Mandatory arbitration clauses are depriving customers of their rights and helping ISPs avoid serious punishment for actions that harm consumers, two Democratic officials from the Federal Communications Commission and US Senate argue.
FCC Commissioner Mignon Clyburn and US Sen. Al Franken (D-Minn.) yesterday published a Time op-ed titled "How Your Internet Provider Restricts Your Rights." By pushing customers into arbitration instead of court review, ISPs are protecting themselves from class-action suits, Clyburn and Franken wrote.
"Ever since a series of controversial Supreme Court decisions ruling that companies can use these clauses to force disputes out of the legal system and into the private arbitration process, they’ve become far more common," they wrote. "And in telecom contracts, they’re nearly ubiquitous. A study by the Consumer Financial Protection Bureau (CFPB) found that 99.9 percent of wireless subscribers were subject to mandatory arbitration clauses."
These clauses prohibit class-action lawsuits, according to the two politicians. Even when customers have the right to sue in court, they might pay more in legal fees than they'd recover in a verdict. "The only feasible way for you as a customer to hold that corporation accountable would be to band together with other customers who had been similarly wronged, building a case substantial enough to be worth the cost—and to dissuade that big corporation from continuing to rip its customers off," Clyburn and Franken wrote. "With class action off the table, they know it’ll never be worth your while to take them to court, even when they are clearly in the wrong."
Without the threat of class-action suits, ISPs face little risk when customers encounter frequent service outages, mysterious new fees, and early termination fees that they "don’t remember agreeing to pay," they wrote.
An arbitration clause agreed to before any dispute arises can be "mandatory" in the sense that "either side can mandate that a dispute that arises between the parties be resolved in binding arbitration," the CFPB noted in its report last year. In many cases, the clauses are mandatory in a stricter sense, with consumers having the options only of agreeing to the clause or not buying service at all.
Companies sometimes give customers the ability to opt out of arbitration clauses within a specified time period, but customers are often unaware of this option, the CFPB found. Customers are also often unaware that their contracts include arbitration clauses at all. (These findings applied specifically to credit card customers.) Many arbitration clauses have exceptions allowing actions in small claims court.
Comcast provides an online form for customers who want to opt out of arbitration. Recently, a group of customers who opted out of arbitration filed a proposed class-action lawsuit accusing Comcast of falsely advertising low prices and then using poorly disclosed fees to increase the amount paid for cable TV. In another case, Comcast agreed to a $50 million settlement 11 years after a class-action was filed.
Providing an opt-out may help companies defend against legal challenges to binding arbitration clauses while still confining most customers to arbitration.
Franken noted that he has authored Senate legislation that would ban mandatory arbitration clauses. But it might be easier to pass restrictions at the FCC as long as it is controlled by Democrats who support consumer protection initiatives. Clyburn said in the op-ed that she is "leading the charge for a regulatory crackdown this month."
In a speech last week, Clyburn said the FCC should "limit pre-dispute arbitration clauses in communications services contracts... This idea is teed up in our work on broadband privacy and should be adopted first for consumer broadband and then for all services sold to consumers under the FCC’s jurisdiction where we have the legal authority to do."
Clyburn's remark about the FCC's work on broadband privacy refers to a vote later this week on rules that would require ISPs to get opt-in consent from consumers before sharing Web browsing data and other private information with advertisers and other third parties. An early version of the proposal asked the public whether the FCC should "prohibit [broadband Internet] providers from compelling arbitration in their contracts with customers."
But the final proposal has not been made public yet; a summary released by the FCC does not mention arbitration clauses. When contacted by Ars today, an FCC spokesperson declined to comment on whether the current version of the proposal addresses arbitration.
The FCC could tackle arbitration in a separate rulemaking, although Chairman Tom Wheeler could be in his final months as chair.
reader comments
44