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Forced Arbitration Is a Bad Deal

DEEPLINKS BLOG
May 3, 2016

Forced Arbitration Is a Bad Deal

Justice for Telecommunications Consumers Act Would Thwart Unfair Arbitration Clauses

What are you really agreeing to when you select “I agree” on a click-through contract? Whether you know it or not, you’re often agreeing to waive a host of fundamental rights. Want to buy a new mobile device? Click on an agreement that says you won’t modify the software on it. Going to the dentist? Sign a contract waiving your right to leave negative reviews online.

While these contracts are unfair to customers in virtually any context, they’re particularly appalling when we’re talking about basic needs like Internet access. You shouldn’t have to waive your rights just to get online, but virtually every telecommunications provider includes a clause in its customer agreement forbidding you from exercising one of the most basic constitutional rights: the right to take them to court.

There’s a new bill in Congress that would help. Under the Justice for Telecommunications Consumers Act of 2016 (S. 2897), telecom providers would not be able to take away your right to sue them when they do something wrong. S. 2897 was introduced by Sens. Richard Blumenthal and Al Franken, and EFF joins a wide range of consumer rights organizations in supporting it (download the bill as a PDF).

We hope that Congress passes the bill and that it represents just the first step toward protecting consumers’ rights from unfair, one-sided contracts.

Take ActionTell the Senate: fight forced arbitation.

A Well-Intentioned Law That Went Bad

Specifically, the bill deals with forced arbitration clauses in customer agreements, clauses that require parties to resolve any legal disputes outside of the courts through an agreed-upon arbitration system. Arbitration clauses are nothing new—Congress recognized their validity in the 1925 Federal Arbitration Act, but that was long before the rise of the click-through agreement. In the 1920s, most arbitration clauses were primarily used in agreements between companies—agreements where both parties had some bargaining power and the ability to use it. That meant that arbitration clauses were usually negotiated and agreed upon by all parties in a contract. They were—and still are, in some cases—seen as a mutually beneficial arrangement, a way to avoid expensive litigation.

The situation is very different with today’s proliferation of one-sided contracts. One party sets the terms and the other has only two choices: agree or take a hike. You have no meaningful opportunity to negotiate the terms of your contract with Verizon. Your only real option is not to sign the contract—and every major mobile carrier in the U.S. has a similar clause.

Since the 1980s, a string of Supreme Court rulings have made arbitration clauses an increasingly attractive way for companies to keep their customers from suing them. The Court has said that companies can use such clauses to avoid being sued in state as well as federal courts, and to avoid class action suits. It has also held that an arbitrator’s decision is binding even if the arbitrator made obvious factual errors (Consumerist’s Chris Moran has written an excellent summary of the Arbitration Act’s judicial history).

For most customers, trading litigation for arbitration is a bad deal. When the customer has no negotiating power, arbitration is inherently biased in favor of the vendor. The arbitrators are ultimately accountable to their own customers: the telecom companies that send them business.

Furthermore, arbitration doesn’t offer the protections for disadvantaged players that are built into civil litigation. For example, wronged customers can’t share the cost of arbitration the way they can in a class action lawsuit. And since any damages award to an individual customer is likely to be small (with an equally small percentage going to the lawyer who represents her), most lawyers can’t afford to  take on a customer’s case if she can’t pay upfront.

All of those problems with arbitration can possibly be minimized when both parties have negotiating leverage. But let’s be honest: in your relationship with your mobile phone provider, it has all the power.

Forced Arbitration Weakens the Open Internet

Forced arbitration is particularly detrimental in the telecom industry because it makes it harder for customers themselves to hold their providers accountable if they violate net neutrality principles. Taking the possibility of civil litigation off of the table removes a big incentive for companies to follow the rules.

Just a few weeks ago, a court just threw out a class action case that California customers had brought against AT&T. The customers alleged that AT&T had been throttling customers’ data speeds after they’d reached an arbitrary monthly limit, even though AT&T advertised its data as unlimited. The court said that thanks to the arbitration clause, the customers had no right to sue.

Not only is forced arbitration stacked against the customer; it also almost always happens in secret. That means that for organizations like EFF trying to defend an open Internet, there’s no way to even track those disputes, let alone influence them.

We Can Fight Forced Arbitration in 2016

The Justice for Telecommunications Consumers Act would invalidate any forced arbitration clause in a customer contract for telecommunications services—including mobile phone, cable television, and Internet. Although those services are some of the worst abusers, they’re by no means the only companies that abuse arbitration clauses. Public Citizen maintains a list of major companies with forced arbitration clauses. It includes every major telecom provider, virtually every major bank, and many of the online services we all use every day. Though telecom is a great place to start, it’s really just the tip of the iceberg.

Fortunately, more sweeping changes might be on the horizon. There’s another bill in the Senate (S. 2506, the Restoring Statutory Rights and Interests of the States Act of 2016) that would affirm consumers’ right to bring actions against vendors resulting from those vendors breaking state or federal law, regardless of what the arbitration clause says.

There’s some long-needed action in the Executive Branch to fight forced arbitration too. The Department of Education recently proposed a rule change that would defang arbitration clauses in for-profit colleges’ contracts. The Consumer Financial Protection Bureau is expected to release a similar proposal this month affecting banks’ contracts.

But back to the bill in the Senate. The only way that lawmakers will move on forced arbitration is if we show them that we fully stand behind them on it. That’s why we encourage you to write your senator and tell them not only to support this bill, but also to cosponsor it now.

The sticker price for telecom services should be enough; we shouldn’t be required to hand over our rights too.

Take ActionTell the Senate: fight forced arbitation.

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