Last week, Congress voted to strike down the Consumer Financial Protection Bureau’s (CFPB) ban on the practice used by big corporations to force consumers into arbitration in order to shield themselves from lawsuits. After casting the tie-breaking vote in the Senate, Vice President Mike Pence took to Twitter to express his “pride” in standing up for the little guy. America’s biggest corporations roundly applauded his sentiment.
If nothing else, you have to admire the audacity of it all. The CFPB was set up in the wake of the 2008 financial collapse to protect consumers (hence the name) who suffered the brunt of the damage caused by corporate greed in the banking sector, which precipitated nothing short of an economic meltdown.
One of the Bureau’s most important moves was to ban the underhanded practice of sneaking clauses into lengthy terms of agreement policies. These clauses are often written in deliberately complex and arcane language that even lawyers have difficulty decoding, and that stipulate consumers’ only means of seeking legal damages is through arbitration.
While in some areas of law, arbitrations may have a semblance of fairness, in the corporate arena, arbitration clauses are used to prevent companies from being held accountable for their actions. The reasons for this are simple.
First, assume that a large corporation over-bills its customers by a mere $10 per month, or $120 per year. Arbitration clauses take away the ability for a group of consumers to file a class action against the corporation, yet a single consumer is not going to file a lawsuit over $120, and no attorney is going to take on a case worth so little – especially since most attorneys will charge far more than $120 per hour. It is simply not financially feasible, either for the consumer or for the attorney. The problem is that when you multiply the over-billing by as many as 10 million consumers, that corporation has now pocketed One Billion Two Hundred Million Dollars and the ten million individual consumers have no power to stop the over-billing practices. The corporations have, in essence, been given permission to cheat consumers, who are left with no legal recourse.
Second, people don’t realize that arbitration is a costly endeavor to consumers. Unlike Judges, who are civil servants, arbiters must be hired. A single arbiter can cost upwards of $15,000 just to begin an arbitration proceeding, and that money has be paid, up front, by a consumer. Arbitration proceedings can typically require as many as three arbiters, so the cost increases to $45,000 out of pocket, and that is just to start an arbitration. A week-long arbitration proceeding can cost an individual consumer upwards of $100,000, while a week-long jury trial costs the consumer nothing.
Third, arbiters are generally corporate-based. A corporation generally has the ability to actually choose the arbiters who will hear the claims made by a consumer. It stands to reason, then, that the arbiters will be biased in favor of the corporations.
Finally, decisions of arbiters are binding. This means that the consumer has no rights of appeal once a decision has been rendered. Often, a consumer is left with nothing more than a very large bill, and the corporation has received nothing in terms of accountability.
With this bill being passed by both houses of congress and ready to be signed into law by President Trump, the bad old days are back.
Nowhere is this clearer than in the case of Equifax’s negligence in the lead up to its massive data breach and the malfeasance (and sheer arrogance) it displayed in the wake of it. The credit reporting agency that exposed the most private data of nearly one out of every two Americans tried to trick victims of the hacking into signing away their right to sue, in exchange for being granted a free credit freeze.
In Equifax’s case, the outcry that followed the attempt to force consumers into arbitration resulted in the company backing down. But in thousands of other cases—involving everything from banks to cell phone service providers—consumers will now again be forced into arbitration just for the privilege of paying corporations for their services.
One of the most pernicious outcomes of these anti-arbitration clauses is that corporations escape the kinds of class action lawsuits that actually have the power to deter bad behavior. Corporations that commit offenses that result in relatively small damages for consumers—for example, a big bank opening accounts in their customers’ names without permission—can relatively easily fight off the few consumers who decide to pay out of pocket for the unlikely chance of winning damages in arbitration.
But banded together in a class action lawsuit, the thousands of customers affected by corporate malfeasance or negligence represent a force no corporation, no matter how big, can simply ignore. Big corporations know this all too well. They know that at a time of evaporating consumer protections, the CFPB’s ban on arbitration clauses was one of few remaining obstacles standing in their way of effectively operating beyond the reach of the law.
Congress’ decision to legislate out of existence one of the few remaining consumer protections—put in place by an agency that was established in an attempt to re-balance the scales of justice—is nothing less than a travesty. That representatives of the American people could trumpet this as a win for the individual is a mockery which says as much about the state of our democracy as the bill being so shamelessly celebrated.