What’s an arbitration clause? 3 ways consumer legal rights are under attack in America


While you’ve been busy, working extra hours to earn a promotion or enjoying an awesome summer vacation, the U.S. House of Representatives has been busy too — passing bills that chip away at the rights of consumers to succeed in lawsuits against people and companies that have harmed them.

The rules are shifting in a way that removes power from consumers, to the tune of millions and even billions of dollars. The stakes are high: Consider the recent record-setting $1 billion settlement paid by Johnson & Johnson for problems with replacement hips; the $142 million Wells Fargo paid to settle claims it had opened fake accounts for people; and the $105 million AT&T shelled out to settle claims related to fraudulent billing practices.

Alas, under new rules, your right to use the court system to seek justice and recover losses from these sorts of practices could be curtailed. What’s more, companies could be further incentivized to behave badly, as lawsuits would be less of a deterrent. How is this happening? Here are three key reforms voted on this year — and how they would affect your rights as a consumer.

1. One powerful kind of lawsuit may no longer be an option

Class action lawsuits are claims where multiple plaintiffs harmed in a similar way come together to sue when individual claims would result in remedies that are too small to pursue. “Individuals with meritorious claims can join together into one single lawsuit in order to help cover the cost of litigation,” R. Shannon Carpenter of Sammons & Carpenter said about class actions.

Unfortunately, companies like AT&T and Wells Fargo are preventing class actions by including mandatory arbitration clauses in contracts consumers must sign if they want to do business. “Millions of consumers have found the courtroom doors locked through mandatory arbitration clauses,” CFPB director Richard Cordray said in prepared remarks.

Dozens of cases have already been barred by forced arbitration clauses, from cases against debt collectors who allegedly violated debtors’ rights to banks who illegally allowed payday lenders to access consumer accounts in states where payday loans were illegal, according to a list from the Center for Democracy and Justice. The companies likely got away with damaging consumers, because making individual claims is too costly for most victims.

With so many plaintiffs being kept out of court, the Consumer Financial Protection Bureau issued a new rule on July 10 to stop credit card companies and banks from limiting consumers’ ability to file class action lawsuits. The CFPB’s newly-passed rule “throws open those doors and allows harmed consumers to band together and seek justice,” Cordray added.

However, the U.S. House of Representatives passed a resolution on Tuesday that would overturn the CFPB’s rule and, once again, would give financial companies the right to curtail your ability to take legal action against them. The resolution will now be considered by the Senate and, if it passes the Senate, will go to President Donald Trump to sign.

2. New federal rules may mean you’ll never get your day in court

In March, the U.S. House of Representatives passed legislation that “severely limits the ability of consumers and workers to join together as a class to stand up to powerful corporations that have wronged them,” according to the American Association for Justice, a national plaintiff lawyer association and advocate for trial attorneys and their clients.

Among other provisions, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017 revised the federal rule that is used to determine whether a judge will “certify a class,” which is necessary for the case to go forward. A class can be “certified” if the court decides it makes sense for a group of plaintiffs to all join their claims together because their cases arise out of the same basic actions taken by a company.

Under the new rules proposed, a class could only be certified if all of the potential class members who want to bring the joint lawsuit “suffered the same type and scope of injury as the named class representative.” The problem? Classes are almost always made up of people who suffered different degrees of injury.

Consider this example: if there was a badly-made fidget spinner that broke people’s fingers, all people who had their fingers broken might come together in a class action. But, if the Act passes, people who had one finger broken might not be considered to have suffered the same “scope” of harm as people who had two fingers broken. That means they couldn’t certify as a class, which would mean there would have to be multiple separate lawsuits with all the people who had one finger broken coming together in one case, all the people with two broken fingers in another, and so on. That’s not practical.

The bill also would impose new limits on attorneys’ fees, further reducing incentives for attorneys to actually take these now-more-difficult cases.

3. Your pain and suffering may not count for much

It’s not just class actions that are under attack: Your rights to recover losses even in individual lawsuits are at risk thanks to a recent tort reform bill also passed by the House of Representatives. The bill contains a “provision that places a cap of $250,000 on noneconomic damages awards to victims, which includes for pain and suffering,” the Washington Post reported. It would apply to negligence cases against all types of healthcare providers, including careless doctors, manufacturers of unsafe drugs, and abusive or neglectful nursing homes.

In other words, if you want to sue a doctor for cutting off the wrong leg or for other serious and clearly egregious errors, you would only be allowed to recover a maximum of $250,000 for the pain and lost quality of life that you endured. While some states already have damage caps in place, like California, more than two dozen don’t have caps — and courts in several states, including Washington and Florida, have held that caps on damages in malpractice claims are unconstitutional.

To understand why this is so damaging to the rights of plaintiffs, consider a victim of malpractice who was left permanently blind in one eye: While a jury determined the victim’s past and future pain and suffering was worth more than $1 million, California’s $250,000 damage cap meant the victim would receive just $250,000 maximum in noneconomic damages, as this Harvard Law blog explained.

Unfortunately, stories like this one could be repeated nationwide if the proposed tort reform legislation actually becomes law if you’re even allowed to sue at all.

Sign up for the Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, check out Mic’s credit, savings, career, and investing hubs for more information — that pays off.