WASHINGTON, DC - In the wake of two U.S. Supreme Court rulings in the past three years, consumers, workers and others harmed by unfair fine print in contracts are increasingly being shut out of the courthouse, a new Public Citizen and National Association of Consumer Advocates (NACA) report shows.
The report identifies 140 cases affecting thousands of consumers or employees over the past three years where a court enforced an arbitration clause and barred the claimants from participating in class actions. A Pennsylvania federal court last December enforced an arbitration clause and class-action ban against restaurant employees who sought redress against their employer for allegedly underpaying them. The court called its own ruling "lamentable" and "an unappetizing result." But it felt compelled to follow the law set by AT&T Mobility v. Concepcion in 2011 and American Express v. Italian Colors in 2013.
Concepcion tipped the scales toward big corporations by permitting companies not only to require consumers to go to private, secretive arbitration instead of court, but to include language in the arbitration clause to ban class-action lawsuits. Class actions are often the only way people can afford to seek compensation for small claims against big companies. Italian Colors further benefited big corporations by holding that they can force small businesses and individuals into arbitration even when they have proven that they will not be able to vindicate their rights through individual arbitration.
Consumer and employment lawyers report learning of cases with merit where corporations likely violated consumer protection and employment laws but cannot help potential clients because the claims involve contracts with arbitration clauses and class-action bans.
"These unfair fine print terms are being used as shields to block claims and to enable reckless corporations to avoid taking responsibility for misconduct," said Christine Hines, consumer and civil justice counsel of Public Citizen's Congress Watch division and co-author of the report. "Thousands of claims of consumer and employment harm are being directed into secret, individual arbitration to resolve disputes, where corporations know their customers and employees are not likely to go."
To mark the three years since Concepcion, the report, "Cases That Would Have Been," highlights three cases that, because of forced arbitration clauses, could not be pursued by consumers and employees who were harmed by alleged corporate misconduct:
- A potential class action against auto financing companies, CitiFinancial Auto Corp. (CitiFinancial) and Santander Consumer USA, to pursue alleged claims of unlawful add-on charges to auto loans.
- A potential class action against CarMax by former employees for allegedly failing to pay them earned wages for the full amount of time they worked, in violation of Section 16(b) of the Fair Labor Standards Act.
- A potential class action on behalf of a Missouri customer and other consumers against broadband service provider CenturyLink, seeking to challenge the legality of CenturyLink's "Internet Cost Recovery Fee."
"When consumers and workers lose the ability to join collectively in a court of law, thousands of valid claims will likely go unheard," said Ellen Taverna, legislative director of NACA and co-author of the report. "Concepcion and other recent Supreme Court decisions have slammed a wrecking ball through consumers' and workers' right to seek redress when corporations violate the law."
In large part due to Concepcion and Italian Colors, companies are increasingly adding arbitration clauses to contracts. Americans are subjected to forced arbitration clauses when they buy a cell phone or credit card, start a new job, enroll their children in camps and even admit a family member into a nursing home.
Most recently, General Mills was in the hot seat when it added an arbitration clause that would deprive customers who used its website of the right to sue to settle a dispute. Although the public uproar was enough to make General Mills drop the egregious terms, many other big-name corporations impose similar requirements on their customers and employees.
The report lays out two regulatory and legislative solutions:
- The Consumer Financial Protection Bureau (CFPB) has the authority to ban forced arbitration clauses in certain types of consumer financial contracts after it studies the issue. When the study is complete, the CFPB should eliminate forced arbitration clauses from all consumer financial service contracts under its jurisdiction.
- To address all other industries that use the contract terms against consumers and employees, Congress should pass the Arbitration Fairness Act, which would bar forced arbitration in employment, consumer, antitrust or civil rights disputes.