By Mary Fetzer
Have you gotten a new credit card
lately? If so, you were almost certainly asked to sign an agreement with really
small print and an abundance of words in suspiciously small print.
Unfortunately, when you signed that agreement, you may have voluntarily given
up crucial consumer rights.
Increasingly, service contracts and purchase agreements include what are
called “arbitration clauses,” and they most definitely are not stacked in your
favor as a consumer. Fortunately, consumer advocacy and
protection groups are
taking a stand against forced arbitration and standing up for your rights. But
what can you do in the meantime?
You agreed to what?
We are so accustomed signing our name to complete purchases and other
common transactions that we often don’t pay attention to the details of what
we’re actually agreeing to with our signature. Every time you buy a wireless
phone, apply for a credit card, or subscribe for cable or satellite TV, you are
presented with a contract—if you don’t sign it, then you don’t get your phone,
or card, or television programming. So you agree to all the legal mumbo-jumbo
without a second thought.
But many (dare we say most?) such contracts now contain wording that
says you agree you won’t (in fact, can’t) take the company to
court if a dispute arises.
Called a “forced arbitration clause,” the language states that you agree that
the company can force any disputes into the arbitration process to be settled.
Say, for example, that you entered into a contract for satellite TV
service for $19.95/month, but six months later, without notice, your price
triples, quadruples, or worse. You may not like it, but if you signed a forced
arbitration clause, then you can’t take the TV provider to court.
Arbitrator versus
judge
What does that mean? It means you can’t sue the company in front of an
impartial judge; rather, you will plead your case to an arbitrator. The
arbitrator, more often than not, is chosen by the company with which you have a
dispute—and can be located anywhere. If the company sends repeat business to
that particular arbitrator, doesn’t it follow that it’s in the arbitrator’s
best interest to find in the company’s favor?
While a judge is required to follow the law, an arbitrator is not.
Furthermore, the arbitrator’s decision, which the company is allowed to keep
secret, can’t be appealed. And should you discover that other consumers have
similar complaints, the clause—remember, this is in a contract that you have
signed—prevents you from joining them in a class action suit.
Class action suits are ideal for situations in which your costs for
individually pursuing a claim are greater than the amount you might recover. As
a “class,” those costs are spread out to make legal action more affordable. But
if you’ve agreed (as affirmed by your signature) to the forced arbitration
restriction, you can’t take advantage of this process and the company is
protected. In effect, you’re letting the offender off the hook.
Forcing out forced
arbitration
A 2015 report by the Consumer Financial
Protection Bureau, a
consumer watchdog in Washington, D.C., revealed that the restrictions placed on consumers by forced arbitration
clauses are worth tens or
hundreds of millions of dollars annually, and that’s just for financial service
companies. The report showed that more than 75 percent of consumers surveyed
don’t know whether or not they’ve agreed to a forced arbitration clause, and
fewer than 7 percent of those who do recall entering into such an agreement
actually understand what the clause means.
The CFPB, however, is pushing for new rules, which would prevent
companies from forcing consumers to rely on private arbitration. The current
proposal will specifically focus on eliminating arbitration clauses that block class
action lawsuits. This
proposal applies to agreements that accompany credit cards, prepaid cards, bank
accounts, money transfer services, installment loans, payday loans, private
student loans, and certain car loans.
This first step wouldn’t completely eliminate forced arbitration
clauses, but it would force the clauses to state that they “do not apply to
cases filed as class actions unless and until the class certification is denied
by the court of the class claims are dismissed in court.” Additionally, the
proposal would require companies that do use arbitration for individual
disputes to submit to the CFPB the claims filed and awards issued.
Beyond that, the bureau will look to extend similar new rules to other
companies that force consumers into arbitration, such as cell phone and TV
service providers. The ultimate long-term goal is to completely eliminate
forced arbitration clauses.
Stand up for your
rights
Want to file a complaint about a
contract with an arbitration clause? Visit the Consumer Financial
Protection Bureau website or
call their help line at 1-855-411-2372.
And if you find yourself in a dispute over an agreement, consider reaching out
to an attorney who specializes in consumer protection.
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