Corporations have made it a practice to bind consumers to a “pre-suit arbitration clause” related to their product or service. This applies to any dispute that arises from a company’s product or service. These arbitration clauses are in the small print of standard-form contracts, where the terms are not subject to negotiation. They are take-it-or-leave-it propositions. Many consumers open a new account or get a new product without being aware of the small print, what the contract says, or without fully understanding its requirements. Many credit card, phone, computer companies, banks, HMOs, car dealers, insurers, and doctors now use them.
Why? It is to the advantage of corporations; it shields corporations from accountability by limiting a consumer’s access to justice, closing the court house doors, stripping consumers of their 7th Amendment right to trial by jury in civil cases. Yet, no one should have to forfeit their constitutional legal rights, nor their consumer protections, just to use products and services.
Through the Dodd-Frank Act, which prohibited arbitration clauses in most residential mortgages, Congress also required The Consumer Financial Protection Bureau (“CFPB”) to study using pre-dispute arbitration clauses in consumer financial markets and report back to Congress. Congress also gave the CFCB the power to adopt regulations that “prohibit or impose conditions or limitations” on such agreements if it finds such measures to be “in the public interest and for the protection of consumers” and such findings “are consistent with the study.” In April 2012, the CFCB began that study.
On December 12, 2013, the CFPB issued its Arbitration Study Preliminary Results. Among the preliminary findings: larger banks are more likely to include mandatory arbitration clauses than smaller banks or credit unions, larger banks are more likely to include mandatory arbitration clauses in their consumer checking accounts, issuers of general purpose prepaid credit card use mandatory arbitration clauses with the same frequency, and nearly all mandatory arbitration clauses include a provision that arbitration cannot proceed on a class action basis. The CFPB study is ongoing.
A serious concern for consumers is forced waiver of their right to participate in a class action in court. Many consumer claims about financial products – excessive fees, excessive interest, faulty credit reporting, discrimination, inflated loan balances – do not have individual financial damages large enough to justify the cost to bring an individual legal challenge – arbitration or court. That is the whole purpose of a class action, the grouping of similar small claims against a single wrongdoer to hold it accountable. Alarmingly, the CFPB preliminary report found there are contracts with mandatory arbitration clauses that include “provisions waiving the right to participate in a class action in court, either as a named plaintiff or a member of the class, for cases not subject to arbitration.”
Protecting consumers’ rights and our constitutional right of access to courts is a priority at Terrell • Hogan. Lawyers at Terrell • Hogan support the National Association of Consumer Advocates, a nationwide organization of attorneys who represent consumers victimized by fraudulent, abusive, and predatory business practices, and Public Justice in its advocacy for the public interest.
For a discussion about the CFPB preliminary findings, click here.