An independent investigation by journalists featured in the New York Times on Sunday offers an in-depth look at the way American corporations have used the inclusion of “arbitration clauses” within consumer contracts to strategically circumvent judicial review of their behavior and immunize themselves from class action lawsuits –”realistically the only tool citizens have to fight illegal or deceitful business practices.”
“You can’t shoot someone or rob a bank and say ‘It’s OK, I have a contract.'” —Paul Wallis, Digital Journal
What the Times found was a pattern of legal dead ends for consumers seeking to find redress for perceived injustices due to various forms of corporate fraud and malpractice. Often buried deep within lengthy and difficult-to-read contracts that purchasers of products or services are forced to sign, legal experts say the injection of these arbitration clauses “have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination.” As the newspaper reports:
According to William G. Young, a Reagan-appointed federal judge in Boston who spoke with the Times, the rise of this anti-consumer mechanism is “among the most profound shifts in our legal history.” Calling it an “ominous” development, Young said, the increasing inability of individuals and groups of consumers to file suit means that “business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”
Earlier this month, the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would ban consumer financial companies from using these arbitration clauses to block consumers from participating in class-action lawsuits against them. According to a CFPB study released in March, more than 75 percent of credit card users in the U.S. are unaware of whether they were subject to an arbitration clause in their contract and fewer than 7 percent realized how these clauses restrict their ability to sue in court.
Citing interviews with some of the people who helped develop the corporate strategy as well examination of court records, the Times says the effort to block class action lawsuits “was engineered by a Wall Street-led coalition of credit card companies and retailers,” has been more than a decade in the making, and had a goal “to kill class actions and send plaintiffs’ lawyers to the ’employment lines.'”
However—and despite the success of their stratefic effort—Paul Wallis, a business observer writing for the Digital Journal responded to the Times investigation by arguing that even as this trend to immobilize consumers with arbitration clauses show that corporate crime is again “on the rampage” in the United States, the whole legal concept is actually built on a fallacy.
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