Even if you win in arbitration, you still lose

Congress recently began a fast track process to repeal a new rule by the Consumer Financial Protection Bureau (CFPB) that protects consumers’ right to band together in class action lawsuits when companies engage in widespread wrongdoing. The saga of the Martin-Bowens of Glen Burnie shows why preserving the rule is important.

The U.S. Army had just relocated Prentice Martin-Bowen, his wife Tinker and their children to Maryland, and Prentice was about to begin his fourth deployment. Prentice’s father was dying, their cars were breaking down, and they needed a reliable car.

They found a buy-here-pay-here used car dealer who took their two cars as trade-ins, valued at $1,000 each, and a $1,000 down payment. But the dealer wanted a long list of unusual paperwork, including 12 references. Tinker and Prentice signed the contract, left with the new car, and started working on the paperwork.

But Prentice’s military service made things tough. They had been stationed all over, and it took time to get Maryland drivers’ licenses and the titles to the two trade-ins. They kept in touch with the dealer and told him they went to the Motor Vehicle Administration for the final paperwork.

But when Prentice walked outside one day, the car was gone. The dealer had taken it, later claiming it was because of “several attempts to collect a document.” Worse, the dealer refused to return the down payment or trade-ins, leaving the couple with no cars and out $1,000 cash.

Tinker and Prentice found their way to attorney Jane Santoni and filed suit. But because of a forced arbitration clause in the fine-print contract, they were kicked out of court. Forced arbitration clauses take away your right to go to court when a company violates the law and require you instead to take a dispute to a private arbitrator, usually picked by the company, in a proceeding often covered by a gag rule. Decisions, even if the arbitrator ignores the facts or gets the law wrong, are rarely appealable.

Tinker and Prentice got comparatively lucky for arbitration. Their arbitrator was a retired judge who awarded them $3,620, though he later acknowledged that the small amount didn’t seem fair for what they had been through, and that a jury might have awarded them more. The fight took them over a year and a half. With such a small award, Ms. Santoni waived her attorneys’ fees and was paid nothing except her out-of-pocket expenses.

Tinker and Prentice were not the only ones harmed by the dealer’s shady practices. The dealer admitted under oath that he “backed off” about eight car deals every month — nearly 100 a year — keeping an average of $500 to $1,500 in down payments and trade-ins on each. In one year alone, his two dealerships kept approximately $96,000 from people whose cars he took back.

Let that sink in. In one year this used car dealer and its financing branch took almost $100,000 from 100 people in a manner declared illegal.

Had this case been in court, Tinker and Prentice could have taken what they learned about the dealer’s practices and turned it into a class action so that everyone harmed could be made whole. But like many forced arbitration clauses, the fine print also banned class actions, even in arbitration.

Most of the people harmed by this used car dealer likely didn’t know they had any rights, and even if they did, they didn’t have the time, resources or ability to fight a large car dealer and its finance company in arbitration for years.

Auto dealers and finance companies are not the only corporations using forced arbitration clauses with class action bans. Contracts for bank accounts, credit cards, payday loans and student loans have the clauses too. Other service members have also been hit with forced arbitration. That’s why earlier this month, the CFPB issued a rule that restores the ability of consumers to band together when financial companies violate the law and hurt hundreds, thousands or even millions of people. The Military Coalition, representing 5.5 million service members, supports the rule.

The United States Constitution gives each American the right to a jury trial. But fine-print corporate contracts take that right away.

Members of Congress should oppose their colleagues’ efforts to kill the arbitration rule because consumers — including service members like Prentice Martin-Bowen — deserve their day in court too.

Joseph Mack (jmack@civiljusticenetwork.org) is executive director of Civil Justice, Inc., a Maryland non-profit that promotes access to the civil justice system for low and moderate income clients.

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