection Bureau (CFPB), Dodd-Frank tasked the agency with studying the impact of forced arbitration in the financial marketplace. If it found evidence of harm to consumers, the agency was specifically instructed to restrict or ban the practice. [. . .]

This week marked another milestone in this fight: an unprecedented level of public engagement on forced arbitration as the comment period for the CFPB rule came to a close on Monday. [. . .]

The next few months will likely prove crucial to this ongoing fight to protect consumers’ right to hold financial companies accountable. But the campaign against the rip-off clause is not simply a battle over fine print; it’s a necessary step toward stopping Wall Street banks and predatory lenders from rigging our economy in their favor and padding their profits at the expense of the law and the public.

Wall Street, the Chamber of Commerce, giant corporations and their Republicans in Congress are trying to head this off. Businesses are suing to stop it and Republicans are trying to defund or otherwise limit the CFPB to block them from issuing a rule on arbitration.

In a joint letter this week, 280 consumer, civil rights, labor, community and nonprofit organizations wrote that they “strongly support the Consumer Financial Protection Bureau (CFPB)’s proposed rule to limit pre-dispute binding mandatory (or forced) arbitration clauses in consumer finance contracts.”

So keep an eye on this. The CFPB is working to protect you and coming up with a rule to do just that.

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