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.
Even if an individual did pursue their claim in arbitration and win (which is highly improbable), they would likely only get a fraction of their claim and that would be the end of it. The company would not be made to change their practices, nor would anyone else with similar claims have any way to know someone else had succeeded in filing a claim against the company for similar grievances.
The dramatic increase in arbitration agreements over the past several years has left consumers powerless against unscrupulous companies who do whatever they like and then force their customers (and employees) to settle all disputes in individual arbitration. The practice has come under fire from senators, consumer advocacy groups, and judges of all political persuasions.
To finally try to put a stop to it (at least in the financial industry) the Consumer Financial Protection Bureau (CFPB), a nonpartisan office set up by the Obama administration in the wake of the deceptive mortgage lending practices that resulted in the Great Recession, has adopted a new rule to ban banks from including arbitration agreements in their customer contracts.
Needless to say, the Republicans, many of whom are in the pockets of large corporations, are strongly opposed to the new rule and have been looking for ways to get rid of the CFPB and they will likely try everything in their power to reverse the new rule before it goes into effect, or shortly thereafter.
But they might pay for it in the next election cycle. The CFPB’s new rule has widespread appeal and will definitely benefit consumers, despite Republicans’ assertions that on a case-by-case basis, consumers receive higher awards in arbitration than class actions. Of course, that fails to take into account the fact that most small claims never get filed at all when forced into arbitration.
Our Oak Brook, Illinois consumer rights private law firm handles individual and class action gift card, data breach, privacy rights, deceptive advertising, predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at Lubin Austermuehle are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.
Our DeKalb and Rockford consumer attorneys provide assistance in data breach, privacy violation, fair debt collection, consumer fraud and consumer rights cases including in Illinois and throughout the country. You can click here to see a description of the some of the many individual and class-action consumer cases our Chicago consumer lawyers have handled. A video of our lawsuit which helped ensure more fan friendly security at Wrigley Field can be found here. You can contact one of our Naperville and Lisle consumer protection, gift card and data breach attorneys who can assist in consumer fraud, consumer rip-off, lemon law, unfair debt collection, predatory lending, wage claims, unpaid overtime and other consumer, or consumer class action cases by filling out the contact form at the side of this blog or by clicking here. You can also call our toll free number at (833) 306-4933.