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Proposal Would Restore Seventh Amendment Rights to Consumers

Posted by Justin Browne on Jun 16, 2016 in Legal

Can you imagine the outcry if corporations used fine print – buried in contracts – to deprive us of our rights to free speech or to bear arms? The people of this country wouldn’t stand for it.

Proposed rule would ban arbitration clauses

But, the truth is, corporations are already denying us a fundamental right under the Seventh Amendment to the Constitution – the right to sue corporations when they harm us.

You may not realize it, but when you sign a contract for cable service, broadband internet, a cell phone, credit cards, even for repairs at an auto dealer, you are likely signing away this right. What is more, even though you don’t know you are signing away a constitutional right, our courts have ruled that these contracts are enforceable.

Proposed Rule Would Ban Arbitration Mandates

Fortunately, the Consumer Financial Protection Bureau (CFPB) has taken a step in the right direction. On May 5, 2016, the CFPB issued a proposed rule that will ban mandatory arbitration clauses that prohibit consumers from joining class actions. At this point it’s only a proposed rule. The CFPB is seeking comments from the public and business groups before issuing a final rule. If the proposed rule becomes final, we can be sure that the rule will be challenged in court.

The CFPB’s proposal is an important first step toward protecting our Seventh Amendment right to a jury trial. More needs to be done. Corporations have been chipping away at that right since the advent of mandatory arbitration clauses in consumer contracts. Mandatory arbitration clauses have no place in consumer contracts.

In the Event of a Dispute, Suing Is Not An Option

Currently, cell phone companies, cable companies, banks, and others routinely insert waivers of your Seventh Amendment rights into the fine print of consumer contracts as a condition of opening an account. So, in the event of a dispute with your bank, credit card company, or cell phone carrier, you cannot sue them. Your only redress is to bring a claim in arbitration. Arbitration is a privately-run dispute resolution system that is often prohibitively expensive and frequently criticized for favoring industry over consumers. Not only that, often the same fine print requires you to give up your right to join a class action.
The effect of these arbitration clauses is that:

  • You are required to waive a constitutional right as a condition of service
  • Companies that use these clauses can cheat you out of small amount of money with impunity

The Power of Class Actions Is Also Denied

For example, suppose your credit card company tacks on an unauthorized fee or charges you too much in interest and that costs you $25 or $50. The arbitration clause you probably didn’t realize was in the contract will prevent you from suing in court and from joining together with other consumers in a class action. I cannot think of anyone who would be willing to spend hundreds, if not thousands of dollars to arbitrate a $50 dispute. That makes no economic sense. But, when thousands of people who have all been wrongly charged $50 band together in a class action, that’s an entirely different story. Class actions level the playing field. These corporations realize that. That’s why they use these clauses. The effect is that consumers have virtually no recourse for righting relatively small wrongs. This is a problem.

We Must Preserve Our Seventh Amendment Rights

None of us should be forced to waive a constitutional right just to have access to the internet or to open a checking account. If we can be forced to contractually waive our Seventh Amendment rights, what’s next?

CFPB’s announcement press release

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