In 2002, the Motor Vehicle Franchise Contract Arbitration Fairness Act was signed into law by President Bush. The Act was touted as the biggest win for the National Automobile Dealers Association (NADA) in at least 50 years because it put an end to forced arbitration between the members of NADA and auto manufacturers. The car dealers were tired of being manipulated and bullied by the much larger and more powerful auto manufacturers who systematically forced them into arbitration-a process that essentially strips usually much less powerful groups or individuals of their rights to sue in the American court system.
As Carl J. Chiappa and David Stoelting of Kirkpatrick & Lockhart LLP, wrote in the Franchise Law Journal in 2003, “The Act was necessary, according to the Committee Report, because of the disparity of bargaining power between motor vehicle dealers and manufacturers.”
Fast-forward 12 years and it has become astonishingly commonplace to find forced arbitration clauses in a variety of standard contracts that affect individual consumers buying or using everyday products-from cell phones to credit cards. Oftentimes, these arbitration clauses are deliberately hidden within contracts and are so complex that understanding them requires the aptitude of an advanced university student. Most consumers do not even realize they have given up many of their rights until something goes wrong with their product or service, and by then, it is already too late.
These forced arbitration clauses, just like those that affected the auto dealers, force consumers to handle their claims outside of court and usually only with the arbitration groups that the company in question prefers. In many instances, the individual consumers must pay to travel to other locations and are even held responsible for the arbitrator’s fees. Moreover, these arbitration clauses ban consumers from joining together in classes, forcing them to confront the company and its army of lawyers individually. The arbitrators do not need to follow the law, any other relevant precedents, or even the rules and regulations stipulated in the contracts. Furthermore, the arbitrators have final say and consumers cannot appeal their decisions.
If forced arbitration was deemed unacceptable for auto dealers across the United States over a decade ago, how is it possible that it is not only an acceptable but a very commonplace remedy today for ordinary, individual consumers? Auto dealers did not want to be bullied by the larger, more powerful manufacturers…and neither does the average citizen.
Unfortunately, in recent years, the Supreme Court has ruled in a series of significant cases, most notably AT&T Mobility LLC v. Concepcion(2011) and American Express Co. v. Italian Colors Restaurant(2013), that have upheld the validity of such forced arbitration clauses.
Despite these disturbing rulings, there is still hope for individual consumers.
In a survey that was initiated in 2012, the Consumer Financial Protection Bureau (CFPB) began researching not only the prevalence of forced arbitration clauses but also the effects they are having on consumers. The CFPB was created by Congress in the aftermath of the 2008 financial crisis when it became absolutely necessary to enhance the degree of accountability of American financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) authorized the CFPB to prohibit or limit arbitration clauses if they determine that is it is in the public interest and will further protect consumers. Preliminary analysis of the findings demonstrated that arbitration is neither an economical nor a convenient alternative for individual consumers. It also found that these arbitration agreements are even more prevalent than predicted, and that consumers do not appreciate having their options limited when seeking restitution for a number of potential grievances.
These discoveries are not at all surprising. The Executive Council of the AFL-CIO, the umbrella federation for U.S. unions representing approximately 12.5 million working individuals, stated on July 30 that shareholders and workers should not be forced into arbitration or any such system that limits their rights or their ability to join together in class action cases.
Likewise, President Obama, on July 31, issued an executive order banning companies with certain government contracts from using forced arbitration clauses with their own employees. Now, employees of companies who have entered into professional contracts with the government exceeding $1 million will have their fair day in the American court system when bringing charges against those companies regarding sexual assault, harassment or discrimination.
It’s starting to sound like the White House and the unions are on board with ending forced arbitration; and, it is time for the CFPB to recognize the unfairness of such lopsided schemes and protect the American consumer by banning this practice.