Fighting Back Against the Fine Print

This article by Nan Aron originally appeared in US News & World Report

Have you ever actually read the fine print in one of the countless agreements, contracts, or terms of service that you casually consent to virtually every day? Do you know what you’re agreeing to when you hit those ubiquitous “agree” buttons or sign a contract to get a loan or a cell phone?

If the answer is no, join the club. Virtually no one does.

But buried inside that dense, tiny text is a stealth weapon aimed directly at your fundamental rights. That weapon is known as forced arbitration.

If you have a dispute with a company that requires forced arbitration, you’ll find yourself trapped in a privately-run system that exempts corporations from having to resolve disputes on the level playing field of the courts.

Instead, this is what you’ll encounter:

You’ll be required to take your dispute to a private arbitrator who is picked by the same company with which you have the complaint. (Spoiler alert: they like to be rehired.) The arbitrator won’t be required to follow precedents or standard procedures. The arbitrator’s decision will be final; it can’t be appealed. Often, if you lose — which statistics show you will almost all of the time — you have to pay large fees to the very company that has wronged you.

Forced arbitration is a rigged game.

Nowhere is forced arbitration more prevalent than in the contracts for consumer financial products, such as credit cards, bank accounts, and mobile wireless agreements. These are services many of us can’t live without. But if you have a dispute with your bank, you’ll find yourself fighting in a very unfriendly arena.

Worst of all, the fine print also prohibits you from joining with other people with similar disputes. You are explicitly banned from filing a class-action lawsuit in court. That means you’ll be forced to go up against the corporation alone, one-on-one, in a system that places you at a significant disadvantage.

Let’s say a bank has been manipulating transactions in your checking account to maximize overdraft fees. They might charge millions of customers $30 apiece, and rake in enormous profits. You and your fellow customers swallow the charges, because you can’t afford to fight over an amount so small. And therein lies the true price of the class-action ban. Ultimately, it creates a perverse incentive for companies to engage in such manipulations, because there is little risk of a serious challenge.

But help may be on the way. The Dodd-Frank Act required the Consumer Financial Protection Bureau (CFPB) to conduct a study on arbitration in the financial services sector. That study is complete, and to no one’s surprise, it found that not only is forced arbitration widespread, but it’s also extraordinarily unfair to consumers.

The report found that no one truly knows what they have agreed to in fine-print agreements. And, not surprisingly, very few people pursue claims in individual arbitration. Each year only 25 consumers file claims worth under $1,000, and over a three-year period, only 32 times did a consumer win relief.

But, importantly, the CFPB also found that class-action lawsuits are very effective in providing consumer relief. In the case of the manipulative overdraft policies, for instance, the Bureau found that consumers who still had the right to go to court as a class got refunds totaling hundreds of millions of dollars, while those with enforceable class-action bans got absolutely nothing.

That’s why the CFPB has proposed a new rule that will prohibit financial services companies from including provisions in their fine-print agreements that prevent class-action lawsuits. It’s a good start toward unraveling the growing stranglehold that forced arbitration has on consumer rights. Between now and August 22, consumers can contact the CFPB, during its public comment period, to tell regulators to take this step.

In recent days, more than 100 members of Congress and the Senate signed on to two letters supporting the proposed rule. The CFPB should adopt the rule, end the class-action ban, and restore the fundamental principle that there is one set of laws for everyone. It’s the right thing to do, and will send a vital message about the importance of consumers’ rights.

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