Cleaning Up the Fine Print
Arbitration clauses are buried in the fine print everywhere--credit card agreement, cell phone contracts, employee handbooks, health insurance plans, and franchise agreements. No one cares--until they have a dispute. Once they get over-billed, or discriminated against, or cheated, they discover that they have waived their legal remedies. Instead, they have to pay high fees and they may have to travel to a distant forum only to appear in front of an arbitrator who is far more likely to rule for the company than for the individual. That's the news from a comprehensive new report on arbitration issued today by Public Citizen.
The big push from Public Citizen raises a central political question: In a business-versus-consumer choice, will Congress pass any consumer measure? Does industry still own the legislative process?
We've talked before about the studies showing systematic bias in arbitration. The most frequently chosen arbitrators rule for the companies 98.4% of the time. After serving as an arbitrator, former judge Richard Neely described arbitrators as "Godless bloodsuckers." Senator Russ Feingold has introduced legislation to end mandatory arbitration against consumers.
The pieces are in place: Public Citizen has picked a good target, and they have written a superb report. They will kick off with a big press conference featuring Senator Feingold (D-Wis), Representative Hank Johnson (D-Ga) and others.
But any anti-arbitration initiative faces real problems. Mandatory arbitration clauses are hidden in the fine print. Most of us don't even know we are subject to them until we have a problem. Arbirtation doesn't sound bad--it sounds cheaper and fairer and more informal than going to court. And, most important for the legislative process, the industries that use mandatory arbitration have a lot more money for lobbying campaigns and make a lot more political contributions than the consumer groups. (Is it any surprise that Russ Feingold, the sponsor of a campaign finance reform effort, would also be the sponsor of a pro-consumer bill on arbtration? He's one person in Congress who isn't getting big donations from PACs.)
Consumers take it on the chin every day with hidden tricks and traps in credit card agreements, home mortgages, health insurance contracts, and dozens of other purchases. Public Citizen has focused on one way to clean up the fine print in those contracts. Will Congress listen?
Comments (4)
This is probably preaching to the choir, but here’s our opinion about arbitration:
CONSUMERS DON’T KNOW WHAT THEY’RE GETTING INTO WHETHER THEY READ THE ARBITRATION CLAUSE OR NOT: They find out later that it can be unfair, expensive, and possibly too fast to find out what all their damages are before an arbitrator decides the case.
NO REASONABLE OPTIONS OUT THERE IN MANY CASES: Even when home buyers do not want to sign an arbitration clause with a builder, they find out, (like credit card customers), pretty much the entire industry is using it. It’s usually pushed on members by building industry trade groups. Some real estate contracts on resale homes apparently require it too, at least if a real estate agent is used. State of MN comes to mind. (Resale is getting a bit out of our area of experience.)
EVEN IF THEY AVOIDED ARBITRATION W/THE BUILDER THEY MAY HAVE IT IN A WARRANTY: 3rd party home warranty policy purchased by the builder and given to the customer after closing.
BIASED: The arbitrators are chosen from a pool of people the industry does repeat business with.
The homeowner usually loses, or if they win gets only a small fraction of their damages. One company, Construction Arbitration Services, was the topic of Public Citizen’s 2004 report, that exposed the company as being owned by a disbarred attorney. CAS refutes the report but those of us who’ve been dealing with this issue know Public Citizen got it right. http://www.citizen.org/pressroom/release.cfm?ID=1775
SECRETIVE: There is frequently a gag order so they can’t talk about it.
NOT PUBLIC RECORD: Complaints are hidden from the public, whether it’s about a warranty co., or a builder, so consumers doing their research can’t find out.
EXPENSIVE: Undisclosed fees are a common complaint.
COLLECTING IF YOU WIN IS STILL HARD: Still requires use of the courts sometimes, with no guarantee they will ever collect.
ENFORCEMENT OF CONSUMER PROTECTION TYPE LAWS VERY HARD: Cases moved to federal court by companies because state law may favor homeowner/consumer. “Interstate Commerce” is a common reason to remove to federal court, easy to do when an out of state warranty co. is used. 24 CFR 203.2049(g) provides that a homeowner with govt backed financing must still have court as an option, along with arbitration, in disputes with warranty co’s. But untold numbers of FHA and VA borrowers do not know this, and/or can’t get it enforced. The warranty acts as a shield for the builder, while giving the homeowner a false sense of security. (I personally did find out about the CFR in time to avoid arbitration with a 3rd party warranty co, which allowed us to keep the lawsuit going against the builder. We eventually settled, probably because we did not have to arbitrate.)
OLD PROTECTIONS NO LONGER APPLY: Some of the old arguments are that these would be contracts of adhesion, or that the homeowner wasn’t even a signatory to the contract/policy, or that it’s unconscionable. We’re not finding that many can get out of arbitration with these arguments anymore. This increases the difficulty of even getting a good lawyer to take your case!
Public Citizen and Public Justice, and other groups, have been invaluable in fighting these abuses and in helping to get the Arbitration Fairness Act of 2007 this far. I hope what they’re doing reaches mainstream media more, because so many people still rely on that for virtually all their news and information about what’s going on. It was good to see it covered on some mainstream online news sources today. When I see it on network news on TV I’ll REALLY feel like the public might find out!
We’re just now seeing real opposition to the Arbitration Fairness Act of 2007 turning up in the news, which probably means the corporations that love arbitration are starting to get worried! I hope this bill passes and puts an end to Corporate America’s private kangaroo court. I have no problem with a person or corp getting wealthy...as long as they don't CHEAT!
Cindy Schnackel
National Secretary, Homeowners Against Deficient Dwellings http://www.hadd.com
September 29, 2007 6:11 AM | Reply | Permalink
Public choice theory states that since 99 out of 100 consumers are never affected by arbitration clauses, they will have neither emotional or economic investment in the issue.
Therefore, their representatives, acting rationally, will (should?) favor those who do have such an investment -- and will pay by way of campaign contributions to insure it -- that is, the credit card companies.
September 29, 2007 6:28 AM | Reply | Permalink
Easy fix, there, don't buy anything, don't sign
up for anything, the things you need like car insurance, electricity and dial tone, you're going to have to put your name on the dotted line, but all 3 of those are pretty easy to get out of. Renting an apartment/owning a home is
a necessary evil these days, so you'll have to
sign yet one more time, but you DON'T have to
hold any plastic, and there's other service
agreements you can stay out of, too. You don't NEED cable, as one example...
October 1, 2007 1:18 AM | Reply | Permalink
So, are private adhesion contracts going to invalidate the U.S. Constitution because middle class citizens don't have the resources or the will to defend the constitution in the courts? Is our freedom of choice now to either participate in society by waiving our constitutional rights, or become outcasts who hold to constitutional principles?
Elizabeth, I think this issue has very significant implications to our future as American citizens, and whether or not we are shepherded into financial bondage, and then into political bondage, and find ourselves in a new America that has morphed into a socialist or fascist rule, where everyone but the most powerful will live in poverty. We must fight against waiving constitutional rights in adhesion contracts. There is still hope if we do it in large numbers. We need to take the advice given in this website.
Jim Anderson
The Truth About Credit
Facebook Profile
Ministry WebsiteOctober 3, 2007 8:49 AM | Reply | Permalink