Cubans envy our day in court, but forced arbitration takes it away
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I recently traveled to Cuba, where I had a chance to talk to everyday citizens. The Cubans I met are proud of their country, but they also have a lot of complaints about the government. A Cuban lawyer told me that she enjoyed representing her clients, but she said it’s her dream to represent a client in American courts. In Cuba, she felt that the deck was stacked against her and that the outcome was predetermined. In America, she felt that she would have a chance to prove her case.

I should have felt a welling of patriotic pride at that comment. But I didn’t. Why? Because I know the ugly truth: Americans have increasingly lost our right to our day in court.

Hidden in the fine print of many contracts with bank accounts, payday lenders, employers, nursing homes and small businesses are forced arbitration “ripoff” clauses that deprives us of access to the courts if the company violates the law.

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Instead, companies force people to bring any disputes before a private arbitrator, often chosen by companies that bring them repeat business, who decides in secret, does not have to follow the facts or the law, and whose ruling cannot be appealed.

 

When forced arbitration clauses are coupled with class action bans, no one — not a judge or an arbitrator — can look at how widespread a company’s violations are or make sure that the company is held fully accountable. Forced arbitration rigs the system and helps bad actors evade our system of justice.

Wells Fargo, for example, is trying to block class actions and force the millions of people harmed by its fake account scandal out of the public courts and into individual one-by-one arbitrations. It’s easy to see why. A recent report found just 215 of Wells Fargo’s customers pursued claims against the bank in arbitration for any reason since 2009, despite up to 3.5 million fake accounts. Forced arbitration is not another way of resolving disputes. It prevents justice altogether.

Now there is hope that we may start getting our lauded American justice system back, but that hope is in jeopardy. The Consumer Financial Protection Bureau (CFPB) just finalized a rule that prohibits forced arbitration clauses with class action bans in financial contracts — like those in the Wells Fargo contracts. But Wall Street lobbyists and predatory lenders are already pushing Congress to block the rule.

Their arguments for denying people their day in court are laughable. They claim that people recover more in arbitration than in class actions. But the CFPB found that class actions awarded consumers relief valued at $2.7 billion for 34 million people, compared to $365,000 for less than 100 people in arbitration.

The average arbitration award is higher because only people with substantial individual claims take the time and expense to pursue arbitration, whereas class actions are an efficient way to resolve multiple small claims. As Judge Richard Posner once wrote in a decision, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

Wall Street lobbyists — themselves often well-paid lawyers — attack the lawyers who spend years without pay pursuing justice for their clients. Yet, a carefully researched CFPB study found that class actions provided $2.2 billion in relief after attorneys’ fees and costs. An independent study by a former clerk for Justice Anthony Scalia found that “even the harshest critics of consumer class actions would have to concede that the picture it paints is a fairly successful one.”

Proponents of forced arbitration claim — with no data — that it lowers prices. Yet consumers saw no increase in price after Bank of America, JPMorgan Chase, Capital One and HSBC dropped their forced arbitration clauses as a result of a court-approved settlement reached for allegations of violations of federal antitrust law. Similarly, mortgage rates did not increase after Congress banned forced arbitration in the mortgage market.

Cubans do have reason to envy our American democracy and system of government. But we can and must do better by restoring access to justice for average Americans instead of supporting bad actors who harm thousands or millions of people. Congress should not take a backwards step by stripping consumers of their day in court and blocking a rule that begins to restore our Seventh Amendment rights.

Lauren Saunders is an attorney and associate director of the National Consumer Law Center, an organization that advocates for fairness in the marketplace.


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