AFJ Justice Programs Director Michelle Schwartz testifies today at a public hearing in Newark, N.J. on forced arbitration. The hearing was called by the Consumer Financial Protection Bureau. CFPB released a study of forced arbitration today – and CFPB has the power to prohibit the practice. This is Schwartz’s testimony:
My name is Michelle Schwartz, and I am Director of Justice Programs at Alliance for Justice. I was born and raised in nearby Livingston, and I was Senator Lautenberg’s Deputy Chief of Staff, so I’m very happy to be with you here in Newark.
On behalf of Alliance for Justice’s more than 100 member organizations working for a fair and just society, thank you for conducting this comprehensive study of forced arbitration. The study confirms what we have long suspected—forced arbitration allows companies to evade accountability when they wrong consumers.
Alliance for Justice recently released a short documentary, Lost in the Fine Print, that demonstrates the harm forced arbitration causes for everyday Americans.
It tells the story of Debbie Brenner, who was cheated by a for-profit college that took her student loan money, but failed to live up to its promises of quality instruction and job placement. When Debbie and her fellow students tried to sue, they were forced into arbitration because of a clause in their enrollment form they never read and certainly didn’t understand. In fact, a recruiter for the college admitted even he didn’t understand what the clause meant. But that didn’t stop an arbitrator from deciding the case against the students—and ordering them to pay hundreds of thousands of dollars for the school’s legal fees.
Lost in the Fine Print also tells the story of Nicole Mitchell of West New York. Although Nicole’s case dealt with employment discrimination, her experience was instructive for all who face forced arbitration. The arbitration was conducted in secret, Nicole never even got to meet the arbitrator who decided her fate, and she can never appeal.
Debbie and Nicole were unusual in that they ever even went to an arbitrator. As your study shows, the vast majority of wronged consumers never make it that far. Often, that’s because the amount they could possibly recover for the real harm they’ve suffered pales in comparison to the cost of bringing an individual arbitration.
That was true for Alan Carlson, whose story we also tell in our film. Yet the Supreme Court upheld American Express’s forced arbitration clause when Alan tried to sue over unfair credit card fees. The Court did so even while acknowledging that nobody in their right mind would actually bring an individual arbitration over the loss Alan suffered—essentially immunizing companies like American Express.
I’ve shown our documentary everywhere from national conferences to law school classrooms to tenant association meetings. Every time, I get two reactions: First, people can’t believe they didn’t know about forced arbitration. And second, they want to do something about it.
This study will go a long way to educating more people about this pernicious practice. But even more importantly, you have the power and obligation to actually do something about it by prohibiting forced arbitration for all consumer financial products. On behalf of all our members, we urge you to do just that without delay.