February 29, 2024

Bucks: High Court Ruling May Reduce Consumer Clout

Score another one for big business, it seems. The Supreme Court ruled Wednesday that companies can use contracts that prevent consumers claiming fraud from banding together to file group arbitration claims and, possibly, class-action lawsuits.

The case has broad implications for consumers because all sorts of companies, like banks, builders and even nursing homes, use contracts that require disputes to be settled through arbitration and forbid class actions. Banks and credit card companies, in particular, have come under scrutiny recently for their use of such binding arbitration clauses in customer contracts.

“I think it will make it very difficult for consumers to recover for overcharges, mischarges, incorrect billings or identity confusion in disputes with credit card companies or banks,” said Michael Donovan, a lawyer in Philadelphia who co-wrote an amicus brief filed on behalf of the plaintiffs in the case. The decision, he said, will “make it difficult for consumers in resolving the typical disputes that they have with companies large and small.”

Here’s some background: The decision involved a case brought against ATT Mobility by a California couple who objected to a $30 charge for what was advertised as a “free” cellphone. They filed a lawsuit seeking class-action treatment. But the couple had signed a standard contract with ATT that required them to resolve disputes through arbitration — a private legal proceeding — and barred them from banding together with other customers to seek class-action treatment, whether through arbitration or in a lawsuit brought in a traditional court.

The company, relying on the contract, said the case couldn’t proceed in court, or as a class-action case in any venue. Lower federal courts refused to enforce the arbitration agreement. The case ended up at the Supreme Court, which found for ATT.

The immediate impact of the decision, Mr. Donovan said, is that consumers will have a hard time finding a lawyer to represent them for claims of small dollar amounts — which means they, in effect, will just have to accept such losses. Say your bank charges you a $35 fee for a bounced check, and you dispute that you owe it but you can’t get the bank to refund it. That amount is too small to be worth a lawyer’s time — or what you’d have to pay to hire him. Sure, you could try to pursue arbitration and represent yourself. But Mr. Donovan notes that companies using contracts with such clauses typically have entire staffs devoted to such matters. “They can just crush the individual who’s not familiar with the legal arguments,” he said.

There is the possibility, according to an article in American Banker, that the new federal Consumer Financial Protection Bureau may propose regulations to limit the use of such language in contracts used by banks and other financial institutions, which have long been criticized by consumer advocates. But that’s likely to take some time, especially since the appointment of the bureau’s first director is currently caught in the midst of a political battle.

Have you ever gone to arbitration to resolve a dispute with your bank, or another company? How did it turn out for you?

Article source: http://feeds.nytimes.com/click.phdo?i=cb3ddb08149d35147177566662a51089

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