Arbitration Clauses: Why Suing Large Companies is Difficult

A recent study found that 81 of the top 100 companies in America have clauses in their customer agreements that force legal claims to air their legal grievances in arbitration – and typically only after signing a non-disclosure agreement and waiving their right to appeal. In May 2019, JPMorgan Chase joined the consumer-unfriendly trend when it informed all of its credit card customers that they could no longer sue the company in court. The bank previously mandated arbitration for its bank account and insurance customers. Imre Szalai, a professor of social justice at Loyola University, said the move by JPMorgan Chase is part of a larger trend denying consumers the right to litigate their legal claims in court. “The ability to access the courthouse is disappearing for American consumers, Szalai said, citing his own research on the subject of mandatory arbitration clauses.

Mandatory arbitration clauses are often included in the “Terms of Service” that many consumers blindly sign when signing up with a company. This can harm the consumer because arbitration severely limits the rights of consumers. Typically, arbitration allows more limited evidence to be presented, can cap the amount of damages a person is awarded, and usually requires both parties to sign non-disclosure agreements and give up their right to appeal any decision. Therefore, companies with mandatory arbitration clauses benefit from not only having their legal matters resolved quicker but they can also avoid any public relations fiasco by keeping customer’s complaints quiet.

Even if consumers did take the time to read the lengthy legal forms required to open a credit card and understood the legal rights they would give up, consumer advocates say it would not change the fact that companies offer their products and services on a “take it or leave it” system where the consumer has no opportunity or ability to negotiate. With the majority of companies using mandatory arbitration clauses (one study found that 60 percent of online sales are covered by arbitration agreements), consumer advocates worry that the ability to dispute legal issues against a company in the federal courts may become impossible for Americans.

Politicians appear to notice the growing problem of mandatory arbitration clauses. Former President Obama outlawed mandatory arbitration clauses in nursing home contracts, although that measure was repealed under President Trump. Earlier this year, CNBC reports that two Democratic lawmakers introduced the Forced Arbitration Injustice Repeal (FAIR) Act, that would have addressed the problem. While the FAIR Act died in committee, a more narrowly tailored bill that would invalidate mandatory arbitration clauses for members of the military appeared to have bipartisan support. Federal courts have also stepped in to address the problem. CNBC reports that federal courts are more likely to strike down mandatory arbitration clauses in recent years.

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