By Craig Sandler, Program Associate, Congress Watch
When a fox seeks to guard the henhouse, it may try to convince the hen that this arrangement is in the hen’s best interest.
This could be observed recently when JPMorgan Chase spokeswoman Mary Jane Rogers defended the bank’s reintroduction of a forced arbitration clause to its terms of service, claiming that “[a]rbitration is often faster, less expensive and provides better outcomes for our customers.” In other words, the bank’s stance is that arbitration is more beneficial to consumers than litigation, so consumers ought to feel grateful for Chase’s benevolent change to its cardholder terms & and conditions. This claim does not hold up to either scrutiny or evidence. And, no one should be forced into a resolution forum before a dispute has even happened; consumers should be able to choose to go to court to vindicate their rights.
.@JPMorgan Chase recently inserted forced arbitration clauses in their contracts to try to prevent consumers from having their day in court. This practice is wrong, it’s unjust, and it must end. I’m calling on them to rescind this exploitative provision.
— Kamala Harris (@SenKamalaHarris) June 7, 2019
Forced arbitration clauses, which are usually hidden in the fine print of “take-it-or-leave-it” agreements, are ubiquitous in contracts like those governing bank accounts, student loans, cell phones, employment, small business merchant accounts, and even nursing home admissions. These clauses deprive people of their right to seek justice in court before an impartial judge or jury.
Opt-out provisions rarely provide real protections for consumers because opting out procedures are generally onerous or time consuming. For example, a recent paper on forced arbitration found that only two out of thousands of Grubhub drivers opted out of forced arbitration after an opt-out clause was included in their employment contracts. As for Chase, they are requiring customers to opt-out of its arbitration clause out before August 9 by sending a letter to Chase containing sensitive personal information. Chase is seemingly operating on the assumption that few consumers have the time or technical knowledge to understand the impact that forcing them into arbitration could have on them. There is overwhelming consensus that arbitration provides worse outcomes for consumers, not better ones. In fact, a recent study analyzing almost 9,000 arbitration claims involving financial firms found that private arbitration is a system rigged in favor of businesses at the expense of customers.
Forced arbitration clauses are attempts by companies to move claims of wrongdoing out of the court system, with its impartial judges and juries, and into their home territory: a private arbitration system largely under their control. Companies routinely pick the same arbitrators, a practice which incentivizes arbitrators who want to be tapped for future work to side with industry. Companies also have far more experience in arbitration than consumers, giving them a significant advantage by virtue of knowing the specialized rules of the game. And, arbitration may be required to be carried out in cities far from a customer’s home town, adding further costs.
In contrast, according to the Economic Policy Institute, consumers fare far better when they can band together in a class action instead of being forced into arbitration. For example:
- “At least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data.
- Consumers recover at least $440,000,000 in class actions, after deducting all attorneys’ fees and court costs—compared with a total of $86,216 in arbitration.”
Notably, Chase removed a forced arbitration clause from its credit card terms of service in 2009 as part of the bank’s public relations efforts to restore its image in the wake of the 2008 financial crisis. Now, it seems, the bank believes that fewer consumers are paying attention, which will allow them to quietly restore this predatory practice without anyone noticing. Unfortunately for them, Public Citizen and many others have taken notice.
Even if Chase gets away with carrying out its shameful move, Congress must act to protect all consumers’ right to their day in court. The Forced Arbitration Injustice Repeal Act, or FAIR Act, would prohibit companies from forcing consumers, workers, and small businesses into using arbitration before a dispute has even occurred. And the public supports banning pre-dispute arbitration—according to a recent survey, more than 80 percent of both Republicans and Democrats support ending the practice of forcing workers, consumers, and small businesses into arbitration.
It’s time to put an end to predatory forced arbitration practices. Contact your members of Congress today and tell them to support the FAIR Act and ensure that the courthouse doors are reopened for all Americans to seek justice when harmed.