Federal consumer protection laws at stake in upcoming Supreme Court arbitration case
The U.S. Supreme Court may be about to take a bad situation for consumers and make it worse. In a case it recently agreed to hear called American Express Co. v. Italian Colors Restaurant, the court will again decide to what extent corporations can force consumers to sign away their right to access the courts. The decision will impact whether consumers will be able to go to court to enforce federal laws meant to protect them.
Under binding mandatory, or “forced” arbitration – the language in many employment and consumer contracts (think cell phone, credit card, checking account, e-commerce and cable contracts, to name a few) requiring consumers to resolve disputes in arbitration proceedings instead of in court – consumers are steered into a private, corporate-run system that lacks oversight and where none of the safeguards of our court system are guaranteed.
Forced arbitration has become a recurring topic at the High Court, and the pro-arbitration decisions have reinforced corporate power while diminishing consumers’ legal rights. Specifically, the court has expanded the meaning of a federal law, the Federal Arbitration Act (FAA), to broadly permit forced arbitration and restrict consumers’ and employees’ ability to sue a company for wrongdoing, individually or in a class action.
A recent decision, for example, was a severe blow to consumer rights. In AT&T Mobility v. Concepcion, the Supreme Court permitted businesses to include language in their consumer and employment contracts that would force consumers to resolve disputes with the respective business in individualized arbitration. Businesses could ban class actions. According to the court, the FAA trumped principles of California law that effectively had prohibited most bans on class actions in contracts.
Ironically, the parties subject to forced arbitration in the upcoming American Express case are businesses, not consumers, but the effect of the provision is quite similar. The businesses, California and New York corporations, are merchants that accepted American Express charge cards as payment. As part of their contracts with American Express and other credit card companies, they agree to pay a fee to the card company on each transaction.
American Express merchant fees are significantly higher than other companies’ because its traditional charge cards (where customers paid the balance in full) appeal to affluent customers and businesses that cater to them. In recent years, American Express increased the availability of mass-market credit cards (which permit partial monthly payments), but its merchant fees did not decrease. According to American Express’s contract terms, merchants are required to accept all American Express cards. As a result of these terms, merchants’ only choice is between declining American Express cards altogether or accepting all of the company’s cards.
The merchants filed a class action lawsuit asserting that American Express’s practice violated federal antitrust laws. However, the contracts also contained a forced arbitration clause and class action ban. The merchants submitted evidence to the court showing that individual arbitration would be prohibitively expensive, and that the class action ban would deny them the opportunity to “vindicate their rights” under the federal antitrust statutes.
A federal appellate court agreed with the merchants. It held that the class action ban was unenforceable because it would grant American Express immunity from antitrust liability “by removing the merchants’ only feasible means to recover damages,” and they would be unable to enforce their rights under the federal statutes.
The Supreme Court will hear this case to decide whether class action bans can be struck down when parties cannot enforce their rights under federal statutes. Based on the court’s history, the prognosis for consumers is doubtful. The court could further broaden its interpretation of the FAA in a way that would effectively deny parties the ability to enforce their federal statutory rights. This possibility means consumer rights under federal consumer protection laws, such as the Truth in Lending Act, the Fair Debt Collection Practices Act, the Home Owners Equity Protection Act, the Consumer Leasing Act, the Credit Repair Organizations Act, the Fair Credit Reporting Act and employment laws against discrimination based on age, sex, religion, race, disability and unequal pay for equal work, such as the Civil Rights Act and the Equal Pay Act, are at risk of extinction.
It is up to Congress to ensure that its laws can be properly enforced by passing legislation to eliminate forced arbitration clauses from consumer and employment contracts.
Urge your members of Congress to eliminate forced arbitration clauses from consumer and employment contracts.
Christine Hines is Public Citizen’s consumer and civil justice counsel. Follow her on Twitter @CHines_Citizen