Congress must intervene quickly to stop an increasingly used business practice that robs unwitting consumers and employees of their fundamental right to seek redress in court when wronged by large companies, Public Citizen President Joan Claybrook told lawmakers today. The problem stems from corporations' escalating use of mandatory arbitration clauses in standard contracts, such as those signed by employees when they are hired and by consumers when they receive a credit card, get a mortgage, or buy a personal computer or cell phone, Claybrook said in testimony submitted to the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts . Mandatory arbitration clauses require consumer disputes to be argued in a private, secret dispute settlement system with an arbitrator making decisions that are final and cannot be appealed. Thus, consumer access to public courts, juries and judges is blocked. When consumers buy or use the product or services, they sign away their right to sue the company, usually in ignorance.
Arbitration is costly for consumers, and the outcome usually favors the company.
These clauses are fundamentally unfair to consumers, she said in her testimony. Consumers don't have equal bargaining power with large companies, don't have much experience with arbitration, often do not understand what mandatory arbitration is, do not realize that they are signing away their right to take the company to court and don't have the power to negotiate the arbitration clauses out of the contracts, Claybrook said. The clauses are often lopsided, allowing the corporation to retain its right to take the consumer to court. Class actions are prohibited, thereby providing legal immunity to corporations that gain substantially through small injuries to many people. Further, arbitration often must be conducted in a place convenient to the corporation but not for the consumer, and the corporation generally gets to pick the arbitrator, giving arbitrators who seek repeat business the incentive to issue rulings favoring businesses, Claybrook said.