Arbitration and Consumer Rights

A recent issue of Inside Higher Education calls attention to a little-known battle that American consumers have been losing more and more frequently. Few of us realize the extent to which we are signing away hard-won consumer protections. Worse still, even people who are aware of the situation often find that they have no real option. Choice, if one can call it that, often comes down to surrendering rights or doing without some crucial good or service.

The article focuses specifically on for-profit colleges, describing how Career Education Corporation defrauded both investors and its own students. In 2011 it emerged that the company “cooked the books on the job placement rates they were disclosing to prospective students and regulators.” A settlement was eventually reached but, as the magazine details, the $27.5 million in relief it offered went entirely to CECO’s investors. The students who wasted their money on degrees of little value and for which they paid under false pretenses did not get their money back and, indeed, remained on the hook for student loans (student loans are often the primary revenue stream at for-profit colleges and universities).

As Inside Higher Education explains: “What accounts for this disparity? The answer is that investors in for-profit colleges have access to the courts for filing their grievances, while most of the sector’s students do not.” This, in turn, is because the small print legalese those students had sign off on to attend CECO’s colleges included a clause in which students surrendered their right to sue the schools and their parent company and, instead, required them to submit to binding arbitration.

Such clauses are not, however, confined to the for-profit education sector. They are increasingly common as part of credit card contracts, student loans, internet terms of service and other contracts that millions of Americans agree to every day, often without really being aware that they are making a binding legal commitment.

I have often used this blog to write about access to our court system, particularly my belief as an Oregon consumer protection attorney that our courts are one of the few places where ordinary Americans can get a fair hearing on an equal level with the rich and powerful. In a roundabout way the increasingly common practice of sneaking arbitration clauses into consumer documents that few people actually read (a practice that was, unfortunately, validated by a 2011 Supreme Court decision) is evidence that big business also views our courts in this way. That is precisely why it increasingly wants to avoid the courts and prefers to ‘settle’ disputes using outside arbitrators that it picks and whom it pays.

It is, in short, a sad but important reminder of the battles we all fight every day – sometimes without even knowing we are doing so.

Inside Higher Education: Signing Away Rights