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.
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.