The Need for a Mandatory Binding Arbitration Overhaul – National Consumers League

by Sally Greenberg, NCL Executive Director

In the past several weeks, I’ve had two occasions to think about the effects of those ubiquitous binding mandatory arbitration clauses that are found in so many consumer contracts today. Two weeks ago, I spoke on a panel at an American Bar Association meeting on the Arbitration Fairness Act and advocating for an end to forcing consumers into mandatory arbitration. Then last week, I visited Congressional offices with homeowners whose houses had been built with such shoddy workmanship that they were unliveable – and yet they couldn’t seek remedies in court because of mandatory arbitration clauses in their contracts and the homebuilder himself owned or controlled the arbitration service. Adult children of nursing home residents described how their elderly parents were talked into signing arbitration clauses and subsequently developed deadly infections because of mistreatment and neglect, but the surviving children we barred from getting their cases heard in court because of a BMA clause, and the arbitrator sided against them. The companies offering arbitration actively seek the business of corporate clients, often promising them positive outcomes. In other words, the business of offering arbitration in consumer cases has become increasingly corrupted and biased.

What are these odious BMA clauses and how do they work? The clauses are buried in a contract you agree to as a condition of getting the service or good. The provisions contain some version of the following: “if there is a dispute between the parties the exclusive forum for determining remedies is arbitration carried out by the XX (one of three arbitration companies)” . That is, you can’t go to court, not even small claims court, you can’t bring a class, you can’t have a judge decide your case. They were described to me by corporate lawyer as a “risk management tool for corporate America.” That is pretty accurate, because these clauses prevent companies who engage in wrongdoing from being held accountable in a court of law. And they have worked beautifully to protect wrongdoers and emboldened them to add more and more of these clauses in their agreements with consumers.

If you think you aren’t affected by a BMA clause, think again. Anyone who’s signed up for a credit card, bought a computer, bought a cellphone, taken out a line of credit, rented a car, or engaged in any of the millions of transactions consumers deal with every day has agreed to one of these clauses, most often without knowing it.

That is why consumer groups and many others support the Arbitration Fairness Act—HR 1020 in the House sponsored by Congressman Hank Johnson (D-GA) (the Senate bill doesn’t have a number yet) — which will bar pre-dispute mandatory binding arbitration in consumer and employment contracts. There’s nothing wrong with arbitration or mediation as an alternative to court if both parties agree to take this route AFTER the dispute has arisen and voluntarily. But forcing consumers and workers—60 percent of employment contracts apparently contain such clauses, and workers must agree to them if they want the job—into a private system of “justice” —which charges them a fee to get their case heard, deprives them of a judge, the right to submit and have the rules of evidence enforced, have a decision based on the law, have a written record, the right to appeal, and have a public record of the adjudication – is wrong and must end.

Moreover, consumers are deprived of counsel because few lawyers will take on cases if there’s an arbitration clause involved; the deck is stacked against the client and the lawyers find it hard to get paid. Faced with insurmountable odds, consumers or workers often are unable to fight for their rights, even if they have a strong case, because the arbitration system is so skewed against them.

A powerful coalition of consumers, workers, civil rights leaders, families of nursing home patients, and many other groups are seeking passage of the Arbitration Fairness Act in order to restore justice to a system that’s been hijacked by corporate interests. We know we’ll have a major challenge going up against the corporate entities that defend these clauses by making the dubious claim that they are “good for consumers” because, they argue, they provide “quicker, cheaper and more equitable resolution of cases.” If these BMA clauses are good for consumers, don’t force consumers into it, let them decide for themselves to opt for an alternative to court. If the system is fair, including the right to enter into class actions, the parties will choose arbitration.

Right now, powerful interests have commandeered the legal system, making it work as a shield that keeps them from being held accountable in the event that a homebuilder has engaged in wholesale consumer fraud in construction, or an employer has fired someone because they are African American, or a nursing home has neglected or abused an elderly resident so terribly that she dies of severe infection. The Arbitration Fairness Act will correct these abuses; NCL and other consumer groups intend to work tirelessly to unmask the corruption in the BMA system and see it addressed once and for all through the enactment of Arbitration Fairness Act.