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Consumer Fairness Act

Groups Urge Public, Federal Agency to Stand Up for Seniors’ Rights

Thousands have signed a petition to urge the Centers for Medicare and Medicaid Services (CMS) to protect nursing home residents from predispute binding mandatory (or forced) arbitration clauses in nursing home contracts. Forced arbitration clauses strip residents and their families of their right to sue if they are harmed by nursing home operators. The petition responds to a CMS rulemaking proposal on long term care facilities that includes a discussion on the widespread use of forced arbitration in nursing home contracts. The agency is accepting public feedback on its proposal. The petition, which eventually will be delivered to CMS, specifically calls on the agency to eliminate forced arbitration in nursing home contracts with residents. Read stories that show how these restrictive terms further harm injured residents.

Various organizations are promoting the petition on their websites:

“Please add your voice to the thousands of others who have already spoken out on this critical issue!” – The National Consumer Voice for Quality Long-Term Care

“Imagine having a loved one abused or neglected by the very place entrusted with their care, only to find out that you can’t hold the institution accountable in court.” – Alliance for Justice

“The nursing home industry should no longer be allowed to force victims into a rigged system because they signed a document during the stress and confusion of admission to their facilities.” – American Association for Justice

“Forced arbitration clauses in nursing home contracts must be prohibited in order to restore the rights of residents and their families.” – Public Citizen

“[T]he very last thing we should be doing is allowing policies that remove this [nursing home] industry’s financial incentive to maintain safe facilities.” – ThePopTort.Com

Petition to the Centers for Medicare and Medicaid Services

We, the undersigned, call on the Centers for Medicare and Medicaid Services (CMS) to prohibit nursing homes corporations, as a condition of receiving federal funding, from using pre-dispute mandatory (or forced) arbitration clauses in contracts with residents of long term care facilities, their families or other healthcare decision makers. Forced arbitration clauses in nursing home contracts cannot be fixed or improved. CMS must safeguard this vulnerable population from having to sacrifice integral consumer protections and constitutional rights in order to receive necessary nursing home care and services.

Small Claims Help Consumers Beat the Banks

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If you ever wondered why corporations prefer arbitration, the following video makes one of the reasons pretty clear. In the video, a consumer runs up various unfair overdraft charges and then avails himself of the small claims system to challenge the exorbitant fees. He pays $47.50 in filing fees and spends less than an hour between the bank and the post office. The end result: the bank, Wells Fargo, calls him and settles the case by dropping his charges.

Watch for yourself:


Compare this consumer’s experience with industry fear mongering that "without the option of arbitration, consumers would be faced with two choices—to try to navigate the legal system on their own, or to abandon their claim."

Also, contrast this consumer’s experience with alleged descriptions from employees at the National Arbitration Forum of consumers’ reactions to arbitration: “the customer does not know what to expect from Arbitration and is more willing to pay,” “[customers] ask you to explain what Arbitration is then basically hand you the money,” and that the creditor has “all the leverage [in arbitration] and the customer really has no choice but to take care of the account.” It’s no wonder that less than 1% of consumer arbitration claims are actually brought by consumers.

Now we understand why arbitration is nearly ubiquitous in consumer services: in small claims corporations pay, but in arbitration consumers pay.

Corporate Double-Speak on Union, Consumer Arbitrations

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American Rights at Work recently launched a campaign to highlight big business’s double-speak about arbitration. (h/t to AFL-CIO.) The campaign points out Corporate America’s differing views on arbitration in two bills: the Employee Free Choice Act (EFCA) and the Arbitration Fairness Act (AFA). In short, Big Business opposes the provision of EFCA that requires them to arbitrate disputes over contract negotiations (union arbitration). It also regularly extols the virtues of forcing consumers and employees to go to arbitration when they are hurt, swindled or discriminated against (forced arbitration), and opposes the AFA because it would end this practice. Stories about this arbitration hypocrisy popped up on blogs like Firedoglake and Huffington Post.

We actually agree with Big Business about one thing: forced arbitration and union arbitration are not the same. This becomes clear when you look at the two processes, and the differences illustrate why Corporate America favors one (forced arbitration) and opposes the other (union arbitration):

1. Who controls the process — In forced arbitration, the company writes the contract, makes the rules, and picks the arbitrator. In union arbitration, the Federal Mediation and Conciliation Service sets up an arbitration board to ensure that the process and the arbitrators are neutral.

2. The parties involved — Companies love to take individuals with no bargaining power to arbitration; they hate to arbitrate against larger parties who can bargain collectively. They also hate it when consumers or employees join together — either in class action lawsuits or class arbitration.

3. Timing — Arbitration under EFCA would happen before there’s a contract, to facilitate the bargaining process. Unfortunately for consumers and non-union employees, they never get the chance to bargain: forced arbitration is imposed on them when they sign up for goods and services, when they are least able to make an informed decision about whether it’s in their best interest.

Last week the U.S. Chamber of Commerce responded to the arbitration-related pressure by clarifying its position(s). Their letter to lawmakers misrepresents both the nature of forced arbitration (they claim it is only used to resolve only "factual disputes") and the practice’s history (far from being a "long-standing" practice, companies like the credit card industry have been using it against customers for about ten years).

