forced arbitration

  • October 2, 2017
    Guest Post

    *This piece originally appeared on the EPI blog.

    by Heidi Shierholz, Senior Economist and Director of Policy, Economic Policy Institute

    Many financial institutions use forced arbitration clauses in their contracts to block consumers with disputes from banding together in court, instead requiring consumers to argue their cases separately in private arbitration proceedings. Embattled banking giant, Wells Fargo, made headlines by embracing the practice to avoid offering class-wide relief for its practices related to the fraudulent account scandal and another scandal involving alleged unfair overdraft practices.

    New data helps illuminate why these banks—and Wells Fargo in particular—prefer forced arbitration to class action lawsuits. We already knew that consumers obtain relief regarding their claims in just 9 percent of disputes, while arbitrators grant companies relief in 93 percent of their claims. But not only do companies win the overwhelming majority of claims when consumers are forced into arbitration—they win big.

  • September 27, 2017
    Guest Post


    *This piece originally appeared on the EPI blog.

    by Celine McNicholas, Labor Counsel, Economic Policy Institute

    Today, EPI released a new paper by Cornell professor Alexander J.S. Colvin, which shows that more than half of all private sector non-union workers are currently subject to mandatory arbitration agreements—denying them access to the court system to resolve workplace disputes. Colvin also found that 41 percent of employees subject to mandatory arbitration also have waived their right to pursue work-related claims on a collective or class basis. Next week, the Supreme Court will consider whether arbitration agreements that include class and collective action waivers of all work-related claims are prohibited by the National Labor Relations Act (NLRA). The Court is scheduled to hear argument in National Labor Relations Board v. Murphy Oil USA (along with two other cases Ernst & Young LLP v. Morris and Epic Systems v. Lewis) on October 2.

    The NLRA guarantees workers the right to stand together for “mutual aid and protection” when seeking to improve their wages and working conditions. Employer interference with this right is prohibited. However, as Colvin’s report shows, employers are increasingly requiring workers to sign arbitration agreements that force them to waive their rights to collective actions and instead handle all workplace disputes as individuals. In practice, that means that even if many workers faced the same type of dispute at work, each individual employee must hire their own lawyer, and must resolve their disputes out of court, behind closed doors, with only their employer and a private arbitrator.

  • May 9, 2016
    Guest Post

    by Deepak Gupta, founding principal, Gupta Wessler PLLC; co-author of the ACS Issue Brief: Arbitration as Wealth Transfer

    Yesterday, at a field hearing in New Mexico, the Consumer Financial Protection Bureau proposed a watershed new rule to stop banks and lenders from using fine print to prevent consumers from banding together in court.

    Though most of us don’t even know it, we’ve all signed away our away our rights through forced arbitration clauses, which require consumers to bring any claims in a private, corporate justice system that is completely secret. The CFPB’s proposed rule would do two significant things to level the playing field: prohibit clauses that ban group lawsuits and require companies to disclose what happens in arbitration.

    To underscore what’s at stake, let’s recognize forced arbitration for what it really is: a mechanism that quietly transfers giant amounts of wealth from the poor to the rich. As Lina Khan and I explained in our recent ACS issue brief, Arbitration as Wealth Transfer, “the least appreciated effect of arbitration clauses is that companies use this fine print as a license to steal from American consumers.” That should be a cause for widespread alarm.

    Between 2008 and 2012, the CFPB found, 422 consumer financial class-action settlements garnered more than $2 billion in cash relief for consumers and more than $600 million in in-kind relief. And those numbers don’t capture the additional benefits of industry-changing injunctions and deterrence of future bad practices.

    By contrast, what do consumers get from arbitration? It should be no surprise that few consumers with low-value claims successfully advocate for themselves when forced to seek individual relief. But you might be surprised at how few. Of the hundreds of millions of consumers that interact with banks, credit cards, student loans, payday loans, debt collectors, and other companies regulated by the Bureau, how many do you think have won affirmative relief on small-dollar claims in arbitration? Well, the CFPB’s study found that in 2010 and 2011, for the nation’s leading arbitral forum, the number was just four. Not four million, not 400,000, not even 400. Just four.

  • February 22, 2016

    by Christopher Durocher

    Over the past several decades, aided by the decisive vote of the late Justice Antonin Scalia, a preference for arbitration over access to courts has emerged in the Supreme Court. Whether workers, consumers, small businesses or stockholders, plaintiffs have seen their ability to hold wrong-doers accountable in a court of law nearly vanish in a variety of context. But a change in the Court’s ideological make up, as well as imminent agency action and congressional rumblings may signal a shift away from this trend, argues former senior litigation counsel and senior counsel for enforcement strategy at the Consumer Financial Protection Bureau, Deepak Gupta and his co-author Lina Khan, in a new ACS Issue Brief, “Arbitration as Wealth Transfer.”

    In October 2015, the Consumer Financial Protection Bureau announced plans to introduce proposed regulations restricting the use of forced arbitration clauses in consumer financial products, such as credit cards, loans, cell phone contracts and pre-paid cards. These regulations are in response to the Bureau’s earlier finding “that consumers are better protected and the market is fairer for those companies that comply with the law when consumers also are able to obtain relief by grouping their own disputes against providers of consumer financial products or services in private proceedings, including litigation,” which forced arbitration clauses prevent. Class action litigation, in particular, provides significant benefits to consumers, through cash settlements, agreements by companies to stop harmful behavior, as well as the deterrent impact those settlements have on other companies’ conduct.

    The trend towards circumventing courts in favor of private dispute resolution through arbitration, abetted by increasingly consolidated corporate power and a business-friendly Supreme Court, is literally taking money from the pockets of the middle class and working poor. That’s the conclusion Deepak Gupta, former senior litigation counsel and senior counsel for enforcement strategy at the Consumer Financial Protection Bureau, draws in the Issue Brief. Gupta examines the increased use of forced arbitration and bans on class action lawsuits in a variety of employment and consumer contracts and how those provisions limit or completely eliminate the ability of injured parties to recover damages when companies commit labor, consumer protection and antitrust violations.

  • December 22, 2015

    by Jim Thompson

    Next month, the Supreme Court will decide whether to grant certiorari to a case challenging an Obama administration policy that will allow millions of undocumented immigrants to stay and work in the United States; however, the most important issue in the case is whether states can use courts rather than the political process to undermine a president’s policies, say Amanda Frost and Stephen I. Vladeck state in The New York Times.

    Elsewhere in The New York Times, Jessica Silver-Greenberg and Michel Corkery criticize debt collectors for using courts to invoke arbitration and deny court access to consumers. Of this unethical trend, Peter Holland, a lawyer who ran the Consumer Protection Clinic at the University of Maryland’s law school, says, “It’s beyond hypocritical that the companies can use arbitration to avoid being held accountable in court, all the while using the courts to collect from consumers.”

    Staff reporters at The Chicago Tribune provide commentary on a Texas grand jury’s decision not to indict any law enforcement officials in the death of Sandra Bland.

    Virginia Attorney General Mark R. Herring (D) plans to announce that the Old Dominion State will no longer recognize concealed carry handgun permits from 25 other states that have reciprocity agreements with the commonwealth, reports Jenna Portnoy in The Washington Post.