COMMENTARY: Curbing forced arbitration would aid consumers

Recently, The New York Times published an extensive three-part investigation into how Wall Street and corporate America have been engaged for years in a deliberate, corrupt and insidious attack on the American consumer. The series takes a close look at how corporations are evading accountability when they hurt or cheat consumers — by using forced arbitration to deny us our day in court.

As Jessica Silver-Greenberg and Robert Gebeloff of The Times explain:

“By inserting individual arbitration clauses into a soaring number of consumer and employment contracts, companies … devised a way to circumvent the courts and bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices.

“Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.”

Millions of consumers have unknowingly signed away their rights, and as The Times’ story demonstrates, when a problem with a credit card company, nursing home or counseling center arises, the case is not heard by a judge or jury, but by an arbitrator who is often working on behalf of the company. Forced arbitration is a rigged system set up by corporations to favor corporations.

Right now, two federal agencies have an opportunity to curb the use of forced arbitration — in consumer financial products and nursing homes. These would be enormous victories for the public. Meanwhile, Congress is considering a bill that would be a step backward, weakening consumers’ ability to hold companies accountable.

Giving Companies a Free Pass to Cheat and Break the Law

Perhaps some of the most egregious examples of how forced-arbitration clauses negatively impact Americans and their families stem from nursing homes. During the stressful admissions process, many nursing homes force new residents to sign away their right to go to court if they are harmed.

This can include cases of severe neglect, abuse, serious injury or death at the facility. These forced-arbitration clauses strip residents of their legal rights and often prevent families of those abused or neglected from holding the nursing homes accountable.

Nursing Home Arbitration Could be Restricted

In July, the Centers for Medicare and Medicaid Services (CMS) proposed new rules for nursing homes that receive federal funding that acknowledged the burdens of arbitration clauses on residents harmed by nursing homes, but neglected to put an end to the practice.

CMS proposed small revisions that unfortunately would have little effect on nursing homes’ ability to force residents to unwittingly forfeit their rights to go to court if a dispute arises and could make protecting nursing home residents from harm even more difficult. Last month, more than 50 consumer and senior advocacy groups submitted comments to CMS saying it should fully prohibit pre-dispute arbitration clauses when it issues a final rule.

Thirty-four senators, 27 representatives, and 16 state attorneys general also called on CMS to ban pre-dispute arbitration in nursing homes, and 50,000 individual petition signers did, as well.

There has also been recognizing recognition of the havoc that hidden forced-arbitration clauses have wreaked on the American consumer. Last month, the Consumer Financial Protection Bureau (CFPB) announced the framework for a rulemaking that significantly curbs the use of forced-arbitration clauses by Wall Street banks and credit card companies, forbidding arbitration clauses that prevent consumers from banding together in court as a group. The agency’s plan would restore consumers’ right to effectively take on a big bank and seek relief from corporate scams and abuses through class-action lawsuits.

While CFPB’s announcement certainly marks a major step forward, their plan can and should be improved. Most significantly, the plan fails to restore the right of consumers to pursue justice on an individual basis. The agency should strengthen its plan to ensure all consumers — whether joining with others or acting alone — have the right to hold corporations accountable.

Congress is Trying to Make a Bad Problem Worse

Corporations aren’t the only bad actors trying to strip consumers of their legal rights. Right now, Congress is working to do the same. A bill in the House titled the “Fairness in Class Act Litigation Act” would eliminate consumers’ rights to take on bad-acting corporations in class-action lawsuits — the only real, practical way for consumers to hold Goliath corporations accountable for their wrongdoings. By forcing all members of a class to prove that they’ve each suffered the same type and scope of injury from a company (a nearly impossible task), the bill effectively keeps consumers from being able to get their cases certified — or move forward as a group — in federal court.

Diminishing consumers’ ability to hold corporations accountable as a class comes at a huge cost to the American people and a huge gain to corporations.

What’s at Stake

Between Congress’ continued attempts to do away with class-action lawsuits and corporations’ ceaseless efforts to bury forced-arbitration clauses in their terms and conditions, the American consumer is under attack. Restoring consumer justice should be a top priority for policy makers in Washington.

1. The Centers for Medicare and Medicaid Services should issue a rule that bans forced arbitrations in nursing homes entirely;

2. The Consumer Financial Protection Bureau should move forward with their rulemaking to restore consumers rights to band together as a group to take a big bank that has cheated them to court;

3. And finally, Congress should reject the “Fairness in Class Act Litigation Act,” which would give a free pass to corporations that cheat and rip off their consumers.

Editor’s note: Carolyn Donofrio, CAE, is the executive director of the Delaware Trial Lawyers Association.