Pew Charitable Trusts released a new survey on the prevalence of binding mandatory (or “forced”) arbitration in consumer checking account contracts. As we’ve long expressed, forced arbitration is a widely practiced phenomenon that requires customers to resolve disputes with their banks in a private corporate-run proceeding, instead of in court.
Among its highlights, the Pew survey found that:
⦁ More than half of the checking account agreements examined contain clauses forcing the consumer to surrender the right to a jury trial.
⦁ 88 percent of consumers, regardless of demographics and political affiliation, find the majority of components of arbitration unacceptable.
⦁ 75 percent of financial institution contracts that include arbitration clauses also include class action bans.
⦁ The 50 largest financial institutions (56 percent of those examined) are more likely to use forced arbitration.
⦁ 64 percent of the financial institutions studied had some form of forced arbitration, class action bans, trial waivers, limits on damages and/or a shortened time period in which a claimant to sue. These practices restrict the ability of consumers to resolve disputes.
The survey shows that forced arbitration has permeated checking account contracts. Not only do banks force their customers into a corporate-run system that lacks oversight, but most of them also deny their customers the right to band together in class actions — a surefire ‘get out of jail free card’ for corporate misconduct.
The study also shows that many consumers are unaware of the actual consequences of forced arbitration in their checking account contracts. To that end, the term ‘arbitration’ is rarely used in everyday lexicon and the procedure is promoted by corporations as a cost-saving tool. Most consumers learn the true nature of forced arbitration, as an expensive, unfair device only when misconduct already has occurred, and they are blocked from seeking redress in court.
The Pew survey is reminiscent of a 2009 survey that reached similar conclusions about consumer and employment contracts, generally. The study also found that a solid majority of Americans (59 percent) opposed forced arbitration clauses, including majorities of men, women, Democrats, Independents and Republicans. Consumers are generally unaware of forced arbitration, as 64 percent of those polled cannot remember reading about forced arbitration provisions in the terms of service for goods and services that they buy. The prevalence of the practice in consumer contracts, as Pew’s survey demonstrates with checking accounts, means that consumers are also unable to avoid it. Their ability to exercise their legal rights continues to diminish.
Pew’s survey also noted the widespread use of class action bans in checking account terms. Some courts applying state law have tried to restrict “unconscionable” class action bans in consumer and employment contracts, but their attempts have been struck down by the Supreme Court. These state efforts to restore their residents’ access to the court are trumped by the Federal Arbitration Act, so it is time for the federal Consumer Financial Protection Bureau (CFPB) to act. The CFPB, which is studying the practice, has the authority to ban forced arbitration from checking account terms of service, as well as other financial services and products. It should take the opportunity to do so as soon as possible.
Learn more about Public Citizen’s work to combat forced arbitration at citizen.org/arbitration.
Christine Hines is Public Citizen’s consumer and civil justice counsel. Follow her on Twitter @CHines_Citizen