The good news: there is still pending legislation and proposed rules to rid certain contracts of forced arbitration clauses. The bad news: forced arbitration is still alive and well. What can you do if you find yourself in a situation in which your legal rights have been compromised by a forced arbitration clause?
As discussed in a prior blog (Consumer Rights Update: Law Makers Reintroduce Arbitration Fairness Act), a bill was introduced in April 2015 referred to as the Arbitration Fairness Act, which, if passed, would eliminate the mandatory arbitration clauses in employment contracts, consumer contracts and civil rights. Unfortunately, the necessity of this bill is substantial: most consumers do not even realize that they have surrendered their legal right to sue when they do something as simple as signing a yearly contract with a cell phone provider. The Consumer Financial Protection Bureau completed a survey last year and found that three out of four people surveyed did not know whether or not they had signed away their right to file suit against a financial corporation. This does not surprise me because most of the time, these clauses are hidden in the fine print of a contract even though these clauses substantial limit, if not eliminate, a consumer’s legal rights. Though the Arbitration Fairness Act has not yet passed, other consumer advocate groups are pushing for more restrictions and reform when it comes to the practice of forced arbitration clauses.
For example, the Consumer Financial Protection Bureau recently proposed a ban on credit card and lending contracts that bar users from participating in class action lawsuits. If this ban is approved, it could go into effect as early as 2017 and allow millions of more consumers to take their problems to court. The issue, however, is the ban is not retroactive but there are other ways to try to fight back against a company or corporation trying to limit your right to sue. If you are one of the unfortunate people who find yourself in some sort of financial dispute, let’s say a billing dispute with your cell phone provider, you can start by checking whether or not you in fact did sign away your legal rights. You can do so by looking up the agreement on the company’s website or by calling customer service to get a copy of the agreement. If that does not provide any assistance, you can try searching the Consumer Clause Registry, a database managed by the American Arbitration Association. The website allows access to search the arbitration clauses of over 3,500 businesses.
Some financial companies and corporations allow you to opt out of the forced arbitration clause but you have to do so shortly after you sign up. If you are stuck in a forced arbitration clause and find yourself in a legal dispute, advocates suggest checking the amount of the dispute against your state’s threshold for small claims. Most contracts will have an exception for such claims so if you are below that threshold, you can then use the small-claims court process. If you did not immediately opt out or your dispute is above the small-claims court threshold, you are still entitled to legal representation. Though this might not prove to be cost effective if the amount in dispute is reality small but it can be beneficial in higher dollar cases. However, research has shown that the association of legal counsel yielded better results for the consumer. For example, the Consumer Financial Protection Bureau found that consumers with legal representation were more likely to reach an agreement with a provider versus having a biased arbitrator determine a final award. Legal fees can be an issue, especially for smaller cases, but consumer advocates suggest trying to hire an attorney on a contingency fee based, looking for counsel with 3 to 10 years’ experience or engaging the services of a law school’s legal clinic.
As of today, forced arbitration clauses are alive and well. They are still considered to be legal and most of the time, the consumer has little to no knowledge that their contract even contains one of these clauses. Though it might be a long, daunting task, I suggest reading something as simple as a credit card agreement or a new cell phone contract. Read everything, including the fine print and see what legal rights you are forgoing by signing that contract or activating that new credit card.