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It is one thing when sophisticated parties, of relatively equal bargaining positions, opt to include an arbitration clause in an agreement. It is quite another thing when parties, even those engaged in commercial enterprises but of relatively unequal bargaining positions, agree, or are forced to agree, to an arbitration clause. An example of this would be an employment contract, where an employee must agree to a mandatory arbitration clause in order to get the job. Similarly, customers – even sophisticated ones – who open brokerage accounts typically must now agree to submit any and all disputes to arbitration or may not be able to open the account. For better or worse, this has become de rigeur in the industry.
And, it is quite another thing, still, when consumers, or small businesses in the same relative position as consumers, with no or relatively little bargaining power, go up against much larger companies and are forced to agree to arbitration provisions, often in fine print clauses that many people do not read (or cannot understand), in order to obtain services from large providers. As Part I of the Times series makes clear, such sweeping provisions as waiving the right to a class action lawsuit, which are being upheld by courts, are becoming ubiquitous in consumer contracts – including many agreements that must be entered into with cable television providers, cell phone service providers and credit card companies. If you do not want to sign the agreement and agree to arbitration and a class action ban, fine; you will also not be able to get cable television, cell phone service, or the credit card..
The impact of class action bans may not be apparent on their face, but are significant. For example, relatively small charges improperly imposed by a cable provider, to thousands if not millions of customers, add up to a great deal of revenue to the provider. On the other hand, the relatively small charges to each customer would hardly make it worthwhile – or even possible – for the individual customer to pursue a claim against the large company – whether in arbitration or before a court. However, when many customers who have experienced the same harm are allowed to join together in a class, they would then, cumulatively, have a claim that would be impactful, and make sense and be economically feasible to prosecute
From a business standpoint, big companies view class actions a sledgehammer, brought solely for the benefit of plaintiff’s attorneys and not the class members. They fear that when a class action is brought, the amount of the damages can be enormous, and the amount of the time spent in litigation and even in arbitration become overwhelming, so that it is almost always preferable for them to settle, regardless of the validity of the claim.
The Consumer Financial Protection Bureau recently announced that “it is considering proposing rules that would ban consumer financial companies from using ‘free pass‘ arbitration clauses to block consumers from suing in groups to obtain relief.” ( “CFPB Considers Proposal to Ban Arbitraion Clauses that Allow Companies to Avoid Accountability to Their Customers,” October 7, 2015, http://www.consumerfinance.gov/newsroom/cfpb-considers-proposal-to-ban-arbitration-clauses-that-allow-companies-to-avoid-accountability-to-their-customers/) Stay tuned! The proposed rules will certainly engender a great deal of support, and opposition, and it will be interesting to see how the legitimate interests of consumers and companies are balanced and reflected in any rules that may be enacted. Inasmuch as politics will, as always, play a role in the discussion, and based on the impact that the imposition of applicable rules may have, if this is an issue that you feel strongly about – whichever side you may be on – now would be the time to speak up.
