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On Behalf of | Jun 5, 2016 | Consumer Protection

A consumer lawyer colleague, Mark Chalos, authored a wonderful expose on the dirty, dirty world of Forced Arbitration and the dirty, dirty corporate powers who push it. It was recently published in The Tennessean.

Mark tells the story of one of his clients, who was fighting lung cancer in 2013, when she borrowed $300 from a payday loan company to make ends meet. When she became too ill to continue working her $15-per-hour job at the Salvation Army, she could not pay back the loan plus interest. The loan company informed her that she then owed $40,000 ($40,000!!!). The loan company refused to provide an explanation, beyond that it charges 153 percent interest (153%!!!).

You might be thinking that a court of law could sort this out. Right? Wrong. Lurking in the fine print in the loan documents is a Forced Arbitration Clause. Any borrower who has the nerve to challenge the loan company would be barred from Court and forced into binding arbitration – which is a secret, private process without any judges and few rules. The arbitration process often comes with significant fees for consumers making claims.

Mark points out that Corporations use these secret arbitration to run roughshod over consumers and has the data to back it up.

The most frequent fliers at these secret arbitration proceedings? Corporations. The most frequent winner at consumer arbitrations? Corporations. According to a comprehensive study of arbitrations released in 2015, corporations won 93 percent of all arbitrations; consumers won just 9 percent. And in the exceedingly rare instances where consumers recovered money, they recovered on average 12 cents of each dollar they had been cheated out of. There is a legitimate fear that the system is rigged.

Mark points out how corporations, as they always do, get legislation passed under the guise of one purpose, then use it in quite another way to rip off the less powerful.

Arbitration provisions were originally intended to be a mechanism for streamlining litigation costs for willing, legally savvy parties. The agreements were often extensively reviewed and negotiated by lawyers representing the interests of all participants before anyone signed them. Most importantly, in the traditional context, everyone involved knew and understood what they were agreeing to.

In recent years, however, forced arbitration provisions have become a hidden tool used by corporations in many consumer transactions to avoid accountability for a variety of schemes and frauds. Today, forced arbitration agreements are ever-present, including in transactions involving child care, credit cards, cellphones, car loans, home construction, student loans, payday loans, health insurance policies, and hospital and nursing home admissions.

Often buried deep in boilerplate “user agreements” and other such fine print, most consumers are not aware they would be forced into arbitration if they are swindled. Moreover, many forced arbitration provisions also state that the consumers cannot band together to hold wrongdoers accountable through class actions, which are often the only economical means for fighting schemes that involve many consumers cheated out of relatively small amounts each: $50 or $100, for example. The practical effect is that unscrupulous corporations get a “cheat Tennessee families for free” card.

Mark does point out one bright light emanating out of the Consumer Financial Protection Bureau (CFPB), which was one of the only positive outcomes of the corporate greed induced 2008 economic melt-down.

To ease this burden on consumers, the federal Consumer Financial Protection Bureau (CFPB), an agency created to protect consumers’ rights, recently proposed a new rule that would prohibit certain types of forced arbitration provisions in consumer financial transactions. The rule would help level the playing field for consumers. The CFPB action has met with much resistance and criticism from lobbyists for corporate special interests, many of whom would prefer to keep the current system of secret, forced arbitrations where the corporation is almost sure to win.

But the proposed CFPB rule is only a small step. Consumers must make their voices heard and must tell their federal and state legislators that the rigged system of forced arbitration must be thrown out. Tennessee families deserve a level playing field. The time has come to end forced arbitration.

You can see the full expose by pointing your browser here:

If you have been the victim of any form of consumer fraud, you should contact a qualified attorney right away.

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