Forced arbitration: It’s a tactic used by corporations to avoid being held accountable in a court of law for detrimental, and possibly illegal, activities against consumers.
Over the past several years, it has become increasingly difficult to apply for necessities such as an auto loan, a cell phone contract or even cable and internet service without being subjected to a hidden arbitration clause. Time Warner Cable, Comcast, Wells Fargo and many others use this scheme to circumvent courts and prevent consumers from joining together in class-action lawsuits, undermining the consumer’s ability to seek justice in the wake of corporate wrongdoing.
These insidious clauses bind consumers to unknowingly sign away their access to a court, leaving them to deal with disputes through private, secretive tribunals that favor the company over the consumer, instead of undergoing a fair judicial process. The typical consumer never glances at the mountain of text in the terms and conditions, but a surprising number of contracts hide these clauses in the fine print, preventing everyday consumers from challenging predatory practices such as hidden fees, fraud and other illegal behavior.
For-profit colleges such as ITT Technical Insitute, University of Phoenix and Everest College are some of the largest household names that include forced arbitration clauses. The ads and jingles hide the fact that attending these schools means unwittingly signing away rights. For-profit colleges are run by corporations and shareholders solely interested in profits, so as students shell out tens of thousands of dollars for school, prospective employers turn them down upon graduation, as many employers do not see their degrees from for-profit colleges as credible.
Thus, when students attempt to sue these colleges, many of them discover their options are limited by forced arbitration clauses. Arbitration proceedings are shrouded in secrecy, do not use a jury and offer few grounds for court review. Even clear legal and factual errors by arbitrators may be an insufficient basis for overruling an arbitrator’s decision. Unable to take for-profit colleges to court, students may lose thousands of dollars and wind up in crippling debt. Yet students are not the only ones being thrown to the curb because of arbitration clauses. Obstetric patients, American Express cardholders and even cruise ship employees have had their rights stripped away for filing class-action lawsuits because of what has been hidden in fine print. In one not-uncommon case, a Wells Fargo employee opened up a fraudulent account without the customer’s knowledge in order to boost sales figures. Yet even then, the account holder would be prevented from suing and taking it up to court and instead be forced to deal with an arbitrator behind closed doors.
To combat these dangerous and illegitimate clauses, Public Citizen, a nonprofit consumer advocacy organization, petitioned the U.S. Department of Education and the U.S. Consumer Financial Protection Bureau to restrict pre-dispute arbitration clauses. Both agencies have proposed rules to limit arbitration clauses. While the proposed rules fall short of banning arbitration clauses outright — and both still need to be strengthened — they represent a critical step forward in the fight against these dangerous clauses and are expected to be finalized before the current president leaves office. If you are looking to become involved, get involved at Public Citizen and fight forced arbitration clauses on the floor by telling your members of Congress today.
Forced arbitration is a scam that forces individuals into giving up their rights in exchange for the ability to participate in the modern American marketplace. Law-breaking corporations should not simply be able to say “no thanks” to our system of justice by sneaking arbitration clauses into the fine print of everyday terms of service.
Brent Kim is an LSA junior and was a communications intern for Public Citizen in summer 2016.