Supreme Court Arbitration Ruling Slices Away More Consumer Protections

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consumer protection against credit cards
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The Supreme Court ruled Thursday that a group of small businesses wasn't eligible for class-action status in a suit against American Express. In the process, the court might have struck a death blow against one of the nation's best consumer-protection tools.

Last month, I wrote about the trend toward binding arbitration, in which companies stipulate in their terms of service that, by using a product or service, consumers forfeit their right to file class-action suits against the company. Customers with disputes must instead submit to arbitration, which is costlier and regarded as more friendly to businesses than consumers. A few years ago, the advocacy group Public Citizen conducted a study of thousands of arbitration cases: Among those that ended with a decision by the arbitrator, the company won 95% of the time.

While the practice was prohibited by law in many states, the Supreme Court struck down those laws in its 2011 ruling in AT&T Mobility v. Concepcion, opening the floodgates for arbitration clauses.

But there was another case before the Supreme Court that had the potential to salvage some vestige of consumer protection. American Express Co v. Italian Colors Restaurant hung on the question of whether a court could invalidate an arbitration clause if it felt that the cost of individual arbitration was prohibitive for the plaintiffs.

On Thursday the court made its decision on that case: In a 5-3 ruling, it upheld the right of companies to use arbitration clauses as they please. That's bad news for consumers and small businesses who have relied on class-action suits to press claims against large corporations.

"There's no reason why a big company couldn't create contracts that prevent people from filing sex discrimination, consumer fraud, or other similar claims in any venue," wrote Mother Jones following the ruling. "Laws that Congress passed to protect the public could simply be voided through artfully written arbitration clauses that create expensive hurdles to pressing a claim."

If there's enough consumer outrage against binding arbitration clauses, companies could be shamed out of using them -- or Congress could act to make them illegal. But in the meantime, expect to see more of them popping up in those terms of service agreements that nobody ever reads -- until there's a problem, by which time, it's too late.



Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.

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252 Comments

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dugwindad

Class-action lawsuits equal consumer protection? Hah! Class-action lawsuits equal lawyer enrichment. Period.

June 24 2013 at 3:08 PM Report abuse +1 rate up rate down Reply
dpdanciu

For consumers, this is a disaster. Sure there are those that file frivolous lawsuits but the result of this corporate friendly ruling will be as bad as "Citizens United" because the seller of the product gets to pick the arbitrator and location of the hearing. Some people say, well I won't shop at that company. WRONG! Unless you live in a cave every appliance (even used cars!) is now requiring binding arbitration. Look at the fine print in a sales receipt. The consumer has only one remedy now and that is small claims courts with limited amounts.

June 24 2013 at 3:05 PM Report abuse +2 rate up rate down Reply
1 reply to dpdanciu's comment
h.hughjardon

CU ruling gave the same power to unions as it did corporations.

June 24 2013 at 3:30 PM Report abuse -2 rate up rate down Reply
Jim Hall

This is a whiney, inaccurate recap of the court's decision. Anything that reduces the frivolous lawsuits flooding our courts and hamstringing our businesses is good for everyone in the country, not just business owners.

June 24 2013 at 12:37 PM Report abuse -2 rate up rate down Reply
1 reply to Jim Hall's comment
robantm

Yep, wouldn't we all love to be immune to lawsuits for damages we create! How is it good for those who are legitimately damaged? Arbitration is a legal loophole used to avoid legitimate legal responsibilty.

June 24 2013 at 3:10 PM Report abuse +1 rate up rate down Reply
paddleman1928

any reduction is lawsuits is welcome by me.

June 24 2013 at 12:15 PM Report abuse -1 rate up rate down Reply
hmstrac

A defeat for ambulance chasers and their corporate shake downs and victory for upholding contracts. Well down. The SC. has three conservatives, two swing voters (Roberts & Kennedy), and four lock step liberals. Its poetic justics that The Roberts Ct. up held ObamaCare and BHO was elected to face his mess. We are in month 68 of a non-decsion on the pipe line. Seems only thing Mr. Hope and Change changes is the subject. How's that Russian Reset working for you, how we coming on the catching the the terrorits responsibilty for the embassy attack, how are webdoing on getting to bottom of all those things that OBH says he'll get to the bottom of?? Another golf game, fund raiser, or foreign trip, what a LIFE!

June 24 2013 at 12:10 PM Report abuse -3 rate up rate down Reply
1 reply to hmstrac's comment
ole.obamy.failedagain

OBAMY ECONOMY="BENGHAZI"~"SPYING"~"BENGHAZI"{~"SPYING"

June 24 2013 at 12:17 PM Report abuse rate up rate down Reply
1 reply to ole.obamy.failedagain's comment
robantm

Mitt, is that you droping these snippets all over the place?

June 24 2013 at 3:15 PM Report abuse rate up rate down
toosmart4u

This is the republican way. The supreme court is appointed by the elected presidents. The republicans now have the majority control of the supreme court where they gained their majority under the 8 years of president bush. So you get what you voted for.

June 24 2013 at 11:09 AM Report abuse +1 rate up rate down Reply
2 replies to toosmart4u's comment
h.hughjardon

Two by obama, two by clinton, two by Dubya, two by Reagan and one by HW Bush.

June 24 2013 at 12:18 PM Report abuse -1 rate up rate down Reply
h.hughjardon

Hiw'd that work out on obamacare simp?

June 24 2013 at 5:57 PM Report abuse -1 rate up rate down Reply
stimsrae

THIS COUNTRY IS DIEING...BECAUSE EVERYBODY BLAMES EVERYTHING THAT IS BROKE ON THE OTHER PERSON...POLITICAL PARTY...RELIGIOUS GROUP...RACE...THE RICH... THE POOR...THE SICK...OLD PEOPLE AND THE EARTH ITSELF... I HAVE GIVEN UP ON COMMON SENSE. I AM 70 AND NOT LONG TO BE HERE. I WISH YOU ALL COULD CHANGE IT...GOOD LUCK OTHER PERSON...

June 24 2013 at 10:36 AM Report abuse +3 rate up rate down Reply
TEANN

THIS IS BULL S__T.WELL YOU KNOW WHAT IF A COMPANY HAD THAT ARBITRATION I WOULD NOT DO BUSINESS WITH THEM. NO MATTER WHAT. AND THAT WOULD BE MY RIGHT. YOU CAN BUT THE SHOE ON THE OTHER FOOT AS WELL. WAKE UP PEOPLE. EVERY THING CAN WORK BOTH WAYS.

June 24 2013 at 10:31 AM Report abuse +1 rate up rate down Reply
mike at home

All business need to focus on the customer and offer those who pay in cash the savings that would be if they do not use credit,debit or checks that is less out of their pocket and the customer benefits from cash and less fraud to worry about thank you

June 24 2013 at 10:30 AM Report abuse +1 rate up rate down Reply
ole.obamy.failedagain

OBAMY ECONOMY="BENGHAZI"!~"SPYING"!"BENGHAZI"~"SPYING"

June 24 2013 at 9:48 AM Report abuse rate up rate down Reply