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Ban the use of forced-arbitration clauses in consumer and employment contracts

You shouldn’t have to give up legal rights just by 'liking' a company or clicking on a coupon

Published: May 09, 2014 02:45 PM

You could lose your right to legal redress by downloading coupons from some companies.

Social media has made it possible to interact with our favorite products and brands online in a whole new way. The benefits speak for themselves—“Liking” a product or company can net you coupons, exclusive deals, and advanced access to sales and other content. But could you actually be giving up important rights just by downloading a coupon, or even simply buying a product?

That’s what General Mills tried to do recently when it quietly changed its privacy policy and legal terms online. The new language read, in part, that all disputes a consumer may have with the company must be resolved through binding mandatory arbitration. Whether consumers knew it or not, they were giving up their right to legal redress in a court of law just “by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering.”

It may sound innocuous at first, but consider this hypothetical: Your child eats a General Mills cereal and suffers a serious medical reaction because the product’s ingredients weren’t properly labeled. But because you downloaded a coupon, you lost your right to be heard in court.

Needless to say, the consumer backlash was loud, and General Mills quickly reversed course. But it shines a spotlight on an anti-consumer practice that’s becoming all too prevalent. There is probably not a single adult in the United States who is not subject to at least one binding mandatory arbitration clause; you just might not know that you’ve agreed to it.

Mandatory or forced arbitration clauses aren’t limited to products such as cereal. This type of language is hidden in the fine print of an array of common consumer contracts, including cell phones and credit cards. Even more disturbing is the fact that forced-arbitration clauses are making their way into housing, employment, and even nursing-home contracts.

Proponents of forced arbitration, namely corporations and the organizations representing arbitrators, frame arbitration as a benefit for consumers that offers a low cost, informal alternative to lawsuits. They emphasize that the consumers don’t have to hire an attorney for arbitration. But you can be sure that General Mills would send its lawyer, not the Trix Rabbit, to represent them.

The costs for consumers aren’t limited to legal representation. Some forced arbitration clauses dictate where arbitration would take place, without respect to where you live. If your arbitration is taking place on the other side of the country, travel costs can become just as prohibitive as legal ones.

There are other important differences between arbitration and the courts that consumers need to know. Arbitrators aren’t required to have a legal background and don’t have to consider legal precedent in their decision, whereas a court of law would. So even though a company’s actions might not meet legal requirements, the company won’t necessarily be held responsible for that. Furthermore, forced arbitration is often binding and sealed, meaning that what the arbitrator says, goes, and no one else will know the outcome, including other consumers in the same position. There is no appeal option available to consumers who feel they have been wronged.

Consumers Union, the policy and advocacy arm of Consumer Reports, has long posed this question: If arbitration is so great for consumers, why aren’t they given the clear choice after the problem arises? When it comes to these kinds of contracts, it’s a take-it-or-leave-it option. Forcing consumers to accept arbitration and give up their rights through legalese buried in the fine print raises red flags for consumer advocates.

That’s why we support legislative efforts, such as the Arbitration Fairness Act, that would ban the use of these forced-arbitration clauses in consumer and employment contracts. The bill is pending in the House and the Senate.

The good news in the case of General Mills was that consumers were able to make their voice heard and effect change. Consumers Union agrees that consumers shouldn’t have to give up their legal rights just by “Liking” a company online or clicking on a coupon. We remain committed to fighting against forced arbitration and hope you’ll help be a watchdog for similar anti-consumer contracts.

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.


Read other installments of our Policy & Action feature.


   

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