Consumer advocates are celebrating the passage of a bill that could stop companies and employers from using mandatory arbitration to hash out consumer and work complaints, and business groups are crying foul.
No matter what side you’re on, one thing’s for sure: nearly everyone in America could be subject to arbitration in one way or another right now, even if they don’t know it.
The House of Representatives voted 225 to 186 Friday to pass the Forced Arbitration Injustice Repeal Act, or FAIR Act.
Consumer advocates called the vote a “historic” win for consumers and employees who would be able to press their accusations in open court instead of in a closed-door system that’s allegedly stacked against them.
Business lobby critics panned the passage as a win solely for trial lawyers who would be able to churn out more lawsuits. They say arbitration is a more fair and efficient process.
The bill passed with mostly Democrats backing the measure. It’s the first time the bill has passed the House, according to one expert. Passage in the Republican-controlled Senate could be difficult, observers say.
The bill would stop companies from forcing their customers or employees to sign agreements that say private arbitrators, instead of judges, must handle any disputes that arise between them.
The agreements are ubiquitous. Consider this: There were 327 million people living in America last July, according to U.S. Census numbers. There were at least 826.5 million consumer arbitration agreements in force during that same time, according to one researcher.
Likewise, 80 of the Fortune 100 companies have used arbitration since 2010 for work-related disputes, according to the same researcher, Imre Stephen Szalai, a professor at the Loyola University New Orleans College of Law.
Federal arbitration rules have ballooned to cover a wide swath of customer and employee conflicts since lawmakers enacted the law in 1925, Szalai said.
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There’s nothing wrong with the idea of arbitration, according to Szalai. But procedures now written into many of the agreements — like consumer filing deadlines and requirements to travel to specified locations— put consumers at a disadvantage, he said.
“Our rights are meaningless if we’re not allowed to access the courts.”
Here are three ways arbitrations can touch people’s lives:
Cell phones
Just about every fight over a cell phone might end up before an arbitrator. 88% of mobile wireless contracts included mandatory arbitration rules, according to a Consumer Financial Protection Bureau study in 2015. Fights over defective phones, allegedly unfair fees and “throttling” — claims of slowed connection speeds — are the sorts of things arbitration can cover, Szalai said.
Banking and credit cards
In retail banking and credit cards, fights over late charge calculations, alleged deceptive practices and fallout from data breaches are some of the disputes covered in retail financial service arbitrations, according to Szalai. The same CFPB study said while 16% of credit card issuers have arbitration agreements, they hold half of the outstanding credit card debt.
Earlier this year, Chase JPM, +0.59% announced it was re-including forced arbitration clauses into popular credit cards like its Slate, United MileagePlus UAL, -0.35% and Slate cards. A Chase spokeswoman previously told MarketWatch that arbitration ““is often faster, less expensive and provides better outcomes for our customers.”
Jobs
In five years, almost 83% country’s private, non-unionized workers, will be subject to mandatory arbitration, according to the left-leaning Economic Policy Institute. That will be a rise from the 56% in 2017, it said.
Arbitration clauses can handle accusations of workplace wage theft, prejudice and sexual harassment, Szalai noted.
The #MeToo movement put a harsh light on arbitration, saying the practice silenced sexual harassment victims. For example, Google GOOG, -1.31% drew fire for using mandatory arbitration in sexual harassment cases. It ended mandatory employee arbitration altogether in March.
Some state lawmakers have passed laws to address arbitration and workplace sexual harassment. New York politicians passed a law last year saying companies can’t use arbitration to handle sexual harassment allegations. In June, a Manhattan federal judge said federal laws, which didn’t have rules on harassment claims, took precedence. The case is being appealed.
Szalai said the #MeToo movement was one reason why the FAIR act passed now. “You can see in wake of #MeToo, a great awareness of the harms of these clauses,” he said.
Szalai doubts the bill would pass, at least in its current form, in the Republican-controlled Senate. With court rulings backing arbitration’s use, he said, “if you represent a company, it’s probably malpractice not to recommend arbitration, because it can get rid of a class action [lawsuit] in a heartbeat.”