Arbitration

Can Debt Buyers Use Forced Arbitration Clauses After Suing Consumers In Court?

Midland Funding, a subsidiary of Encore Capital Group, is the world’s largest debt buyer and one of the most prolific users of Maryland’s District Court. It has filed tens of thousands of suits against Marylanders. But when one of those consumers, Mr. Cain, sued Midland Funding, Midland convinced the trial court and the intermediate appellate court to throw his case out of court and into forced arbitration on an individual basis, rather than as a class action.  In a March, 2017 watershed opinion, Maryland’s highest court overruled the lower court and held that when it originally sued Mr. Cain in a collection action, Midland waived its right to compel arbitration.   The Court of Appeals said:

Because Midland’s 2009 collection action is related to Cain’s claims, Midland waived its right to arbitrate the current claims hen it chose to litigate the collection action. In addition, Cain does not have to demonstrate that he suffered prejudice to establish that Midland waived the arbitration provision.

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Debt Buyers Seek to Escape Liability By Invoking Their Predecessors’ Forced Arbitration Clauses

Forced arbitration is a widespread problem for American consumers. Corporations bury complex terms in fine print, and then argue that consumers “agree” to arbitration in everyday contracts.  But in general consumers have little understanding of what forced arbitration is or what rights they are “agreeing” to give up. Put simply, forced arbitration means: NO JUDGE, NO JURY, NO RIGHT OF APPEAL.  Further, the arbitrator is not even required to follow the law.  Forced arbitration has been called a “silver bullet” used to kill consumer lawsuits.  It provides what Adam Levitin calls “bargain basement justice.”

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Jeff Sovern’s Groundbreaking Study on Forced Arbitration Clauses: Consumers are Unaware and do not Understand Them

The Consumer Financial Protection Bureau has to make an important decision soon, about arbitration clauses. Forced arbitration clauses (or “mandatory pre-dispute arbitration clauses” as they are sometimes called) appear in many standard consumer contracts. If you have a Paypal account, a mobile phone contract, a credit card, an employment contract, or if you have purchased a car of other large consumer item, the chances are that all of these contracts have forced arbitration clauses in them. Most people don’t read consumer contracts very closely, and many if not most people have ever even heard of forced arbitraiton. But suppose that you gave 600 ordinary American consumers a typical contemporary consumer contract, asked them to read it and then gave them a quiz.  How would they do?

That is more or less what a major study by the St John’s University School of Law led by Professor Jeff Sovern did. It seeks to answer the question: do we understand forced arbitration clauses?

Read More »Jeff Sovern’s Groundbreaking Study on Forced Arbitration Clauses: Consumers are Unaware and do not Understand Them

Why and How Arbitration Constitutes the “Strip Mining of Legal Rights”

When it comes to consumer or employment contracts, forced arbitration is a problem in Maryland, and throughout the country.

In their April, 2014 article titled “The Strip Mining of Legal Rights” Ralph Nader and Theresa Amato call for limits on the use of fine-print terms to undermine legal rights. They call the use of fine print to avoid liability an “expanding coup d’etat against the civil justice system” and suggest action by Congress and federal agencies to control the use of forced arbitration clauses and establish model contract terms which are fair to both consumers and businesses.

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How Forced Arbitration in Boilerplate Contracts Strips Away Consumer Rights

Fine print boilerplate is everywhere, but what can be done to stop it? Theresa Amato writes in The Nation that the Consumer Financial Protection Bureau should take four steps to promote fairness in consumer contracts:

  1. Prohibit forced arbitration clauses in consumer contracts
  2. Maintain a searchable database of all standard form contracts used by the industries it regulates
  3. Develop its own “consumer-road-tested contracts” and prohibit certain terms, such as those that prohibit public criticism of the business involved, or waive liability for negligence.
  4. Promote a “fair contract” symbol to make it easy to identify contracts which conform to the standards proposed.

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Why and How Forced Arbitration Strips Consumers of Their Right to Sue in Court

In the Summer, 2014 issue of Washington Monthly, Lina Kahn wrote about how arbitration clauses are used by America’s corporations big and small to shield themselves from lawsuits. For example, suing Target over its loss of customer data to hackers:

may seem like an archetypical story of our times, combining corporate misconduct, cyber-crime, and high-stakes litigation. But for those who follow the cutting edge of corporate law, a central part of this saga is almost antiquarian: the part where Target must actually face its accusers in court and the public gets to know what went awry and whether justice gets done.

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