Forced Arbitration and the CFPB
This morning I’m studying up on the topic of forced arbitration clauses for my Slate Money podcast. That’s part of the fine print when you sign a corporate contract as a consumer or as an employee which states that you will not sue the company for bullshit they might pull, like unfair fees, no overtime pay, or even discriminatory practices.
What’s more, 90% of the time that “forced arbitration” clause is accompanied by an agreement that you also won’t be part of a class-action lawsuit, if by any chance you’d want to do something to address systemic injustice perpetrated by the corporation.
It’s a massively stacked deck; the calculation of how much it will cost, in terms of lawyers, versus how much you’d get if you won you case means that very few people choose the arbitration option. The arithmetic is particularly cruel since, once class-action suits are out of the way, you’re not even benefitting other people who will come after you and find the same shit being pulled.
And of those consumers or employees who do agree to arbitration, they often lose, partly because the actual arbitration process is much more favorable to corporate lawyers (which the other side has but you don’t) than a typical courtroom.
The process entirely depends on a arbitrator being fair and impartial but, believe it or not, the business in question chooses this person, and often for repeat business, which is to say they have at least indirect influence on the decision if the arbitrator wants more work.
So, here’s the good news. The CFPB has come out with strong rules this week which will render moot such forced arbitration clauses in the case of consumer financial lending products. This is great news, and well-needed, given how many of those contracts were flooded with such unfair fine print:
- credit card issuers 53%
- prepaid cards, 92%
- student loans, 86%
- payday loan 99%
- checking accounts 44%
However, it doesn’t address other kinds of consumer products, and employee situations, that will continue to have these fine print clauses:
- nursing home contracts
- for-profit college contracts
- employee contracts (22% of employees now sign such contracts)
To learn more, take a look at this fine report from the Economic Policy Institute.