The age-old debate over forced arbitration for consumers, which pits corporations against trial lawyers, is evolving into a fight about how hard it's become to even start the arbitration process.
A new
The American Association for Justice is staunchly opposed to "forced arbitration" — a system that corporate lawyers call an effective way for consumers to resolve disputes, but which trial lawyers say is secretive and stacked against individuals.
And now companies have "developed new tactics to make the chances of winning a claim through forced arbitration lower than ever," the report says.
Those steps include forcing consumers into a pre-dispute period that requires more paperwork, as well as reneging on paying arbitration fees in full if consumers band together in so-called "mass arbitration" actions.
"The process is so rigged that most consumers can't ever figure out how to file a case of forced arbitration, and for the very few who do, the outcome is almost always bad for them," said Julia Duncan, senior director of government affairs at the American Association for Justice.
Corporate lawyers dispute those claims, arguing that the arbitration process is a quick way for customers to resolve disputes without costly or burdensome litigation.
They also say that the extra steps companies are adding are a response to a surge in mass arbitration cases, where lawyers gather consumers to file individual arbitration claims and balloon the costs for companies. That strategy, industry lawyers say, mirrors class-action lawsuits filed to extract big settlements.
Most companies haven't made many changes to their arbitration clauses, said Alan Kaplinsky, a consumer finance lawyer at Ballard Spahr and one of the leading lawyers on the issue. But those firms that are adding more steps are trying to "stem the onslaught of mass arbitration," Kaplinsky said.
The American Association for Justice report calls out Zelle for a provision dealing with customers who are part of "mass arbitration" claims. While companies generally pay consumers' arbitration fees, Zelle's
Zelle customers are also liable for paying costs that the company incurs in defending itself against claims that arbitrators decide "lacked merit" or were "presented in bad faith."
Duncan, the American Association for Justice staffer, said the Zelle provisions are an example of companies changing the "rules of the game" after consumers actually start to use the arbitration systems that companies set up.
The shift toward not paying fees for mass arbitration cases leaves cash-strapped consumers with few options to defend themselves, Duncan said.
"Those consumers languish," Duncan said. "They have no ability to seek justice, and the companies are unwilling to participate in a process they set up."
Early Warning Services, the big-bank consortium that runs Zelle, said in a statement that the payments platform "always honors the terms of its agreements with consumers" and that it always encourages consumers to report concerns to both Zelle and their banks.
"The Zelle Network supports the fair resolution of individual claims through arbitration and is always willing to work with consumers," an Early Warning Services spokesperson said. "The mass arbitration provision in the Zelle Network User Service Agreement helps prevent abuse of the arbitration system by law firms who pursue frivolous, mass-produced filings."
The report also criticizes Klarna for a pre-arbitration dispute clause, which says consumers must enter into a 60-day period where both sides try to resolve complaints informally before entering arbitration.
The 60-day period is just "one more hoop" for consumers "to jump through," the American Association for Justice's Duncan said.
As part of the informal process, borrowers are required to send Klarna a "notice of claim" that lays out their specific issues and the solution they are seeking.
Some complaints may be winnowed if customers decline to do extra paperwork, or if they settle before going to arbitration. For those customers who do stick with the process, Klarna gets a sneak peek at future arbitration complaints, Duncan said.
"The company just got an extra 60 days to gather evidence to protect itself," Duncan said. "They have an extra shot at seeing what the complaint is going to be. They have an extra shot to tighten up their case."
Klarna lends money to consumers whose budgets are relatively stretched and use its "pay-in-4" service to cover purchases, so the weeks of delay in getting redress may be particularly difficult for Klarna's customers, Duncan said.
In a statement, Klarna said that its initial dispute resolution process is "designed to provide a swift, efficient, and more direct way to resolve disputes for our customers." It also lets Klarna's customer service team "resolve cases without initiating formal proceedings."
"In the uncommon cases when we can't resolve the customer's concerns, we believe arbitration provides customers with a superior forum over litigation for addressing their dispute and leads to a much quicker resolution," a Klarna spokesperson said in a statement. "We remain committed to transparency and fairness, continuously striving to improve our services for the benefit of our customers."
The renewed debate comes as the Consumer Financial Protection Bureau
Congress
The American Association for Justice and various consumer advocacy groups have
That option, they say, is needed because consumers aren't aware they're being forced into arbitration when they do business with a company.
"Consumers' interests are protected by competitive markets where they can make informed and meaningful choices about the products they use and the terms of service they are bound to," the groups wrote in a petition asking the CFPB to issue a rule.
The U.S. Chamber of Commerce slammed the proposal in a comment letter, arguing the CFPB cannot issue a regulation that is substantially similar to its ill-fated 2017 rule. While the language may be different, the proposal's effect would be the same — eliminating arbitration — and thus it cannot move forward, the Chamber said.
The consumer advocates' proposal, the Chamber added, would "deprive consumers and the public at large of the significant advantages that arbitration provides."
"These agreements reduce transaction costs and enable fair, speedy, and efficient dispute resolution," the group wrote.
A CFPB spokesperson said the agency is reviewing comments on the issue.
