Rigging the rigging
by Tom Sullivan
It is one of Sen. Elizabeth Warren’s signature lines: “The game is rigged.” Lina Khan at Washington Monthly fleshes out just how much. Forget the social safety net. Khan looks at how binding arbitration clauses in consumer contracts snip away what’s left of the legal safety net protecting consumers. Warren may have birthed the Consumer Financial Protection Bureau to give Average Joe a fighting chance, but binding arbitration still leaves the Man with all the power:
Last week the Consumer Financial Protection Bureau issued a report documenting the prevalence and effects of arbitration clauses in consumer financial products. CFPB’s report captures the effects of arbitration clauses in financial products and services, based on data from the American Arbitration Association, which handles the vast majority of consumer financial arbitration cases. A few main takeaways from the study [edited for length – TS]:
•Arbitration tends to work out better for companies than it does for individual consumers: in cases initiated by consumers, arbitrators awarded them some relief in around 20 percent of cases. By contrast, arbitrators provided companies some type of relief in 93 percent of cases that they filed.
•Even the degree of relief varies notably: within the slice of arbitration outcomes that CFPB could assess, consumers won an average of 12 cents for every dollar they claimed. By contrast, companies on average won 91 cents for every dollar they claimed. In total, consumers received less than $400,000 from arbitrators in 2010 and 2011. Companies won $2 million over that same period
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•Notably, CFPB found evidence undercutting a favorite pro-mandatory arbitration trope: that nixing arbitration clauses would burden companies with greater litigation costs, which they would be forced to pass on to consumers in the form of higher prices for their goods. CFPB found that the banks that had to drop arbitration clauses from their contracts as part of an antitrust settlement in 2009 did not subsequently raise prices for consumers.
The CFPB is expected to propose rules “limiting mandatory arbitration clauses in these take-it-or-leave-it contracts,” Khan reports. Over 90 percent of consumers in contracts with a binding arbitration clause were unaware they could not sue “or had no idea.” On average, $27,000 of consumer money is at stake in these disputes. But paired with class action bans, these contracts leave financial organizations holding all the high cards in the game and “de facto privatizes” a legal process funded with tax dollars that, at least in theory, leveled the playing field.
The sharks are running the fish hatchery. Reason #17 for changing the motto on the money from e pluribus unum to caveat emptor.