The Federal Arbitration Act was created in 1925 to provide a faster, more efficient method for businesses of equal bargaining power to settle disputes between themselves without crowding the courts. The part about the parties needing to be of equal bargaining power is vital, especially since arbitration is private and was not designed to handle class-action lawsuits.
Unfortunately for consumers, arbitration clauses have started appearing in the fine print of their contracts with almost every provider: banks, websites, merchants, car dealers, credit card companies, even their employers. This means that every dispute someone has with a company has to be settled by arbitration, which is private, offers no written opinion on the matter (i.e. no explanation for the ruling), and is often biased in favor of the large companies that bring in lots of business for the arbitrator (although there are a few arbitration companies that are known for their fairness).
The reality is that individuals very rarely, if ever, have the same bargaining power as giant corporations with a team of attorneys at their disposal. In particular, arbitration agreements cripple individuals by preventing them from combining their claims into class actions. Since most individuals have small claims against corporations, class actions are the only method they have for justifying the costs of the lawsuit. If your bank charged you $100 dollars in illegal fees and filing a lawsuit costs $2,000 to hire an attorney and pay for court costs, no reasonable person is going to pursue the matter. They’d rather let it drop, which lets the bank continue to illegally collect thousands of dollars from hundreds of customers who don’t have any way to redress the wrong. Continue reading