WASHINGTON – On March 7, a Capitol Hill coalition of lawmakers including Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.) convened to highlight the importance of ending forced mandatory arbitration clauses in contracts and introduced legislation to force companies to give consumers more options in the event of a dispute.
Many companies, including banks, credit card companies, apartment complexes and others, include language in their contracts that cuts off a consumer’s rights to sue, and mandates that anyone signing the contract go along with a clause stating that the only legal recourse in the event of a dispute is through mandatory arbitration.
“Our legislation, the Arbitration Fairness Act, would help restore everyday Americans’ right to challenge unfair practices in court and ensure meaningful legal recourse," said Franken in a press release. "We’re at a point where big corporations can write their own rules and insulate themselves from liability for wrongdoing. That needs to change.”
Franken is not the only senator pushing the bill. Sen. Patrick Leahy (D-Vt.) feels strongly about it also.
“When Americans enter into agreements to obtain cellphone service, rent an apartment, or accept a new job, most are not made aware of the forced arbitration clauses that are tucked away in the legal fine print,” Leahy said in a press release.
Joe Valenti of the Center for American Progress, a nonprofit public policy organization that does research and advocacy on progressive issues, has written about the unfairness of mandatory arbitration clauses.
“Arbitration clauses that are forced on consumers have two main detriments," Valenti told The Record. "One is that they impede access to justice for wronged individuals. Someone may not be able to get an impartial hearing for damages. It’s also unlikely that someone is going to get the assistance of counsel. Attorneys are often not involved, as opposed to class actions. Mandatory arbitration is a way of escaping accountability, for companies.”
Valenti told The Record that the use of these arbitration clauses is widespread.
“For consumer products, we see arbitration clauses all over the place," he said. "Most Snuggie products contain arbitration clauses tucked into the box. We see these clauses frequently for cellphones. They are particularly prevalent in financial products. Nearly all enrollment agreements in for-profit colleges include language requiring arbitration as the method for handling disputes. We also see them frequently in contracts for products like payday loans.”
He explains how to companies stack the deck in their favor when it comes to disputes.
“Many of these companies are willing to force arbitration on their customers but they are also willing to use the court system when it suits them. When a car has been re-possessed and there is some residual value that the customer still owes the dealer, typically the dealer will consider taking that customer to court. That same customer does not have the same legal recourse when the situation is reversed.”
The 1925 Federal Arbitration Act intended for arbitration to be voluntary, explains Valenti. It shouldn’t be the only option for the consumer.
“Nobody buys a cellphone, or a Snuggie, or opens up a bank account expecting the ability to sue the company that they purchased the product from, but these clauses happen in the very beginning when people aren’t really thinking about shopping around, or don’t have options at their disposal, and that’s what makes them most problematic,” he notes.