The Consumer Rights You re Giving Away

L
AST YEAR A FIRESTORM erupted after
General Mills, the maker of Bisquick,
Cheerios, and other food brands,
changed the legal terms on its website,
requiring that all disputes related to the
purchase or use of any of its products
be resolved through mandatory arbitration.
Legal experts and consumers were outraged
that by downloading couponsor entering a
company-sponsored sweepstakes orcontest
they could be waiving the right to sue. General
Mills ended the practice days later, writing on
its blog, We ve listened and we re changing
our legal terms back.
Sound outrageous? You probably do business with many firms that tuck forced arbitration clauses into their terms and conditions.
They are in hundreds of millions of consumer
contracts, according to the National Association of Consumer Advocates. Amazon, Groupon, Netflix, and Verizon are among the
companies whose contracts have the clauses.
They re in the fine print of terms for car loans
and leases, credit cards, checking accounts,
insurance, investing accounts, student loans,
and even certain employment and nursing
home agreements; you can be legally bound
to forced arbitration by signing a contract or
clicking I agree on a website. Once you do,
if you eventually have a complaint against
one of those companies, you will be obligated
to take your dispute to an arbitration firm.
Businesses Have the Edge
Usually, if you are bound by a mandatory
arbitration clause, the company picks thearbitrator, who is not required to have a legal
background (although many do) and, unlike
a judge, doesn t have to consider legal precedent. The decision is usually private, so
other consumers in the same position won t
know about the case. And there s little basis
on which the decision can be appealed, says
Daniel Blinn, a consumer law attorney in
Rocky Hill, Conn.
Arbitration clauses often restrict you from
pursuing any type of litigation outside of the
arbitration, including a class-action lawsuit,
where a group of similarly harmed individuals
can sue a company. In class actions (as well
as in certain other types of litigation) lawyers
generally work for a portion of eventual winnings, so participants have no out-of-pocket
costs, and the company does not get to pick
the judge the way it gets to pick an arbitrator.
A series of Supreme Court decisions have
backed mandatory arbitration. For example, in a 2013 ruling, the court found that a
company can use its arbitration agreement

to stop class-action suits, even if the dispute

involves a violation of federal antitrust laws.
The system is rigged against the consumer,
says Paul Bland, executive director of the
consumer-rights law firm Public Justice.
The purpose is to say that even if companies break state truth-in-advertising laws,
or debt collection laws, or lemon laws, there
is nothing consumers can do but arbitrate.
Arbitration Can Cost You
Proponents of mandatory arbitration say it
benefits consumers. Arbitration is a timetested, cost-effective alternative to litigation,
says Michael Clark, vice president of marketing and public relations for the American
Arbitration Association, one of the nation s
largest providers of arbitration and mediation
services. But there is the potential cost of longdistance travel and filing fees. You may have
to cover some of the arbitrator s charges generally in the range of $200 to $300 per hour.
A 2012 study by InsideCounsel, a publication
for legal professionals, found that arbitration
may cost more than a court hearing. But it can
benefit companies, which might pay less in
damages than they would in litigated cases.
A few arbitration clauses offer the option
to resolve a dispute in small claims court.
It s often less costly than arbitration, but the
amount you can win is capped, usually at
$2,500 to $25,000, depending on the state.
Companies generally only go that route
when they are trying to collect a debt from
you, because it saves them the arbitrator s
fee, Blinn says.
Protect Yourself
We believe that consumers should not be
forced into arbitration. The Consumer Financial Protection Bureau should use its authority to stop forced arbitration in financial
services, and Congress should enact legislation to make arbitration voluntary in other
consumer contracts. In the meantime:
Look for exceptions. It s difficult to find
a credit-card, mobile-phone, or checkingaccount agreement where arbitration isn t
required, but some companies don t impose
it. For example, midsized banks and credit
unions are more likely to skip those clauses.
Try to opt out. Read contracts and terms
of use in full to see whether you can opt out of
arbitration, Blinn says. A few contracts, such
as certain nursing home agreements, allow it.
Make some noise. Companies think
no one reads these clauses and that it s not
an important issue to people, Bland says.
But the General Mills case clearly shows that
when enough consumers strongly object to
them, companies will reverse course.