Arbitration clauses buried in the fine print of contracts for cell phones, car rentals and more undermine consumers’ rights, Professor Richard Frankel said during a Nov. 3 interview with Knowledge@Wharton that aired on SiriusXM radio (subscription required).
A proposal by the Consumer Finance Protection Bureau that would restore consumers’ ability to file class action lawsuits would help make companies accountable for the goods and services they sell, Frankel said.
Citing a five-year study completed by the CFPB, Frankel noted that 34 million consumers had received more than $540 million in relief.
“Without class actions, those consumers who are harmed get virtually no remedy,” Frankel said, adding that arbitration’s strongest supporters are corporations and the attorneys who represent them. “The statistics show that when they’re required to arbitrate on an individual basis…that most people don’t pursue them; they drop out.”
The interview featured a spirited debate with attorney Alan Kaplinsky, who leads Ballard Spahr’s Consumer Financial Services Group and argued that arbitration is faster and less expensive than class action litigation and that the CFPB study found that it has provided consumers with greater monetary benefits.
Kaplinsky predicted that most of his clients would rather go to court than include language that is friendly to class action lawsuits in consumer contracts, an outcome that Frankel said could benefit consumers.
“The right to a jury trial is embedded in the constitution,” Frankel said. “It’s being taken away without consumers’ knowledge, and I find that particularly troubling.”
While corporations are willing to face the costs and complications of the courthouse if the stakes are high for them, Frankel said, “it’s always high for the individual.”