All you really need to know to understand the Chamber’s position is this statement by Rep. Linda Sanchez:

“I do find it ironic that the Chamber supports arbitration in David v. Goliath cases: When it’s one individual against a large, savvy and well-heeled corporation. But when it is a group of workers banding together to achieve the power of numbers, the Chamber admonishes the idea.”

House Committee Holds Credit Card Arbitration Hearing

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On Tuesday the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held a hearing entitled "Federal Arbitration Act: Is the Credit Card Industry Using It To Quash Legal Claims?"  (Committee site here.)  The witnesses included consumer attorney Mike Donovan, Public Citizen’s David Arkush, and Professor Rich Frankel of Drexel Law School.

The House passed a credit card reform measure last week, and the Senate will be taking up their legislation soon.  Our position on the issue can best be summed up by this excellent statement by Ed at US PIRG: "[O]wning a credit card company will still be a license to steal, and credit card companies will still be above the law, until we pass the Arbitration Fairness Act."  The hearing was very well-attended, particularly on the Republican side, and the discussion was lively.  More details after the jump.

Democrats on the panel made some eloquent, impassioned opening statements. In particular, freshman Rep. Dan Maffei (D-N.Y.) told the story of one of his constituents, Anastasiya Komarova, who was told by one debt collection company that they had an arbitration judgment against her, even though she never had a credit card. (Anastasiya also appeared in Public Citizen’s 2007 report.)  The Congressman was right-on when he said that "many have gone beyond the congressional intent of the Federal Arbitration Act and abused the system, effectively tilting the scales of justice in their favor."

Some of the most salacious details came from Donovan, who described one of his consumer class actions in which he discovered that a credit card company had been intentionally embedding the wrong zip code in the bar code of its payment envelopes, causing payments to be received late, and allowing the company to charge late fees. He also described meetings between banking lawyers at ABA conferences, in which they drew up arbitration provisions together and allegedly agreed to include forced arbitration provisions in all credit card contracts. This issue is currently being litigated in federal court.

Several Republican members were hostile to the idea of consumer choice. Reps. Trent Franks (R-Ariz.) and Lamar Smith (R-Texas) both expressed a negtive view of the plaintiffs’ bar. Rep. Darrell Issa (R-Calif.) had reservations about interfering with what he called 200 years of jurisprudence on contracts. Rep. Howard Coble (R-N.C.) was difficult to read, and expressed genuine interest in the issue of arbitrator bias.

Rep. Bobby Scott (D-Va.) later pointed out, in response to Rep. Issa’s statements, that credit card arbitration is hardly a 200-year-old practice, as credit card companies began forcing consumers into arbitration in the late 1990’s, early 2000’s.  Rep. William Delahunt (D-Mass.) also took issue with the idea that credit card agreements are really contracts. After all, the Congressman argued, these "agreements" are completely non-negotiable, and credit card companies are allowed to change the terms at any time, for any reason.

The minority witness, Professor Drahozal from University of Kansas Law School, did not agree with several common industry arguments for forced arbitration. For example, when asked if arbitration lowered the price of goods, Drahozal admitted that it is very difficult to determine what effect, if any, forced arbitration has on the price of goods and services. (Professor Frankel observed that the value of goods that employ forced arbitration might actually be lower than those that do not.) Prof. Drahozal also said that he believes class action lawsuits are good "in theory," and disagreed with the premise that lawyers are the only people who benefit from class actions – an assertion that we know to be false.

We are grateful to Subcommittee Chairman Steve Cohen (D-Tenn.) for holding this important hearing, and we here at the FAN coalition are looking forward to more public discussions of how forced arbitration is harming Americans.

Yet Another Harmful Industry Employing Forced Arbitration

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Our "Issues" section documents the various ways that companies force arbitration on Americans. These include legitimate businesses as well as shadier industries like payday lending and loans for students at unaccredited, for-profit trade schools. A recent report by Consumer Federation of America has uncovered yet another shady industry using forced arbitration to immunize itself from accountability to its consumers: for-profit identity theft services.

More on these services and their abuse of forced arbitration after the jump…

Basically, credit monitoring companies charge consumers money to monitor their credit ratings for identity theft or other negative activity. The problems for consumers are that 1) none of the services can live up to their claims of complete protection, and 2) many of the benefits that these services advertise are things that consumers can do on their own for free or at minimal cost.

The report’s findings on forced arbitration (from p. 51 of the report):

Half of the identity theft services we examined require in their terms of service that customers submit any disputes about this service to binding arbitration. Mandatory binding arbitration is aimed at preventing consumers from going to court if they believe that the company has misled them or failed to honor the promises it made. Since these agreements are one-sided, with no ability for the consumer to negotiate, we believe that requirements for mandatory binding arbitration are unfair. Identity theft services should provide alternative dispute resolution as an option but not a requirement in their terms of service.

We couldn’t agree more. If consumers feel that these companies have violated their rights and engaged in unfair or deceptive acts, they should have the ability to take those claims to a court that will enforce the law.

It’s time to close the arbitration loophole that allows companies to ignore consumers’ rights.