Ellen Weiss has just pointed out another little-understood legal device that big businesses are using to squeeze average Americans: the arbitration clause. Credit card companies have adopted them wholesale, and, as Ellen’s example shows, they are spreading to other consumer contracts. Why do companies want arbitration clauses? There are two reasons: The companies win more disputes when arbitrators decide them, and arbitration clauses insulate companies from class action lawsuits that let consumers ban together to enforce their rights.
Arbitration sounds like a cheap, fair way to settle disputes. But just this morning I read an article by attorney Wendell Sherk that started with, “Arbitration is the place where consumer rights go to die.” (link isn’t working) A study from the Christian Science Monitor backs that claim up. It shows that arbitrators are beholden to the repeat players (credit card companies) that pay their fees. The top ten arbitrators (the ones who got used over and over) ruled for the companies 98.4% of the time, while arbitrators who weren’t depending on arbitration fees (those who decided 3 or fewer cases a year) ruled for the customers only 62% of the time.
How does this happen? The companies keep track of how arbitrators rule, and they can strike those they don’t like. Customers don’t have a big information base about how the arbitrators ruled in the past, and they end up with whatever arbitrator the companies pick. It is just one more way the deck is stacked against ordinary consumers.
Consider the story of Harvard Law Professor Betsy Bartholet. In her first few cases, she ruled for the credit card companies, and she was asked to do more arbitrations. But once she ruled for a customer, her career as an arbitrator was over. As the CSM reports, sometimes the credit card company didn’t even bother to strike her — they just reported that she was unavailable. As a result, someone who might have listened to a customer’s story was always unavailable. Guess who was left to decide the disputes?
The other bonus from arbitration clauses is that if a whole group of customers get cheated, many courts have ruled that the arbitration clause prevents the group from forming a class for a joint lawsuit. Instead, they have to go to arbitration one at a time, which means they are far less likely to enforce their own rights.
Does it really matter? The law professors over at Creditslips have been on this issue lately. And the TPM bloggers have been talking about it here, here, and here.
Finally, someone has the guts to say “ENOUGH” to the credit card issuers and others hiding arbitration clauses in the fine print. Senator Russ Feingold and Representative Hank Johnson have introduced legislation to stop the mandatory arbitration clauses that show up in millions of credit card agreements. Once a dispute arises, if both parties want to go to arbitration, that’s fine. But the company cannot hide an arbitration clause deep in the fine print of the credit card agreement, then require arbitration when they want to squeeze a customer for money the customer says she doesn’t owe.
