Monday, November 2, 2015

Arbitration Clauses Everywhere - Where Are Better Options For Consumer Justice?

 Lady Justice at Alexandria, VA Federal Courthouse / Dan4th Nicholas, CC BY 2.0

The New York Times had an excellent piece yesterday about some of the problems with mandatory arbitration clauses.  For example, the agreement for your credit card probably requires you to take any dispute you have about the credit card company's actions to a "neutral" arbitrator and forecloses you from going to court.  So even if the credit card company illegally loads a bunch of fees onto your bill, you can't take them to court.

Three thoughts inspired by the piece:

1. Consumer contracts and corporate employment contracts have grown increasingly chock full of mandatory arbitration clauses for more than 10 years.  This isn't a new phenomenon, but it's still deserving of coverage.

2. The following is largely speculation based on my own experience representing consumers [and tenants] in court.  I'm not sure whether there have been any studies of actual court data to examine these questions.

Even in cases not barred by arbitration clauses, lower-level county courts (where consumer defense cases are usually tried) also tend to have pro-business bias.

This occurs in part because:

a) The laws they're applying tend to have a pro-business bias - even in "liberal meccas" like Washington state.

b) More lower court judges than not seem to assume that large corporations (including credit card companies) have fleets of high-priced (and thus super-genius) attorneys who help them make sure everything they do is at least *barely* legal.  They don't - more than a few of them engaged in pretty egregious limit-lowering and fee-loading behavior when the economy tanked, in some cases resulting in effective interest rates (APRs) in excess of 100%.  This was clearly in violation of federal law.  But because regulations implementing those statutes didn't specifically prohibit the behavior at the time, banks pushed the envelope to maximize their profit during a massive recession.

c) I suspect some of it also comes from class bias, as well.  A lot of Americans - especially in the professional class, which judges certainly are - have a tendency to assume that in any face-off, the person of higher socio-economic status is necessarily more trust-worthy than the other side.  Most folks probably don't think about it concretely, in those specific terms.  It's more of a subconscious response.

3. From an economic standpoint, class action suits seem an incredibly inefficient way to police bad corporate behavior. Bringing and maintaining such a suit is an extraordinarily expensive and labor-intensive proposition.  The result - the vast majority of the penalty extracted from the corporate offender (I say extracted because it seems most cases with a scintilla of merit settle) ends up going to attorneys' fees and other litigation costs, not to the consumers who were injured by the misdeeds.

And on the other hand, we do see a fair number of class actions against pharmaceutical and medical device companies that seem to be based on unrealistic expectations of perfect, fail-safe treatment for serious medical conditions, often premised on the notion that although a given risk was disclosed in the producer's literature, it wasn't made obvious enough.  At least, that's the impression I get from the numerous ads on TV urging people to call law firm X if they ever used medication Y or device Z.

If the point of our legal system is to make injured people whole again, class actions generally do a poor job of it.

But much the same can be said of DOJ and State AG cases - those government agencies also have to be reimbursed for costs and labor expended prosecuting violations of consumer law.  Does a $300 settlement share check repair the harm to a consumer's credit (and life) that occurred when Bank of America illegally foreclosed on their home?  NO, it doesn't.  But that's what folks are getting.

I don't have a better answer than those options, though.  If anyone has ideas, please share them below in the Comments section.

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