Forced Arbitration: Bargain-Basement Justice

Forced arbitration clauses allow corporations to single-handedly kick Americans out of court and funnel them into a dispute mill that is rigged, secretive and decided by an arbitrator who does not even have to follow the law. Corporations bury these clauses in the fine print of everything from credit card and banking agreements to student loan documents and cell phone contracts. 

Forced arbitration puts Americans’ financial security at risk. By eliminating access to justice, it allows corporations to evade accountability and grants them a license to steal.

Worst of all, most consumers have no idea they have lost their rights until it’s too late.

Still, corporations continue to insist that forced arbitration benefits consumers.  But as Georgetown University Law Center Professor, Adam J. Levitin, argued in financial industry magazine American Banker, forced arbitration is, in fact, a fundamentally unjust, rigged system that deprives Americans of their rights:

Is it fair for a business to effectively force its consumers into a dispute resolution system that it has selected? Arbitration's advocates argue that it is fair because arbitration provides justice as good as that of the court system, but at a cheaper cost. Both claims are suspect. Arbitration offers fundamentally different and inferior justice to the court system. Nor is it clearly cheaper when one considers how court rulings, unlike arbitration, often preclude other litigation and the cost savings of class actions relative to individual arbitrations.

 

Indeed, if arbitration is so efficient, where do the cost savings go? Financial services companies do not appear to be passing the cost savings of arbitration on to consumers in general. When Bank of America, JPMorgan Chase, Capital One and HSBC dropped arbitration clauses as the result of a litigation settlement their prices did not go up. Nor did mortgage rates go up when Fannie Mae and Freddie Mac stopped buying mortgages with arbitration clauses or when Congress later banned arbitration clauses in mortgages. Binding mandatory arbitration for consumer financial contracts has no consumer welfare benefit.

Forced arbitration creates what Professor Levitin calls “bargain-basement justice.” 

Without the threat of answering for their actions in court, corporations are able to grant themselves a license to break the law and harm customers. This abusive practice allows corporations to evade accountability by sacrificing the rights of American consumers. The Consumer Financial Protection Bureau (CFPB) has the authority revoke banks’ license to steal. Over 18,000 Americans have signed an online petition asking the CFPB to stop forced arbitration. We urge you to join them and help us continue the fight against forced arbitration.

As Professor Levitin concludes, “Consumers should not be forced to accept bargain-basement justice, much less at retail prices.”