The Case Against Mandatory Consumer Arbitration Clauses

Introduction

The case, Fuentes, et al. v. UniRush LLC, et al deals with the mandatory consumer arbitration clause. In 2015 a technological glitch happened to the RushCard. It left the users separated for days from the money in their accounts. The RushCard worked as a substitute to the bank account. Many users were unable to pay their bills, daily expenses due to the problem. It is the customer’s discretion to file a suit. However, an attorney might file a class-action lawsuit to represent all the wronged customers.

All the customers had agreed to a mandatory arbitration clause in their card contracts. In other words, it was mandatory for them to arbitrate the matter. And it took away their right to sue. Under the clause, individuals had waived their Seventh Amendment right to a civil trial by jury. Consumer arbitration was the only option available to them.

The Federal Arbitration Act, 1925 makes such a clause legal. The Act helps companies to resolve disputes outside of courts quickly. The clauses may include bans on participating in class action lawsuits, as well as requirements that individual disputes go to arbitration.

Mandatory Arbitration Clause

Many everyday products contain these hidden clauses. In 2014, General Mills stated that anyone who even liked Cheerios on Facebook agreed to arbitration for future disputes.

In 2010, the Consumer Financial Protection Bureau studied these clauses in financial products. It came to a conclusion that these clauses are present everywhere. Majority of the credit cards have this clause. Products consumed by vulnerable customers had these clauses. However, the usage of these clauses is not limited to financial products only.

The RushCard Company reacted differently to the technological glitch. The company waived off its mandatory arbitration clause and reached a $19 million settlement with the wronged customers. Some federal agencies are trying to reverse this practice. In other words, people should have the option to approach the court and get appropriate redressal. Thus, mandatory consumer arbitration should not be the way forward.

Shortcomings of Mandatory Consumer Arbitration

Instead of agreeing to mandatory arbitration unknowingly, the customers can file a class-action lawsuit. Class action lawsuits are the best way to resolve a dispute when the wronged parties are more in number. Thus, a class-action lawsuit could have been brought in the RushCard case. In a class-action lawsuit, if the judgment is in favor of the customers it has many benefits. Firstly, it provides financial relief to the customers. Secondly, the threat of a significant monetary penalty may also incentivize changes in behavior. 

Mandatory arbitration clauses tend to favor the company’s interest instead of the customers. The majority of the customers unknowingly agree to mandatory consumer arbitration. In other words, consumers agree to arbitration without realizing it.

Efforts to reform mandatory arbitration clauses

• The Consumer Financial Protection Bureau proposed a rule in May 2016 to prohibit financial institutions from including language in any new consumer contracts. Thus, consumers should not be restricted to file class-action lawsuit.
• The U.S. Department of Education in June 2016 released proposed regulations that would retain consumers’ right to sue institutions of higher education. 
• The U.S. Department of Defense in July 2015 banned arbitration clauses in loans made to service members under the Military Lending Act, 2006. 
• The U.S. Department of Labor’s final rule on conflicts of interest in retirement investment advice, released in April 2016, contains a best interest contract for financial advisers and their clients. This contract prohibits bans on class actions when savers and retirees receive financial advice about their retirement funds.

Conclusion

Mandatory consumer arbitration has proved to be harmful in the way of justice. Thus, wronged consumers are unable to file a lawsuit. They forcefully arbitrate the dispute. Approaching a court helps in better outcomes for victims and deterring future bad behavior. To sum up, the use of such clauses shall be restricted.