Arbitration is a process in which a private firm is hired to settle a dispute without going to court. It was designed as a voluntary alternative to litigation among corporate equals. It has been twisted today into a tool by powerful corporations to force consumers and employees to surrender their right to hold corporations accountable for wrongdoing before an impartial court.
Forced arbitration clauses routinely are inserted into the fine print of contracts that people must sign to buy a product or service or get a job. Spotify uses forced arbitration—a fact AFJ was prohibited from advertising on the service. Five of the largest banks in the country, PNC, Wells Fargo, JPMorgan Chase, Citigroup and US Bancorp, all use it. A recent petition signed by more than 100,000 consumers and activists called on them to end the practice. And many popular online services—Instagram, Snapchat, and Amazon, for example—all use it as well.
Under forced arbitration, individual consumers or employees must fight it out before a private arbitrator essentially chosen by the company that cheated or discriminated against them. Arbitrators do not need to be lawyers or follow precedent, yet their word is nearly always final and unappealable.
Facing off against a corporation in arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires. So it’s no wonder a recent study by the Consumer Financial Protection Bureau (CFPB) found that financial corporations win 93% of the claims they bring against consumers in arbitration.
In addition, nearly all forced arbitration clauses ban class-action suits, which allow individuals to band together to bring their common claims against big corporations. Without the ability to band together, individual claims are often too small to justify the costs of litigation, allowing unscrupulous companies to do small amounts of harm to a large number of people without consequence. The CFPB’s study found that only 25 consumers file a claim in arbitration worth less than $1000 each year. On the other hand, the Bureau found that class actions over a five-year period resulted in $2 billion in awards to 160 million class members. The alternative to class actions isn’t individual arbitration. It’s no litigation at all.
As we said in our 2013 report, Arbitration Activism, the arbitration system gives corporations “a free pass to break the law.” In keeping with its ongoing deference to corporate special interests, the majority on the U.S. Supreme Court has effectively rewritten federal law, issuing decision after decision helping big business make the most of that free pass.
Yet, despite its prevalence, consumers are generally unaware that they have given up their rights in the fine print. The CFPB’s study found that less than seven percent of consumers with forced arbitration clauses in their credit card terms knew they could not sue the issuer in court.
Arbitration is spreading to employment contracts, threatening to make it nearly impossible for workers to sue over race, sex, or age discrimination. It is also appearing in contracts between small businesses and their corporate suppliers.
When it comes to how workers fare in employment disputes, one study found that “[o]utcomes in arbitration are starkly inferior to outcomes in litigation.” Even a lawyer who specializes in representing employers says “there’s no question that [arbitration] favors the company’s interest over employees.”
- Read Nan Aron’s op ed in U.S. News & World Report, Fighting Back Against the Fine Print
- Read AFJ’s comments to the CFPB in support of their proposed rule to ban class action waivers in forced arbitration clauses
- Read AFJ’s comments to the Centers for Medicare and Medicaid Services urging them to ban forced arbitration in nursing home contracts
- Watch our film on forced arbitration, Lost in the Fine Print.
- Read our blog about American Express and forced arbitration.
- Many of these problems would be solved by legislation, the Arbitration Fairness Act.
- Read Nan Aron’s op-ed on forced arbitration and the CFPB.
- Read AFJ’s letter urging the CFPB to prohibit forced arbitration.
- Read the Washington Monthly’s in-depth story about the history, and harm, of forced arbitration
- Read the Orange County Register’s story on the effect of forced arbitration.
- Read the New York Times 3-part series on forced arbitration, “Beware the Fine Print,” which was inspired in part by our film, Lost in the Fine Print.