For years, the National Association of Consumer Advocates (NACA) has been sounding the alarm to alert consumers, consumer advocates and public officials to the dangers of pre-dispute binding mandatory arbitration clauses, also known as forced arbitration clauses. These clauses are buried in the fine print and sometimes delivered to a consumer long after he/she has purchased a product or service. It gets worse. Forced arbitration is also involuntary: the consumer either has to take it or leave it; forced is binding: often not subject to judicial review and the arbitrator’s decision is final; it happens in secret: arbitrations are not public proceedings and the decisions tend to be confidential. The disadvantages to consumers go on.
At NACA we frequently collect stories which demonstrate the many different ways that forced arbitration negatively impacts consumers and society as a whole. These stories often demonstrate the range of ways that because of a forced arbitration clause - bad and irresponsible corporate behavior is exculpated, consumers are forced to resolve their disputes with companies in secret and through a process that is unfair and biased in favor of the corporation. A recent survey by NACA tells this story along with the story of near 250 consumers who are denied justice and consumer advocates who simply can't help consumers because of the presence of an arbitration clause.
This week a Bloomberg story shares the experience not often heard about - that of the Fair Arbitrator in forced arbitration. The Bloomberg piece centers around an investor who arbitrates against an investment firm, Merrill Lynch. The case was heard by a panel of 3 experienced arbitrators who ended up ruling for the investor, giving an a award of $520,000 to the aggrieved investor. This very rarely happens. So, what does the regulatory organization, FINRA, do? They fire all three arbitrators who ruled in favor of the consumer.
One of NACA's complaints about Forced Arbitration is that the processed is inherently biased against consumers. Companies often cherry pick arbitrators by choosing an arbitration forum with a history of ruling against consumers. So, before a consumer even presents a complaint, chances are that they will lose in arbitration. Every so often, however, an arbitrator will find in favor of the consumer as this week's Bloomberg story demonstrates. But, as the story also indicates, forced arbitration may just be so thoroughly entrenched and biased against consumers that the environment and ethos of arbitration forums is hostile to arbitrators who actually try to do what proponents of forced arbitration claims its provides - fair, efficient and unbiased dispute resolution. At least, the three jobless arbitrators may think so.
Dodd Frank, required among many things that the CFPB study the practice of forced arbitration and then promulgate regulations if the study supports this. NACA along with a host of other consumer advocates have recently submitted extensive comments to the CFPB urging them to investigate this unfair and unjust practice. Though the consumers were a focus of submission we hope that regulatory agencies are paying attention to the bigger and broader picture. Forced arbitration is not just bad for consumers, it is bad for all its participants - the arbitrators that now will think twice before ruling in favor of a consumer and companies whose bad behavior will go unchecked and never see the light of day if something is done to limit and ban this practice.
Delicia Reynolds Hand, National Association of Consumer Advocates, Legislative Director