If you've got a credit card, you've been forced to kiss away your constitutional right to sue the card issuer. But it's looking increasingly likely that this is about to change.
The Consumer Financial Protection Bureau is examining so-called arbitration clauses in terms and conditions for financial products. Last week, the head of the bureau, Richard Cordray, sent the strongest signal yet that the regulatory whip soon will come down on banks and other lenders denying customers their day in court if they feel mistreated.
"By inserting an arbitration clause into their contracts, companies can sidestep the legal system, avoid big refunds and continue to pursue profitable practices that may violate the law and harm consumers," he said in a speech to the American Constitution Society.
"Companies should not be able to place themselves above the law and evade public accountability simply by inserting the magic word 'arbitration' in a document and dictating the favorable consequences," Cordray said. "Consumers should be able to join together to assert and vindicate their established legal rights."
Forced arbitration has become a routine part of many companies' dealings with customers, thanks to the U.S. Supreme Court, which has issued several rulings in recent years upholding the practice.
But under the financial reform law enacted in 2010, the Consumer Financial Protection Bureau was empowered to study forced arbitration by financial services firms and to issue new regulations if deemed necessary. It now seems certain that rule changes are in the works.
This would affect banks, credit card issuers and other firms falling under the agency's jurisdiction. It wouldn't affect non-financial businesses that also inflict arbitration clauses on customers, such as phone companies, pay-TV providers, rental car firms and others.
That would take an act of Congress. And, as it turns out, that's also a possibility — although, with business-friendly Republicans calling the shots, the likelihood of a crackdown on arbitration clauses is slim to none.
Nevertheless, Democratic lawmakers recently introduced a bill in the U.S. Senate called the Restoring Statutory Rights and Interests of the States Act. It would forbid companies from making customers waive their right to sue or join a class-action lawsuit.
"There is a valid role for arbitration when parties choose it willingly, after a dispute arises, as an alternative to court," said Sen. Patrick J. Leahy (D-Vt.), who introduced the bill. "But arbitration should not be forced upon consumers and workers through take-it-or-leave-it contracts they have no real choice but to accept."
Arbitration clauses aren't just ubiquitous in the consumer world. They're a common feature of many employment contracts, blocking you from suing over work-related issues such as discrimination or wrongful termination.
"What Americans do not realize — until it is too late — is that too often we are also signing away crucial legal rights," Leahy said. "Legal fine print tips the scales against us."
That's no joke. A major study done by the advocacy group Public Citizen in 2007 found that when California consumers went up against credit card companies in arbitration proceedings, they came out on top just 6% of the time.
You got that right: The credit card firms walked away victorious in 94% of arbitrated disputes.
Maybe the seemingly rigged nature of the system has something to do with the fact that arbitrators' fees are paid by the company in the dispute. Nevertheless, business leaders say arbitration is way better for consumers.
"Arbitration offers a simpler, fairer and faster way to resolve disputes than going to court," said Matt Webb, senior vice president of legal reform policy for the U.S. Chamber of Commerce. "On the other hand, class-action lawsuits are often driven by plaintiffs' lawyers who stand to gain millions of dollars from them while members of the class receive little or nothing."
As for Leahy's bill, Webb told me that the legislation "is about more lawsuits, more money for lawyers and less justice for consumers."
Not so. The bill, co-sponsored by Sen. Al Franken (D-Minn.), says it would "reinstate and reaffirm existing rights and remedies … regarding access to the courts that have, or may have been, abrogated or diminished."
In other words, litigation once again would be an option. Arbitration could still be used if all parties voluntarily agreed to pursue it.
As I've said all along, if arbitration is as beneficial as businesses insist, they should have no trouble persuading people to resolve issues this way. The record, however, speaks for itself.
"Arbitration clauses, as they are used today both in the field of consumer finance and more generally, often have been deliberately designed to block Americans from effective means of vindicating their rights," Cordray said. "Arbitration clauses severely limit consumers' options to pursue a just resolution of their disputes."
He noted that even though California and other states have ruled that forced arbitration is unconscionable and unenforceable, the Supreme Court has decided that federal law takes precedence and that this allows businesses to offer arbitration clauses on a take-it-or-leave-it basis.
Leahy's bill would restore the power of states to have the last word on the matter and thus protect residents from unfair business practices.
Sooner or later, I'm confident, such legislation will pass. It just requires lawmakers to place consumers' interests on an equal footing with business interests.
Stranger things have happened.