Virginia Lawmaker Fights to Outlaw Forced Arbitration Clauses
Major corporations across the country are increasingly adding language to contracts to prevent lawsuits, a controversial practice that is coming under increased scrutiny. The provisions, known as “forced arbitration clauses,” apply to everything from getting a credit card to accepting a job offer. And now one Virginia lawmaker says these provisions should be outlawed.
One day, earlier this year, Congressman Don Beyer walked into an Alexandria Best Buy looking for a refrigerator. His 30-year-old refrigerator was repeatedly freezing the door shut. As he was looking over the models, though, he realized something troubling about the paperwork. If he had a problem with the refrigerator, he would be unable to bring a lawsuit against the manufacturer.
“So I objected to the poor seven dollars and twenty five cents an hour salesman who looked helpless and he called his manager who pleaded with me that he was forbidden to change anything on the purchase order."
It was take it or leave it. Buy the refrigerator and waive his right to sue or walk out of the store and keep the old busted refrigerator.
“So I had mercy on these guys. It wasn’t their policy. And it was a good deal on a refrigerator."
Now Beyer is co-sponsoring legislation to outlaw forced arbitration clauses.
“These forced arbitration clauses are buried into the fine print of everyday contracts and before we know it, we’re unknowingly giving up our legal rights."
Supporters of forced arbitration say the system is cheaper and more efficient than the court system, where trial lawyers can make millions of dollars in class action lawsuits.
“Sometimes the fees are three, four, eight times what the class actually gets."
That’s University of Virginia professor Jason Johntson testifying before the House Financial Services Committee.
“Imagine if it was an individual lawsuit instead of a class lawsuit. Who would hire a lawyer and say yeah I’m going to recover a hundred dollars but I’m going to pay you eight hundred."
Paul Bland, executive director at a group known as Public Justice, says these clauses are simply a way to rip people off.
“So what the banks the payday lenders want is that they want a system where they cheat a hundred thousand people, maybe a couple of them - three, four maybe five of them - actually find their way through arbitration, fight their way through and get a resolution. But the other 999,995 or so are going to get nothing."
But Andrew Pincus at the U.S. Chamber of Commerce says arbitration is a better system than litigation.
“Parties make common-sense arguments before an impartial decision maker. There are no complicated procedures. You don’t need a lawyer. You can file your complaints online have the decision made based on a telephone conference or in person at the consumer's option."
But what if the consumer wants to bring a lawsuit? That’s not an option. That’s what happened to one woman who bought a used car in Fairfax County recently. She later discovered that the car was a lemon, and so she hired attorney Erin Witte.
“We filed suit and the dealership filed a motion to compel arbitration based on a contract that she signed, and that was upheld by the judge and now we are in arbitration."
The Virginia Supreme Court and the United States Supreme Court have both recently upheld forced arbitration clauses as entirely legal and binding, preventing people from filing lawsuits - even against companies that have broken the law.
“In this situation, like many other situations, my client was pretty surprised and disappointed that her case won’t be heard by a jury of her peers and instead is going to be heard in a private arbitration context."
It’s private because she will be unable to talk about the forced arbitration once it’s over. Julie Murray is an attorney with Public Citizen Litigation Group.
“Many of these arbitration provisions actually have a gag clause in them that forbid consumers from even speaking out about what happened to them in arbitration, and in the absence of any transparency I think you are going to see a lot more corporate wrongdoing."
That might change in the near future, though. Aside from the bill Congressman Beyer is pushing, leaders at the newly created Consumer Financial Protection Bureau are moving forward with a new rule that would eliminate forced arbitration clauses in class-action lawsuits - allowing customers who feel they’ve been ripped off to join forces and take their fight to court.