Forced Arbitration: How Corporations Bully Americans
It’s estimated that as many as half a billion forced arbitration clauses are buried in the fine print of everything from credit card agreements, bank accounts, student loans, children’s breakfast cereals, even Starbucks gift cards. Most of us are unaware we’re subject to these provisions, or what exactly we’ve given up. In fact, a comprehensive study released by the Consumer Financial Protection Bureau (CFPB) in 2015 found that 79 percent of consumers whose credit card companies required arbitration didn’t know there was a forced arbitration clause in a consumer contract. Even then, the vast majority of consumers who had heard of arbitration wrongly believed that it referred to a negotiated outcome — like mediation — rather than the decision of a third party arbitrator.
In reality, forced arbitration is nothing like mediation. There is no right to go to court, no right to a jury, no right to a written record, no right to discovery, no legal precedents to follow, not even a guarantee that the arbitrator have any legal expertise. As the CFPB concluded, without such checks and balances, the deck is stacked heavily against consumers. In addition to the Bureau’s 728-page report (PDF), AAJ has put together our own analysis — Forced Arbitration: How Corporations Use the Fine Print to Bully Americans — highlighting not only the most critical need-to-know points of the CFPB report and other research, but also pulling back the curtain on which special interests are pushing to strip Americans of their fundamental right to their day in court (hint: think Wall Street banks).
What’s clear from all the research is that forced arbitration puts consumers at a huge disadvantage in disputes with corporations. The CFPB analysis found that consumers were successful just 20 percent of the time in forced arbitration, and the few consumers who “won” received an average of only 12 cents for every dollar they claimed. In stark contrast, winning corporations received 98 cents per dollar. And that was the best case scenario for consumers. In some areas, such as student loan disputes, the odds of beating a corporation are almost insurmountable.
Part of the reason for this imbalance is what’s known as the “repeat player problem.” Consumers tend to have no experience navigating the ins and outs of arbitration, whereas corporations are often frequent users. And the arbitrators themselves often give in to the pressure to favor the corporations that make up their repeat client base. According to the CFPB, corporate repeat players dominate arbitration, making up 84 percent of filings. Consumers facing a corporate repeat player are 79 percent less likely to win than if they faced a corporation with little to no arbitration history.
The more Americans learn about forced arbitration, the more they disapprove of this corporate bullying tactic. Even among those who initially favor arbitration, the vast majority (80 percent) find it unacceptable once they find out what it involves. That’s why it’s so important to learn more.