It’s Time to End Forced Arbitration

What is Forced Arbitration?

Many Americans are unfamiliar with binding arbitration clauses, also referred to as forced arbitration clauses or forced arbitration, which force agreeing parties to cede their right to settle potential disputes within the court system. Corporations and businesses often use these clauses in contracts and terms of service agreements with consumers and employers in order to circumvent the court system, usually to their own benefit and often to the detriment of consumers and employees. By accepting or agreeing to a forced arbitration clause, a person essentially gives up the right to settle any related dispute with the other party before a judge (and possibly a jury). These clauses exclude the right to form a class action lawsuit as well. Instead, disputes are brought before private arbitrators who are often biased against individuals. This is a disturbing notion, given that individuals’ must give up their constitutionally guaranteed day in court.

The Problem with Arbitration

Though many Americans are not familiar with forced arbitration, it is ubiquitous. According to Pew Charitable Trusts, nearly 9 out of the 10 largest banks include these clauses in their contracts for basic accounts. Similar clauses can be found in contracts for financial services, cable TV and Internet, cell phones and even Omaha Steaks. Many of these products and services are arguably essential to function in modern American society (though perhaps not freeze-dried meat). So simply refusing to do business with companies that use forced arbitration is not an option for most Americans who need cell phones or access to banking services to function in a modern society. Arbitration clauses are also often found in employment contracts, which can affect an employee’s ability to seek legal redress for issues such as workplace sexual harassment or discrimination. Simply finding another job is not always an option, giving employees no choice in the matter.

Additional problems arise when parties actually engage in arbitration. For example, arbitration relies on private arbitrators to resolve conflicts between parties who are often retained from the American Arbitration Association or other similar groups. Arbitrators often have a vested interest of ruling in favor of the companies that retain their services, despite their insistence that they maintain strict standards and rules to ensure neutrality.

Arbitration issues are not limited to conflicts of interest with the arbitrators. According to the New York Times, there are no rules or regulations that cover the handling of evidence or the summoning of witnesses, as there would be in the judicial court system. Rulings can limit awards and vary by individual. This means two people with the same dispute could receive different results from the same process. Finally, arbitration outcomes are usually kept secret and cannot be appealed.

On the other hand, proponents of forced arbitration, such as the U.S. Chamber of Commerce (which is a lobbying group, not a government agency) and the Heritage Foundation (a conservative think tank), argue that arbitration favors trial lawyers and benefits consumers. Though this is a somewhat valid claim, it misses the point entirely. The purpose of taking a company to court or joining a class action lawsuit is not for personal enrichment, but to hold businesses accountable when they act unethically or defraud consumers. Since many regulatory agencies are underfunded and/or understaffed, the court system is one of the few remaining options for those seeking redress.

In Recent Events

Recently, forced arbitration has led to scandals in for-profit schools and banking. For-profit schools, such as DeVry almost universally utilize forced arbitration clauses in their enrollment contracts, while very few private non-profit universities and no public or state schools employ them. Given the spate of unethical behavior from for-profit schools, that ranges from fraudulent acts to deceptive recruiting, it should come as to no surprise that these institutions would try to keep consumers from holding them accountable and taking them to court.

Further, it recently came to light that Wells Fargo Bank had opened unauthorized accounts in customers’ names in order to meet sales goals. Wells Fargo, like many other large banks, utilizes binding arbitration clauses in its contracts with customers, preventing customers from bringing litigation against Wells Fargo. Recently, the bank has tried to enforce these clauses with the very same customers it defrauded after those customers sued. In effect, Wells Fargo is attempting to utilize forced arbitration to escape the consequences of its unethical behavior.

The Solution

There have been attempts to address the problems with the unfair system of forced arbitration. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau has been attempting to craft new regulations limiting arbitration in the financial sector. The Department of Education has made similar efforts with for-profit schools. Sen. Al Franken of Minnesota and Rep. Hank Johnson of Georgia introduced the Arbitration Fairness Act of 2015, which eliminates the use of forced arbitration clauses in consumer and employment contracts (the full text of which can be found here). Unfortunately, with Congress and the White House under Republican control, any reform in arbitration seems very unlikely.

There is no problem with arbitration, provided all parties involved have knowingly and willingly agreed to it, and were not coerced or given no other option. Ultimately, the proliferation of forced arbitration clauses following several Supreme Court rulings has led to more and more businesses effectively opting out of accountability in regards to their employers and customers.

While the U.S. legal system is imperfect, forcing consumers and employees into a private, justice system only benefits those with large legal and financial resources: large corporations and businesses. Corporations may now be entitled to legal protections as persons, but their rights should not come at the cost of the 7th Amendment, which enshrines rights of real human beings to their day in court. Why should one class of “person” be entitled to justice, while another class is effectively excluded?

Image Source: Google Images; Lieff Cabraser Civil Justice Blog

Can We Trust the Red Cross Anymore?

