FTC Reaffirms Consumer Right to Enforce Warranty Protections in Court:
Latest Government Agency to Uphold Right to Day in Court Rather than Forced Arbitration

(WASHINGTON) Consumers will still have their day in court if an auto dealer fails to honor a warranty under a recent decision by the Federal Trade Commission (FTC). Attorneys at the National Consumer Law Center (NCLC) and the National Association of Consumer Advocates (NACA) applauded the FTC’s decision to preserve rules under the Magnuson-Moss Warranty Act that prohibit merchants from forcing consumers into binding, forced arbitration. NCLC and NACA encouraged the Consumer Financial Protection Bureau (CFPB) to follow suit and ban the use of forced arbitration clauses in contracts for consumer financial products.

The decision is important for a number of reasons, including that arbitrators are often paid by businesses and thus have an incentive to rule in their favor. “Secret, unreviewable arbitration proceedings before arbitrators paid by industry could keep unsafe cars on the road and unsafe products in our homes,” said National Consumer Law Center attorney David Seligman.

The Magnuson-Moss Warranty Act ensures that consumers have the right to enforce warranties on consumer products. It also prohibits manufacturers from dodging their obligations under written warranties on the ground that a dealer, not the manufacturer, sold the product. The Act also includes many protections against warranties that appear to promise real protection but hide limitations in the fine print.

The Department of Defense, the National Labor Relations Board, and the Equal Employment Opportunity Commission have also recently concluded that forced arbitration is inconsistent with the rights of consumers and employees. “These agencies and the FTC have recognized that our most hard-fought legal protections are rendered toothless by the proliferation of forced arbitration clauses. Now it’s time for the Consumer Financial Protection Bureau to ban forced arbitration clauses for consumer financial products, too,” said NACA Legislative Director Ellen Taverna.

Under the Dodd-Frank Act, the CFPB has the authority to ban forced arbitration agreements covering consumer financial products under its jurisdiction. In March 2015, the CFPB published the final results of its two-part study, which showed that forced arbitration agreements prevent consumers from protecting themselves against corporate wrongdoing at the hands of banks, payday lenders, auto lenders, and others. Forced arbitration does not provide an alternative dispute resolution mechanism for consumers, but rather a “get-out-of-jail free” card for financial institutions that violate the law.

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Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training.

The National Association of Consumer Advocates (NACA) is a nonprofit association of more than 1,500 consumer advocates and attorney members who represent hundreds of thousands of consumers victimized by fraudulent, abusive and predatory business practices. As an organization fully committed to promoting justice for consumers, NACA’s members and their clients are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of consumers, particularly those of modest means.

Boston Globe
by Prof. Jeff Sovern. 

http://ow.ly/NqVFC <http://t.co/W7e2DYnynT>

Arbitration clauses for credit cards cost consumers
By Jeff Sovern   MAY 25, 2015

IF YOU'RE TRYING to decide what credit card to apply for, you might compare annual fees, interest rates, and rewards. You probably wouldn't give much consideration to whether that new piece of plastic comes with an arbitration clause attached. That's because - according to a study I conducted with colleagues Elayne Greenberg, Paul Kirgis, and Yuxiang Liu - few people understand such clauses, which are typically buried in the fine print of a credit card contract or other consumer contract.

An arbitration clause is a complicated thing, but essentially, it's contractual language stipulating that if a company does something wrong, consumers can't sue, and can only settle the dispute through arbitration. For example, if your bank charged you and many others unwarranted fees, an arbitration clause could prevent a class-action lawsuit from being filed on your behalf. Instead, you would have to go to an arbitrator appointed by the company named in the contract. The arbitrator would consider arguments from both sides and then decide the case. Even if the arbitrator made a mistake about the law and wrongly ruled against you, there would be no chance to appeal.

Businesses say it doesn't matter that consumers don't understand arbitration clauses, because they insist consumers fare better in arbitration than in court. Recently, however, the federal Consumer Financial Protection Bureau - a creation of Massachusetts Senator Elizabeth Warren - released a massive report that shows arbitration benefits businesses at the expense of consumers.

It found that removing the threat of a class-action suit is a huge plus for companies. If businesses don't have to worry about consumers suing them, a key deterrent against corporate misconduct is removed. The prospect of paying significant sums in a class action goes a long way in deterring bad practices.

Historically, class action has been a popular consumer-protection strategy because it allows thousands of customers to band together to bring a shared complaint against a single organization. Going it alone through arbitration is less appealing and more cumbersome. Indeed, the Bureau's report found few consumers took disputes to arbitration that were valued under $1,000.

That means that even if a handful of consumers really do prevail more quickly at lower expense through the arbitration process - as companies claim - those victories come at a high price for the rest of us.

You might be thinking that lawyers must strongly prefer class-action suits over arbitration because they get the lion's share of any money awarded, but the Consumer Financial Protection Bureau study said that most class-action members are involved in settlements in which legal fees account for less than 20 percent of the payout.

