As we noted last year, the Consumer Financial Protection Bureau ("CFPB") has been given Congressional authority to trash mandatory arbitration clauses in consumer contracts for financial products and services, such as automobile loans, credit cards and checking accounts. The Act explicitly empowers the CFPB to adopt regulations that "prohibit or impose conditions or limitations" on the use of arbitration agreements if it finds doing so to be "in the public interest and for the protection of consumers." The CFPB is expected to announce the results of the second phase of its study early this year. The second phase of the CFPB's study is expected to address a number of areas, including: whether consumers are satisfied with arbitration; whether consumers are aware of or have read the terms of arbitration clauses and whether arbitration clauses influence consumers' decisions about which consumer products to purchase.
Late last year, the CFPB issued its phase one findings, which indicated consumers very rarely invoke arbitration and prefer class-action proceedings. The study further indicated that the use of arbitration agreements was rampant and potentially abusive to consumers.
The abusive nature of arbitration clauses and the need for the CFPB to act was exemplified in a recent decision by the Missouri Court of Appeals. Therein, an 88-year-old “neighborhood staple," Kenny Johnson, rented a refrigerator from Rent-A-Center. After servicing the refrigerator twice, an alleged Rent-A-Center representative came to Mr. Johnson’s home for a third time and beat him, gashed his head and robbed him. He wasn’t discovered for three days. The assailant has been criminally charged.
In the fine print of the “agreement” the consumer had to sign to rent the refrigerator was a forced arbitration provision. The forced arbitration provision says that the arbitrator, not a court, will decide when the arbitration clause applies. Here, the consumer argued that he went to Rent-A-Center to get a refrigerator, not to be beat or robbed.
Too bad, the court says. Listing some very pro-corporation U.S. Supreme Court decisions, the Missouri court holds that it has to enforce the arbitration clause, and let the arbitrator decide whether the dispute over a physical assault is covered by the consumer’s contract about renting an appliance. In fairness to the Missouri Court of Appeal, it directly stated that it was bound to follow a U.S. Supreme Court decision, “regardless of whether we agree with the reasoning expressed therein.”
Of course, the consumer now must deal with the bias of the arbitrator, who is paid by the hour. If the arbitrator finds that the case can’t be arbitrated, he or she only gets paid for an hour or two. If the arbitrator finds that the case can be arbitrated, he or she can bill for many hours.
These mandatory arbitration clauses are buried in the fine print of consumer finance, employment, cell phone, credit card, retirement account, and nursing home contracts. Just by taking a loan, a job or buying a product or service, consumers without warning are forced to give up their right to go to court if they are injured by a company. Make no mistake the private system of forced arbitration benefits companies - and disadvantages consumers and employees. In arbitration, there is no publicly accountable judge, jury, or right to an appeal. The arbitrators are not made to follow the facts or the law, and there is no public review of decisions to ensure the arbitrator got it right. Moreover, contracts typically name the arbitration firm that must be employed. That arbitration firm is typically one preferred by the company. These arbitrators have an incentive to favor the company, as they want to continue to be given repeat business by them.
Most importantly for corporate America, arbitration is now being used to legitimize broad class action arbitration waivers in all types of consumer agreements, including consumer finance contracts. The practical effect is that companies now use forced arbitration clauses to eliminate the ability of consumers to band together, which is often the only means for consumers to vindicate their rights.
Bordas & Bordas welcomes action by the CFPB, but is by no means waiting on it. Bordas & Bordas has successfully beaten back numerous arbitration clauses forced on its clients by banks, creditors, cell phone companies, nursing homes and employers, allowing its clients to proceed in a public court. Despite the increasing number of bad court decisions enforcing arbitration, those of you who have been harmed by corporate America should not assume that these shocking arbitration clauses are valid and are welcome to contact us to discuss your rights.