Last week, after much expressed outrage and pressure, the Carlyle Group LP abandoned a plan to ban shareholders from filing class-action lawsuits after U.S. regulators threatened to block a stock sale the private-equity firm is seeking to complete as soon as April. This consumer advocate welcomes this decision but would like to see banks and other businesses stop blocking consumer access to courts through the use of forced arbitration. Something needs to be done and it needs to be done now. Private enforcement of consumer and employment laws, potentially all laws, are under threat. Even with the new Consumer Financial Protection Bureau finally in place, there is no guarantee that any new protections will have meaning if critical private enforcement mechanisms continue to be eroded and forced arbitration becomes the norm.
In case you are new to this issue, recently the Supreme Court has issued a number of corporate favoring decisions which allows corporate misfeasors to force consumers to resolve any dispute behind the closed doors of arbitration through a process called pre-dispute, binding mandatory arbitration, or forced arbitration. Forced arbitration is harmful because when consumers unknowingly give up their right to resolve their disputes in a court, particularly in the post Concepcion era they also suffer the following harms:
- The loss of time-tested court procedures and processes designed to produce impartial and fair justice;
- Secrecy of legal proceedings;
- Limited public accountability over entities rendering decisions;
- Increased potential for bias against consumers;
- Higher costs to consumers making claims; and
- The loss of the opportunity to join with a class of other consumers who have suffered similar harm
A ruling by the arbitrator is by and large final, leaving unsatisfied participants with no place to turn. Thus, whether the individual is trying to resolve a simple billing dispute, an outright breach of contract or has suffered a great harm or injustice, arbitration is a cross cutting issue which impacts almost every consumer protection issue that we would like to see the new Consumer Protection Financial Bureau address. Though we are pleased that the CFPB will study arbitration that we hope will demonstrate how unfair a practice it is, NACA recommends that the CFPB move swiftly forward with its study and then to rulemaking to prohibit the use of these agreements in consumer finance transactions. If not now through the new Consumer Watchdog agency, when?
Unfortunately, because of recent Supreme Court decisions, forced arbitration clauses banning class actions will become the new norm for private enforcement of consumer and employment laws, especially, unless the CFPB moves aggressively to prohibit the use of these agreements. Effective consumer protection includes strong private and public enforcement of the law. In addition to a strong public enforcement through agencies like the CFPB and FTC, consumers also need the ability to find relief and enjoin harmful practices through private enforcement. Traditionally, private enforcement has filled critical gaps and served as a constant and necessary means through which consumers are able to obtain relief when public enforcement wanes or has failed for political reasons. When the politics are right, consumers may expect enforcement, rulemaking and supervision over bad practices and behavior. However, when the politics are not right private enforcement usually fills the gap and thus has a key role to play. Private attorneys are motivated to find relief for their clients regardless of elections; and private enforcement has resulted in public education about bad, unfair and deceptive business practices as well as behavior change.
Because of recent Supreme Court decisions, private enforcement is seriously threatened and this will have an impact across all the issues we care about – payday lending, debt collection abuses, identity theft, wage discrimination, gender discrimination, etc. Corporations have barreled out of the corporate court and have rushed to include arbitration clauses with class action waivers in EVERY agreement. Adding insult to injury, state courts have interpreted Concepcion as a mandate to uphold all arbitration clauses in all instances. Meritorious cases are being send behind the closed doors of arbitration without merely a glance. Without Congressional Action or regulation, forced arbitration will become the primary mechanism through which bad behavior is managed.
The courts have made their position clear and, in this current Congress there is little hope that the Arbitration Fairness Act will pass. Our only hope from forced arbitration agreements becoming the norm in all contexts – credit cards, payday, student loans - is the CFPB, under its current leadership.
-Delicia Renyolds, NACA Legislative Director