Then there's the argument that arbitration clauses save businesses money, which they then pass on to consumers in the form of lower prices. That doesn't happen, the Bureau's report said. It also found credit card issuers that eliminated arbitration clauses did not subsequently increase their fees and prices because of increased legal risks.

Arbitration clauses have long caused confusion, but the Bureau's report has provided some clarity - it's time for them to be banned from consumer contracts.
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Jeff Sovern is a professor of law at St. John's University School of Law and co-coordinator of the Consumer Law and Policy blog.

From ConsumerAdvocates.org (National Association of Consumer Advocates):

What is arbitration? Arbitration is an alternative method of resolving disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator decides the rules, weighs the facts and arguments of both parties, and then decides the dispute. Arbitration may be voluntary or mandatory.

What is voluntary arbitration? In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises, and they have an opportunity to investigate their best options for resolving their claim.

What is forced arbitration? In forced arbitration, a company requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.

Where is forced arbitration commonly used? Forced arbitration is being written into more and more terms of agreement and contracts, including those used for employment, insurance, home-building, car loans and leases, credit cards, retirement accounts, investment accounts, and nursing facilities, to name a few.

Are these clauses easy to find in the paperwork? Generally not. Most Americans have never noticed this clause in the fine print of terms of agreement or contracts. Moreover, companies may call the condition “binding mandatory arbitration,” “arbitration,” “mandatory arbitration” or even call it a “dispute resolution mechanism.”

What's wrong with arbitration? Nothing, if its “voluntary” arbitration. In fact, you always have the right to arbitrate. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right because they have advantage in arbitration and can evade accountability.

Do companies use forced arbitration in their own disputes with other companies?
No, most refuse to use forced arbitration in their dealings with other businesses. As a matter of fact, car dealers were so afraid of forced arbitration for their disagreements with manufacturers that they spent millions lobbying Congress to pass a federal law that prohibits automobile manufacturers from requiring forced arbitration in disputes related to dealership franchise contracts. The law passed in 2002.

Is arbitration cheaper? One of the alleged benefits of arbitration is that it costs less than litigation, but frequently this is not true for consumers and employees. Forced arbitration frequently costs more than taking a case to court and can cost thousands of dollars. Individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration. In the end, the loser (usually the individual) often pays the company’s legal fees.

Why do so many consumers and employment and civil rights groups oppose forced arbitration? Forced arbitration is preferred by companies because it benefits companies - not the employee or consumer.

Here are problems and dangers noted by consumer advocates:

• Individuals are often unaware they've agreed to forced arbitration. Most Americans have accepted good or services or a job with forced arbitration as a condition; and yet, very few individuals report having noticed a forced arbitration clause in the terms of agreements or contracts they’ve accepted.
• Forced arbitration severely limits consumer options for resolving a dispute. Before any problem arises, you lock yourself into only one option—forced arbitration—for resolving all future disputes or problems. The contract typically also names the arbitration company that must be used – the one preferred by the company.
• Forced arbitration clauses generally bind the consumer—not the company. The way many forced arbitration clauses are written, the seller retains its rights to take any complaint to court while the consumer can only initiate arbitration.
• Arbitration is a private system without a judge, jury or a right to an appeal. Arbitrators aren't required to take the law and legal precedent into account in making their decisions. There is no appeal or public review of decisions to ensure the arbitrator got it right.
• Employees cannot sue for discrimination, harassment, abuse, retaliation or wrongful termination. In forced arbitration, the laws that protect us from discrimination based on age, sex, religion, race, disability, and unequal pay for equal work, such as the Civil Rights Act and the Equal Pay Act, become meaningless and unenforceable in court. Employees lose important protections for blowing the whistle on waste or fraud or for fighting retaliation for taking the family medical leave.
• Consumers cannot sue for negligence, defective products or scams. Just by buying a product or service, consumers can lose their right to hold a company accountable. Even if a retirement account disappears, a home is dangerous and defective, or a loved one suffers harm in a nursing home, a forced arbitration clause means there is no right to take the company responsible to court.

Are there companies that don't require forced arbitration? Yes, there are still some businesses that don’t require forced arbitration. These are usually the companies with the fewest consumer complaints. Unfortunately, forced arbitration is becoming so widespread that in many industries that it is not possible to shop around for a product or service that doesn’t require forced arbitration. Today it is increasingly difficult to find insurance, a credit card, cell phone, a brokerage for a retirement account, or a nursing home, for example, where forced arbitration isn’t required.

What can I do about the problem? Try to find an alternative. If possible, try to negotiate this term of the contract. But ultimately, in order to ensure that you can buy products and services and be employed without giving up your legal rights, legislation must be passed to ban forced arbitration. You can find out more about how to support passage of this legislation at www.FairArbitrationNow.org.