Wanta Thome PLC employment and consumer attorney Shawn Wanta was recently featured in a news story aired on Twin Cities NBC affiliate, Kare 11. The story, “Sen. Franken wages war against consumer contract clause,” focuses on a clause that is commonly written into consumer and employment contracts – often to the disadvantage of the consumer/employee.
These clauses, called pre-dispute arbitration agreements, can be found in a variety of consumer contracts including credit card, cell phone and internet service contracts, and private student loans. According to Wanta, “any relationship that a consumer has with a corporation or a company may have an arbitration agreement.” Once a contract is signed, pre-dispute arbitration agreements force a signee to resolve any dispute that may arise through private arbitration with the company, instead of through the civil court system.
While touted as a more efficient, cheaper means of resolving disputes by industry leaders, arbitration, as opposed to going to court, can be a blow to consumer rights for a variety of reasons. “You’ve given up your right to a jury trial,” said Wanta. “You agree to take your dispute and resolve it behind closed doors without the protections of an appeal.” On top of that, companies are able to set up an uneven playing field – selecting arbitrators favorable to them. More often than not, the only rules that apply in these situations are written by the companies themselves directly into the agreements. Additionally, the efficiency and cost-effectiveness plugged as a positive by industry leaders hasn’t proven to translate into savings for consumers.
According to a report by the Consumer Financial Protection Bureau, these agreements affect a large number of consumers, including 80 million consumers in the credit card market alone. However, given the large number of buyers affected by these agreements, consumers are largely in the dark when it comes to the knowledge of how they’re affected. The CFPD found that three in four consumers did not know if they were subject to an arbitration provision. Only seven percent of credit card contract signees realized that such a provision meant they could not sue their card issuer in court.
Additional findings by the Bureau concluded that arbitration clauses significantly adversely impacted class actions – with credit card issuers blocking 65 percent of class action lawsuits, and 90 percent of all arbitration provisions expressly prohibiting class arbitrations. Even when class arbitrations are allowed, they are highly unlikely to resolve favorably for consumers. (Only two disputes were filed with the American Arbitration Association between 2010 and 2012, neither of which resulted in a favorable resolution for consumers.)
Pre-dispute arbitration agreements are often found in employment contracts as well, particularly at large companies. According to Wanta, they are used “as a way to resolve disputes regarding discrimination, sexual harassment, retaliation, and whistleblower claims.” These clauses act as a shield for these employers, effectively preventing employees who have been mistreated or taken advantage of from suing employers.
Senator Al Franken has been a vocal opponent of pre-dispute arbitration agreements, and has introduced a piece of legislation called the Arbitration Fairness Act. The Act would prohibit the use of mandatory pre-dispute arbitration agreements in consumer and employment contracts, restoring consumers and employees their rights to make use of the court system.