Consumer Law & Policy Blog

Attack on Arbitration Fairness Act

by Jeff Sovern

Former Ninth Circuit Judge and Secretary of Education Shirley M. Hufstedler and Former Eighth Circuit Judge, FBI Director, and CIA Director William H. Webster have co-authored a piece in the National Law Journal, Arbitration Under Siege, criticizing the proposed Arbitration Fairness Act, and calling instead for codification of fairness standards.  The authors write: "Astonishingly, such legislation [referring to the AFA] would effectively abolish arbitration as a viable alternative for such disputes."  What astonishes me about the essay is that it never mentions pre-dispute arbitration clauses, or distinguishes them from agreements to arbitrate after the dispute has arisen.  Nor does it justify the statement that the legislation would "effectively abolish arbitration as a viable alternative for such disputes."  It also doesn't bother to mention class actions or how predispute arbitration clauses eliminate class actions or how class actions are the only effective way to vindicate some consumer claims.  But other than that, it's a great piece.  (HT: Norm Silber of Hofstra)

David Horton Article: Arbitration as Delegation

David Horton of Loyola Law School Los Angeles haw written Arbitration as Delegation, 86 N.Y.U. L. Rev. (2011).  Here's the abstract:

Hundreds of millions of consumer and employment contracts include mandatory arbitration clauses, class arbitration waivers, and other terms that modify the rules of litigation. These provisions ride the wake of the Supreme Court’s expansive interpretation of the Federal Arbitration Act (“FAA”). For decades, scholars have criticized the Court’s arbitration jurisprudence for distorting Congress’s wishes and ignoring the fact that companies use fine print dispute resolution provisions as a clandestine way to eliminate substantive rights. This Article claims that the Court’s reading of the statute suffers from a deeper, more fundamental flaw: it transforms the FAA into an unconstitutional delegation of legislative power. Article I, section 1 of the Constitution forbids Congress from conferring the right to make law upon private parties. As construed by the Court, that is exactly what the FAA does. Invoking the statute, firms have created a parallel system of civil procedure for consumer and employment cases.This widespread procedural rulemaking is especially troubling because it establishes a private regulatory regime in an area that Congress has already attempted to regulate. In light of these concerns, the Article proposes several ways that the Court can narrow the statute and thus assuage concerns about its constitutionality.

Is Mandatory Consumer Arbitration Dying?

U.S. PIRG's Consumer Blog reports on this story from Money Talk News suggesting that mandatory consumer arbitration is on its way out. It notes, for instance, that the recently-enacted federal financial reform legislation empowers the new Consumer Financial Protection Bureau to limit or ban mandatory arbitration in contracts for consumer financial products and services. The Money Talk News story caught my eye because of the example it used to illustrate why mandatory consumer arbitration is unfair:

Just last week Wells Fargo was ordered to pay $200 million in connection with this class action suit that accused it of deliberately rearranging customer checks and account debits to maximize overdraft charges. What Wells Fargo was doing – and many banks still are doing – is clearing big checks first, which may reduce a checking account to zero, then clearing the smaller checks and debit charges made on the same day. Here’s how that would maximize their  overdraft charges: Say you have $2,000 in your checking account. You use your debit card to make ten $10 purchases. Then you write a check to buy something that costs $2000. What should happen is the ten $10 purchases would clear, but the $2,000 check would bounce, resulting in a $30 bounced check fee. Common industry practice, however, is to re-order the debits: clear the $2,000 check first, leaving the account with a zero balance. Then bounce the ten $10 purchases, resulting in $300 of bounced check fees. Think that’s fair? It’s been going on for years. Would going to arbitration with Wells Fargo over $300 in fees have changed anything? No. Would hundreds of people banding together and costing Wells Fargo $200 million dollars change their behavior? Quite possibly. (In this specific case, however, not yet – Wells is appealing the judge’s ruling.)

St. Louis Post-Dispatch Column on Forced Arbitration

St. Louis Dispatch consumer reporter and columnist Matthew Hathway ran a nice piece this past weekend on forced arbitration, which provides a good overview for those unfamiliar with the issue--i.e. most Americans.  Read it here.

Top-Side Amicus Briefs Filed in AT&T v. Concepcion

In AT&T v. Concepcion, the Supreme Court will decide whether companies can use the fine print of contracts to ban class actions by consumers or employees for discriminatory, fraudulent, or deceptive practices. 

The amicus briefs in support of AT&T were filed today.  We're posting them below and are also adding them to the  new web page that we've created to help people follow the case:

American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, and California Bankers Association (Alan Kaplinsky)

Center for Class Action Fairness

Chamber of Commerce of the United States (Roy Englert)

CTIA -- The Wireless Industry Association (Paul Clement)

DirectTV, Comcast Corporation, and Dell Inc.

