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March 7, 2017

Public Citizen Commends Legislation to Curb the Use of Forced Arbitration ‘Rip-off Clauses’ and Ensure the Right to Fight Back Against Corporate Wrongdoing

WASHINGTON, D.C. – Public Citizen commends lawmakers for introducing several bills today to limit corporations’ use of forced arbitration to block harmed consumers, service members, students and workers from challenging illegal behavior in court.

Among the bills introduced today are U.S. Sen. Al Franken’s (D-Minn.) Arbitration Fairness Act, which would prohibit forced arbitration in consumer, employment, civil rights and antitrust cases; Sen. Sherrod Brown’s (D-Ohio) Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge; and Sen. Patrick Leahy’s (D-Vt.) Restoring Statutory Rights Act, which would exempt civil rights claims and other statutory causes of actions from forced arbitration.

“Over the past decade, large corporations have converted the fine print in standard form contracts into an effective license to steal. Companies have discovered that these rip-off clauses let them commit egregious wrongs and escape any accountability,” said Lisa Gilbert, vice president of legislative affairs for Public Citizen. “If passed, the legislation introduced today would restore the rights of everyday Americans to challenge illegal behavior in court – often the last line of defense against corporate abuses.”

Corporations bury these “rip-off clauses” in the fine print of take-it-or-leave-it contracts to block consumers from challenging predatory practices and illegal behavior.

In forced arbitration, consumers, service members, students and workers lose the right to argue their case before an impartial judge and jury, and they have little opportunity to present evidence or appeal a bad decision. Rip-off clauses often also block people with similar injuries from joining together in class-action lawsuits and can even bar them from talking about what happened – allowing corporations to keep widespread fraud and abuse under wraps.

The legislation introduced today would bolster existing federal regulations, including a rule proposed by the Consumer Financial Protection Bureau (CFPB) to restrict the financial industry’s use of forced arbitration, expected to be finalized in the spring; the U.S. Department of Education’s borrower defense rule; and the Centers for Medicare & Medicaid Service’s regulation protecting nursing home patients.

“In line with overwhelming evidence that forced arbitration kills small-dollar claims, the CFPB rule would restore customers’ ability to join together to challenge widespread fraud in class-action lawsuits,” said Amanda Werner, campaign manager for Public Citizen and Americans for Financial Reform. Last month, 310 groups sent a letter applauding the proposed rule and urging the agency to finalize it as quickly as possible.

The bills introduced at today’s press conference include:

  • The Arbitration Fairness Act, which would prohibit the use of mandatory, pre-dispute arbitration agreements in consumer, employment, civil rights and antitrust cases;
  • The Restoring Statutory Rights and Interests of the States Act, which would ensure that mandatory arbitration clauses cannot be interpreted to pre-empt civil rights claims or other statutory causes of actions;
  • The Court Legal Access and Student Support (CLASS) Act, which would prohibit an institution of higher education from receiving Title IV federal student aid funding if the school’s enrollment agreement requires mandatory arbitration or otherwise restricts students’ ability to pursue claims against the school in court. Because legitimate non-profit colleges and universities do not include mandatory arbitration clauses in their enrollment agreements, this legislation’s impact is squarely focused on those schools that seek to profit from their students while hiding from accountability in a court of law;
  • The Mandatory Arbitration Transparency Act, which would invalidate and prohibit mandatory pre-dispute arbitration agreements that require the parties to the arbitration to keep matters surrounding the arbitration process confidential. This bill would prevent companies from sweeping malfeasance under the rug, and therefore endangering the public, by forcing plaintiffs into secret proceedings hidden from other potential victims and from the public;
  • The Justice for Servicemembers Act, which makes unenforceable any pre-dispute agreement to arbitrate a claim under the Uniformed Services Employment and Reemployment Rights Act (USERRA). That law prohibits employment discrimination against servicemembers and veterans, and makes other changes to help plaintiffs enforce USERRA’s protections; and
  • The Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by clarifying that forced arbitration clauses do not apply to checking and credit card accounts fraudulently opened without a customer’s consent.

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