A growing trend in contracts for cellphones, bank accounts, credit cards and lots of other services is costing consumers their rights. It's called 'forced arbitration.' Here's what it is and what you can do about it.
The phrase “I’ll see you in court!” may be going the way of “Brother, can you spare a dime?”
There’s a disturbing trend in the contracts you sign – for everything from credit cards to cellphones to even leasing a car or building a home. It boils down to two words: forced arbitration. And it’s as ominous as it sounds.
Arbitration is something Major League Baseball fans might be familiar with: A player and his team disagree on how much the player should be paid, so they each submit a salary figure to an arbiter. This objective person makes a decision both parties have agreed in advance to abide by.
Outside of baseball, arbitration cuts down on the number of lawsuits clogging the courts. It’s a useful tool, says Money Talks News founder Stacy Johnson – but not when you’re forced into it, and not when the arbitration process is stacked against you.
See what Stacy means in the video below, then read on for more details.
As the expert says in the video, forced arbitration is a tactic used by companies to prevent you from suing them. They do this by inserting language into their contracts – often in very small print – that requires you to submit to an arbitration process of their own creation if you have any complaints about their service.
As Stacy says, “Bottom line: Arbitration is simply a way for big companies to keep you out of court.”
Many states used to prohibit such agreements until a 2011 U.S. Supreme Court decision ended their authority to do that. Now forced arbitration is popping up everywhere.
How does it work? When you sign up for a student loan or pay to put a loved one in a nursing home or even agree to a certain job, there might be a section buried in the tiny print. For example, when you buy Comcast services, you get hit with more than 20 pages of a contract.
At the bottom of page 14 is a section called “Binding Arbitration.” But Comcast’s process is kinder than most: There’s a “right to opt out,” although it’s not easy to do. You must notify Comcast “in writing within 30 days of the date you first received this agreement.” Not all businesses give you that option.
Here’s an example from the Texas Trial Lawyers Association about a victim of identity theft whose credit card was charged for more than $27,000 in fraudulent purchases:
Despite the theft, the arbitration process held her responsible for $27,240 in charges she did not make. She was forced to hire an attorney to convince the collection agency that she was not responsible for the charges. Because of binding mandatory arbitration – that she was not even aware she was subject to – she had to pay $2,200 to the attorney to protect her rights against a thief.
Of course, trial lawyers hate forced arbitration because it limits their potential clients. So it’s no surprise that the American Association for Justice – formerly the Association of Trial Lawyers of America – commissioned a poll on the topic.
In 2008, it found that 51 percent of Americans don’t like forced arbitration, a number likely to rise as the practice spreads. (Only 32 percent approved and 17 percent weren’t sure.)
Most interesting – and encouraging – is that a majority of Democrats (54 percent) and Republicans (51 percent) didn’t support the practice.
You’d think that would give some hope for a bill bogged down in Congress. The Arbitration Fairness Act of 2013 was submitted on May 7 with the support of 23 House Democrats hailing from California, Florida, Georgia, Iowa, Maine, North Carolina and Virginia.
The bill has the support of not only attorneys but also groups like Public Citizen and The Leadership Conference on Civil and Human Rights.
But according to Govtrack, which monitors proposed legislation, the Arbitration Fairness Act has only a “3 percent chance of getting enacted.”
So what can you do? Besides urging your own Congress members, not much. An organization called Fair Arbitration Now suggests perusing the fine print of your contracts and trying one of three tactics:
- If the contract has an opt-out clause, use it.
- If the contract doesn’t have an opt-out clause, ask to opt out anyway (although your odds aren’t good).
- Take your business to a competitor (although it may be hard to find one that doesn’t also use forced arbitration).
“Ultimately,” FAN laments, “in order to insure you can buy products and services and be employed without giving up your legal rights, legislation must be passed to ban forced arbitration.”
So it’s up to Congress. Not the most reassuring thought.
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