If you ask Americans to name an aid or relief organization, more likely than not, the first one that comes to mind will be the Red Cross. The name, organization and eponymous logo are ingrained in the history and culture of America. American Red Cross (ARC) has a long history of providing aid and comfort to those in need if and when disaster strikes. Polling data from 2005 showed that 62 percent of Americans had a very positive view of ARC, with 21 percent holding “somewhat positive” views. The Red Cross logo is synonymous with aid efforts here in the states and abroad.

Hurricane Matthew has left the U.S. eastern seaboard and dissipated over the Atlantic as of October 12. The storm has left over 1,000 people dead, predominantly in Haiti. There has also been an unprecedented level of flooding in certain areas of the Southeastern U.S., especially around rivers and coastal areas. In times of crisis such as these, aid organizations are usually ready to step in, with American Red Cross assumed to be at the forefront. Yet, in recent years, the American branch of the Red Cross has left a strong sense of doubt among civilians in ARC’s ability to perform its functions. Scandal after scandal has rocked the organization and many have been critical of the validity of its efforts over the course of multiple disasters. The question that the American people now seem to face is, can American Red Cross be trusted to come to their aid anymore?

A Series of Unfortunate Disasters

Unfortunately, American Red Cross has left a lot to be desired in recent years with their responses to several major disasters on the national and international levels. In the wake of 9/11, ARC was criticized for its minimal involvement in relief efforts. It was also criticized for its management of donated funds. ARC’s Liberty Fund, which was set up in response to the attacks, raised over half a billion dollars. Of that amount, nearly half was earmarked to be used for future events and contingencies. However, the decision was reversed after public outcry and political scrutiny arose.

ARC’s woes did not end after 9/11. Its involvement in relief efforts following Hurricane Katrina in 2005 were labeled as unorganized and insufficient. ARC involvement in the wakes of Hurricane Isaac and Super-storm Sandy followed a similar pattern. According to a ProPublica and NPR report, the Red Cross ordered empty aid trucks to simply drive around in order to give the impression that something was being done. Other ARC vehicles were used as props in the background of press conferences. This was coupled with a laundry list of incidents of mismanagement, mistakes, and misappropriation of funds.

Emergency Response Vehicles line up at the American Red Cross office in Hattiesburg, Miss., Thursday, Oct. 3, 2002, in preparations for Hurricane Lili's landfall. These are some of The American Red Cross vehicles from across the nation that were helping along the Mississippi Gulf Coast with Isidore were evacuated to Hattiesburg and Laurel, Miss., to wait for further instructions on their next assignment. (AP Photo/Steve Coleman)
Emergency Response Vehicles line up at the American Red Cross office in Hattiesburg, Miss., Thursday, Oct. 3, 2002, in preparations for Hurricane Lili’s landfall. These are some of The American Red Cross vehicles from across the nation that were helping along the Mississippi Gulf Coast with Isidore were evacuated to Hattiesburg and Laurel, Miss., to wait for further instructions on their next assignment. (AP Photo/Steve Coleman)

The most damning case of all emerged in the years following the massive earthquake that hit the country of Haiti in 2010. Millions of people donated to ARC, raising nearly half a billion dollars. According to a report by NPR however, no one can accurately account for the whereabouts of those funds or how the Red Cross distributed it. One particularly egregious example was a multi-million dollar project to build thousands of housing structures in an impoverished area. The result was a mere six houses being built. Internal Red Cross documents point to cases of mismanagement, ignorance, and even outright incompetence during the Haiti response. Additionally, ARC continued to smear its reputation when it refused to be transparent regarding finances and show how the money raised was spent.

Bringing in New Blood

It’s not unheard of for a non-profit organization to hire someone from the for-profit world to manage its affairs. In 2008, Red Cross did just that, bringing in Gail McGovern, a former executive from AT&T and Fidelity Investments, as well as a former Harvard Business School professor. McGovern pledged to turn the organization around and reportedly brought in other colleagues from AT&T in order to help save the organization from dire financial straits. Payrolls and budgets were subsequently cut, and many local Red Cross chapters were closed. In 2013, McGovern announced that Red Cross was financially stable. However, according to ProPublica, ARC posted a deficit of $70 million in 2014.

A (Possible) Solution?

The U.S. Senate is currently debating a bill introduced in the wake of reporting done by ProPublica and NPR on Red Cross’s mismanagement. Senator Chuck Grassley, R-IA, introduced the American Red Cross Transparency Act in July of 2016. The bill would essentially change the congressional charter of ARC and open up its records to scrutiny by the Government Accountability Office. With the recent revelation in 2015 that Gail McGovern attempted to lobby a member of Congress to kill an investigation into ARC, more transparency may be needed to help restore the public’s faith in the organization.
Moving Forward

ARC is an organization that can only function with its reputation intact. Donors will not contribute financially if they feel that it will be squandered or wasted. Trust is difficult to earn, easy to lose, and harder to win back. As the Earth continues to warm due to climate change, the effects will be felt more as flooding and storms increase in intensity. Individuals will need to depend on organizations like the Red Cross to provide essential aid in what will likely be more and more frequent damaging disasters. For an organization so dependent on the financial support of the public, the Red Cross cannot afford any further damage to its reputation. The individuals who will depend on the Red Cross can’t afford it either.

Image source: AP Photo/Tom Hood