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A Shift in Arbitration


Last year we wrote about the cost of hidden arbitration laws, clauses are often written into contracts that prevent parties from collectively filing suit or taking legal action in court.

In a recent decision seemingly meant to curb the effects of arbitration abuse, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education have teamed up “to propose new rules to rein in the abuses of forced arbitration…”(Politico).

The pairing may initially seem odd, but other actions were recently taken by the Justice Department and several state attorneys general against Education Management Corp. for illegally paying recruiters based on the number of students enrolled. A settlement reached between the parties totaled $95.5 million. (L.A. Times).

Because the settlement is large, and a victory against predatory lending practices, the question then becomes: Why take the time to change rules and laws when the government has a legal win in its column? The answer may come from observations noted by Ralph Nader in a recent issue of Harper’s Magazine when he writes:

“Standard contracts are now full of ‘tricks and traps’ in ‘mice type,’ to quote Senator Elizabeth Warren. Often buried in pages of fine print are clauses that essentially waive the liability of vendors and surrender the right of consumers to a trial by jury in favor of private arbitration that usually favors the vendors.”

The ubiquity of anti-arbitration clauses in contracts, user-agreements, and other legal documents have caused a backlash in the form of unwanted attention from U.S. Justice Department and other government agencies, but the end goal of these agencies may not be to seek justice for consumers, but rather to return power to the consumers. By placing more and more pressure on companies who use arbitration clauses to avoid litigation, government agencies could make the benefits of such clauses moot and possibly cause a shift in future legal actions.