Forced Arbitration in plain English – the CFPB must prioritize a study on Forced Arbitration.

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 27 July 2011

Sometimes being an advocate also means being a translator; explaining how technical legislation and court decisions impact consumers.  It is not always obvious how seemingly benign legal clauses chock full of ‘in the events that,’ ‘heretoforths,’ and ‘in accordance withs,’ can and do have real and often damaging consequences for consumers.  This is especially the case with forced arbitration which is favored by large corporations with poor customer service records and a history of unfair or deceptive business practices. 

The National Association of Consumer Advocates (NACA) recently met with a Congressional staffer to discuss the detrimental impact that the recent Supreme Court decision, AT&T Mobility v. Concepcion, is having on consumers and access to justice.  We commented on the increasing prevalence of forced arbitration clauses in basic everyday transactions.  “Forced arbitration clauses are everywhere; consumers are increasingly made to click through in agreement to access basic services, products and even apply for employment,” we said. The staffer remarked: “Well, so what?  This is a normal part of everyday life.”

Is it though? Would consumers be willing to stomach forced arbitration as a reasonable cost if the fine print was translated into plain English?  If forced arbitration is not harmful – as corporations would have us believe - why bury it in, fine, impenetrable, print?  What if a standard forced arbitration clause was translated; written as it actually applies to the average consumer as seen below?  Would consumers simply click through in agreement?  You decide – compare a standard arbitration clause to the following plain language translation below; which do you prefer?

If you have a dispute with us, you can’t go to court. You must use arbitration, and you will either have to pay or share with us the costs for the arbitrator’s services (of course if you could go to court, which by signing this agreement you can’t, you’d be getting the neutral judge or jury’s time for free, courtesy of taxpayers). We, not you, get to pick the dispute resolution services company which will provide the arbitrator; in all likelihood, we will pick a company in which we hold financial interests.  If enough consumers have a legitimate gripe with us, you waive your ability to join forces in a class action law suit to enforce your legal rights collectively and publicly. (That would level the playing field between us, a mega-corporation, and you, an insignificant consumer.) We can’t allow that.  If you thought that was bad (substitute for furthermore), this dispute will be resolved according to the laws of a state far, far away from where you live and work–laws which favor us, not you. In short, the deck will be stacked so thoroughly against you that you have little hope of achieving justice.  Any decision reached through this dispute resolution service will not be reviewed by any court though we will make it sound like it came from a court.  Thanks, and have a nice day. Now, if you aren’t sick to your stomach and still want our product, service or to apply for a job, you must agree to continue.

On this issue – forced arbitration – consumer advocates’ positions are clear.  Forced arbitration is harmful to consumers and not in the public interest.  Contrary to what the corporate lobbyists would have us believe, no consumer benefits from forced arbitration and in the post-Concepcion environment, many important consumer protection battles may never get the chance to be fought in an open court of law.

One year ago the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law and created the Consumer Financial Protection Bureau (CFPB), which has jurisdiction over consumer contracts for the sale of financial products and services.  Section 1028 of the Dodd-Frank Act directs the CFPB to study mandatory, pre-dispute arbitration in contracts under its jurisdiction and report back to Congress.  The agency will then be authorized to either ban or regulate pre-dispute arbitration clauses in contracts under its jurisdiction, provided that the “Bureau finds that such prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers.”

NACA hopes that now that the CFPB is up and running that it will make this study on mandatory, pre-dispute (or ‘forced’) arbitration a priority. 

Delicia Reynolds
Legislative Director, National Association of Consumer Advocates (NACA)