A Timeline of Forced Arbitration
Forced arbitration clauses were virtually non-existent in consumer contracts. While arbitration had long been used to resolve disputes, it was voluntarily – and knowingly – entered into by both parties after the dispute arose.
Corporate executives from Bank of America, Chase, Citigroup, Discover, Sears, Toyota, and General Electric conspired to impose forced arbitration on consumers with the goal of “killing class actions and send plaintiffs’ lawyers to the ‘employment line.’” Within months, many of these companies adopted forced arbitration clauses in their contracts.
The forced arbitration conspiracy hits a road block when the California Supreme Court rules in favor of consumers in Discover Bank v. Superior Court, which held that forced arbitration clauses with class action waivers are unenforceable under California law where the plaintiff alleges that “the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money."
The Minnesota Attorney General brings an action against one of Wall Street’s favorite arbiters, the National Arbitration Forum, for consumer fraud, deceptive trade, and false statements in advertising. As a result, NAF agreed to stop accepting consumer debt collection cases.
The Dodd-Frank Wall Street Reform and Consumer Protection Act passes Congress and is signed by President Obama into law. The law instructs the Consumer Financial Protection Bureau to study the use of pre-dispute arbitration in consumer financial contracts and act in the public’s interest by restoring consumers' ability to choose how to resolve disputes.
In AT&T Mobility v. Concepcion, the U.S. Supreme Court ruled 5-4 that the Federal Arbitration Act (“FAA”) allows corporations to ban class actions and force consumers into a corporate-designed system of forced arbitration – even when an existing state law protects individuals from abusive forced arbitration clauses. The decision overturns the California Supreme Court decision in Discover Bank v. Superior Court.
In American Express Co. v. Italian Colors Restaurant, the U.S. Supreme Court ruled 5-3 that forced arbitration clauses are enforceable even when it can be proven that the clause makes it impossible for any consumers to assert their rights. Justice Elena Kagan described this effect in her dissent from a gleefully pro-corporate decision that further expanded forced arbitration:
“The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. [The Court’s response to consumers is] Too darn bad.”
The CFPB releases its three-year, 728-page study on forced arbitration, which confirmed the devastating impact forced arbitration has had on the ability of Americans to hold financial institutions accountable for wrongdoing.
The CFPB proposes a rule that will open the courthouse doors to Americans who are victims of Wall Street wrongdoing.