There’s a lot going on in this country. Puerto Rico is experiencing a massive and worsening humanitarian crisis. The president is fighting with NFL stars. Millions are still scrambling to protect themselves in the aftermath of Equifax’s massive data breach.
But none of that has slowed the Republican Party in its quest to roll back an incredibly important consumer protection. Perhaps betting that with all eyes on other news items, and that few even know what the issue means, its leaders are whipping votes to repeal a rule that would ban forced arbitration. A vote could happen anytime this week.
It sounds arcane, but arbitration has twisted the justice system over the last quarter-century. These clauses, added deep into the fine text of consumer user agreements or employment contracts, forbid signees from directly suing companies for wrongdoing. Instead, it pushes them into a private arbitration process outside of a courtroom and away from the media spotlight and public scrutiny.
It was once illegal, but Congress passed a law in 1925 clearing the way for the use of arbitration mainly in contractual disputes between businesses. In the 1980s, the Supreme Court expanded the scope of that law to apply to virtually any dispute. Today, according to a newly released report from the Economic Policy Institute, more than 55 percent of nonunion, private-sector employees are bound by arbitration clauses. About 16 percent of credit card agreements, 86 percent of private student loan contracts, and 87.5 percent of mobile wireless provider agreements include one. But most people, whether they’re shopping or onboarding at a new job, don’t even realize they’re signing them.
This shift has handed corporations far more power and deprived people of their day in court. Defenders of arbitration argue that it’s a faster and easier way to resolve disputes. But corporations often hand-pick the arbitrators who decide the merits of a complaint, and although only about 60 percent of consumers come with lawyers, companies are always represented. There is no appeal if a customer or employee disagrees with the outcome.
The odds are stacked against everyday people. Employees pushed into arbitration are about 60 percent less likely to win as those who take their case to state courts. The payouts, if they do prevail, are also lower: The average arbitration outcome is just 7 percent the size of those in state court. In one case study of a consumer complaint, debit cardholders who were able to join a class action lawsuit collectively secured $1 billion in cash relief; those who weren’t allowed to join the lawsuit or opted out and went into arbitration, by contrast, got no relief at all.
In 2014, President Obama signed an executive order aimed at cracking down on arbitration in employment contracts by banning them for large companies that contract with the federal government. Then the Consumer Financial Protection Bureau stepped into the breach in early 2016 and issued a proposed rule to ban arbitration clauses from all consumer agreements. The rule is set to go into effect next March. That’s what has sparked the Republican Party’s scurry to vote against the CFPB’s rule: It’s trying to stop something that’s widely popular before it takes effect. Three-quarters of voters support a bank customer’s right to take a complaint to court, rather than be forced into arbitration.
The GOP is also pushing to hold a vote before two Senate hearings next week that could shine a spotlight on arbitration. Executives from Wells Fargo, which has tried to block lawsuits over its fake account scandal thanks to arbitration clauses in its contracts, and Equifax, which came under fire for an arbitration clause in the free credit monitoring product it offered after its data breach, will testify. That could make it a lot harder to defend a vote against a ban on these very clauses.
The House has already voted in favor of scrapping it, but the arbitration rule repeal is still flying under the radar. Now we’ll see if the Senate can get it through before anyone picks up on what’s going on.