DRI -- The Voice of the Defense Bar (Kevin Newsom)

Equal Employment Advisory Council

Law Professors (Andrew McBride)

New England Legal Foundation

Pacific Legal Foundation

The States of South Carolina and Utah

[Disclosure: Deepak Gupta and Scott Nelson of Public Citizen Litigation Group are lead counsel for the respondents in AT&T v. Concepcion in the Supreme Court.]

Will the Supreme Court Issue a Wildly Activist Decision in AT&T Mobility v. Concepcion?

by Paul Bland, Claire Prestel, and Melanie Hirsch

The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November.  Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.

[Disclosure: Deepak Gupta of Public Citizen Litigation Group, which hosts this blog, is counsel of record for the respondents in Concepcion. The views expressed in this article are solely those of the authors.]

The Corporate Abuse at the Heart of Concepcion

The Concepcion case involves the widespread corporate practice of using standard-form contracts to ban class actions.  Many state courts have held such class-action bans unenforceable, but AT&T Mobility (“ATTM”) has asked the Supreme Court to find that at least some of that state law is preempted by the Federal Arbitration Act (“FAA”).  To understand why the Court’s holding in Concepcion could be so significant, it is important to understand how class-action bans come to be and why they are often disastrous for consumers and employees.

Class-action bans are contract terms that purport to prevent consumers and employees from ever participating in class proceedings.  As in Concepcion, they are often buried in companies’ standardized arbitration clauses. Class-action bans favor companies at consumers’ and employees’ expense, but companies can impose them unilaterally because they draft the contracts. Consumers and employees rarely have time to read the lengthy agreements companies send them, let alone the ability to understand their dense legalese. And even if they did, few consumers or employees could negotiate the contracts’ terms.

Companies love imposing class-action bans because they dramatically undermine enforcement of consumer- and employee-protection laws.  Unlike European countries which mostly rely on large and powerful government agencies to enforce consumer protection and civil rights laws, the U.S. has relatively small government agencies which handle relatively few cases.  Most enforcement of these laws in the U.S. is done by private parties.  We rely upon individual consumers or employees who’ve been cheated or discriminated against to bring cases enforcing these laws.  Many types of illegal behavior can be addressed through individual cases by a single consumer.  But the reality is that many types of illegal behavior that harm very large numbers of people – thousands, sometimes hundreds of thousands of individuals – can only be meaningfully addressed through class actions.

Colbert Report Takes on CFPB, Elizabeth Warren, Mandatory Arbitration, and Barney Frank

Among other things, listen to Stephen read from the mandatory arbitration clause in his credit card agreement. Enjoy:

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Consumer Protection Agency - Barney Frank
www.colbertnation.com
Colbert Report Full Episodes 2010 Election Fox News

Petitioner's Brief Filed in AT&T v. Concepcion (Enforceability of Class-Action Bans)

by Deepak Gupta

We're previously mentioned AT&T v. Concepcion, a case in which the U.S. Supreme Court will decide whether class-action bans in consumer and employment contracts may be held unconscionable, and hence unenforceable, under generally applicable state contract law.  Because they have embedded these class-action bans in their standard arbitration agreements, corporate defendants have repeatedly argued that such state-law rulings are preempted by the Federal Arbitration Act of 1925. The lower courts, both state and federal, have uniformly rejected that preemption argument.  Public Citizen Litigation Group represents the respondents, Vincent and Liza Concepcion, the California consumers who seek to bring a consumer fraud class action against AT&T.

Yesterday, AT&T filed its opening brief. Read it here. 

When the amicus briefs supporting AT&T are filed next week, we'll post them here as well.

Used Car Buyer Waits 3 Years for Arbitration Hearing

Amy Schmitz Article on Arbitration Clause Regulation

For those who haven't read enough yet on arbitration regulation, Amy Schmitz of Colorado Law has a new article in 15 Harvard Negotiation Law Review titled Legislating in the Light: Considering Empirical Data in Crafting Arbitration Reforms.  Here's the abstract:

Consumer advocates and policymakers call for abolition of predispute arbitration clauses in consumer contracts, while proponents of arbitration claim such abolition would increase companies’ dispute resolution costs, leading to higher prices and interest rates. Policymakers on both sides of the debate, however, rarely consider the empirical research necessary for crafting informed arbitration disclosure rules. This article therefore focuses on how varied research, including my own empirical studies, may inform policies regarding arbitration disclosure regulations. The article also offers suggestions for regulations tailored to have the most impact for the cost in light of this research.