Rise of Private Arbitration Clauses In Credit Cards, Loans, Etc Allows Big Business to Rob Consumers of Vital Legal Rights

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Signing-a-Contract-Wright-and-SchulteIf you’ve recently applied for a credit card, signed up for cell phone service, or entered into an employment contract, there’s a good chance you’ve signed away your right to sue without even knowing it. According to a new expose published by The New York Times, big business is increasingly turning to private arbitration clauses that bypass the courts and prevent customers from joining together in class-action lawsuits, robbing ordinary citizens of what is often the only legal tool at their disposal to fight corporate malfeasance.

“This is among the most profound shifts in our legal history,” William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, told The New York Times. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

Without the ability to join together in a class action lawsuit, a single victimized consumer can find it nearly impossible to take on a large corporation with seemingly limitless financial and legal resources. In the past several years, big business has used arbitration clauses and class action waivers to bring a premature end to numerous valid legal cases involving questionable fees, predatory lending, wage theft, and employment discrimination.

Take the case of Patricia Rowe of Greenville, S.C., who according to the Times, had joined with more than 900 AT&T customers in three states to fight the company’s bid to force customers to pay what plaintiffs asserted were excessive early termination charges. When the case was thrown out last year due to such an arbitration clause, Rowe gave up her fight and paid AT&T the $600. While she could have taken the company to arbitration, Rowe found that the cost of doing so would have far exceeded the early termination fee.

Corporations, of course, deny that arbitration clauses and class action waivers rob consumers of their rights, and insist that private arbitration provides their customers with a far easier way to resolve grievances than turning to the courts. But an analysis of court records conducted by the Times suggested that once consumers were blocked from pursuing a class action, most dropped their claims entirely.

While The New York Times investigation paints a dire picture for consumers, there is some hope. Earlier this month, the Consumer Financial Protection Bureau (CFPB), announced that it would propose a new rules that would prevent big banks and other financial companies from including arbitration agreements in contracts involving consumer financial products or services.

“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” said CFPB Director Richard Cordray. “Companies are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing.”

While the proposed rules wouldn’t ban arbitration clauses entirely, contracts would be required to state that the clauses don’t apply to cases filed as potential class-action lawsuits unless a judge denies class certification or a court dismisses the underlying claims. Financial companies that do utilize arbitration clauses would be required to provide the CFPB with records showing the claims filed by consumers and the awards issued. If adopted, the new regulations would apply to any consumer financial product or service overseen by the CFPB, including checking and deposit accounts, credit cards, prepaid cards, money transfer services, certain auto loans, auto title loans, payday loans, private student loans, and installment loans.

While Wright & Schulte LLC commends the CFPB’s efforts to curb forced arbitration the financial sector, the Firm’s attorneys believe that the these types of contract provisions have no place in a legal system purportedly dedicated to equal justice for all. The CFPB should ban forced arbitration entirely wherever it has jurisdiction to do so. And the Firm calls on the U.S. Congress to pass the Arbitration Fairness Act which would legally forbid the use of forced arbitration in all consumer disputes.

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