What would you do if your family's photos were part of a national ad campaign without your permission? If you want to sue the company for invasion of privacy or intellectual property theft, it may prove difficult to find a lawyer to take the case.
Or say your bank mishandled a payment and then charged you a late fee? You probably wouldn't go to court over a $10 error, but what if you found out that this routinely happened to thousands of other customers? Joining a class action lawsuit to hold the bank accountable is probably not an option for you.
The fact is, if you have a problem with the way America's biggest corporations do business, you typically can't take your case to federal court. A recent academic study found that 81 of the top 100 companies in America have put legal clauses in the fine print of their customer agreements that bar consumers from suing them in federal court, and instead force victims to pursue arbitration or, in some cases, file suit in small claims court.
Now JPMorgan Chase wants to apply the same rules to almost all of its credit card customers, including those with the popular Sapphire, United MileagePlus and Slate cards. The only exception will be those with the AARP credit card. Chase informed affected credit card customers of the change beginning in May. Chase already blocks its customers with bank accounts and auto loans from filing federal lawsuits.
Because Chase is making a change, the company is giving customers the chance to opt out of this new policy and reserve their right to sue. But for many other companies that you deal with on a regular basis, there's no such grace period.
"The ability to access the courthouse is disappearing for American consumers," Imre Szalai, a professor of social justice at Loyola University writes in his recent research into the topic.
How arbitration works
Chase, like the vast majority of Fortune 100 companies, plans to keep consumers out of court by including mandatory arbitration clauses in its customer agreements. Sometimes referred to as forced arbitration, mandatory arbitration is a form of dispute resolution that generally requires consumers to handle any legal disputes outside the federal court system. Companies usually have them in their "terms of service" agreements that you agree to when you use or purchase a product (and likely don't read).
Instead of going to federal court, arbitration agreements require you to go before an arbitrator or a panel of arbitrators, who may even be hired by the company, to decide the final outcome of your dispute. There are typically few options to appeal if you don't like their ruling.
"These are the strongest companies in America — they're not necessarily going to abuse arbitration, but they can tilt it in their favor if they want to," Szalai says. For example, Procter & Gamble — which is behind major brands such as Crest, Gillette and Olay — states in its consumer terms of use that all arbitration take place in Ohio, where the company is headquartered.
At the end of last year, U.S. companies had at least 800 million terms of service agreements and customer contracts that included mandatory arbitration language, Szalai estimates. At that rate, every U.S. citizen is bound by roughly 2.5 arbitration clauses. And more than 60% of all online sales in the U.S. are covered by consumer arbitration agreements, Szalai finds.
Companies like arbitration because it can be faster and cheaper than going through a long, drawn out court proceedings. That can benefit consumers as well. Typically, consumers wait 150 days for a decision in an arbitration case, as opposed to waiting an average of 215 days for a class action lawsuit to wrap up, according to the Economic Policy Institute.
"When an arbitration process is designed appropriately, there are fewer barriers to bringing a claim in arbitration than bringing a claim in court, and it can be more convenient for claimants to obtain a hearing and to achieve a resolution of their claims," Chase spokeswoman Patricia Wexler tells CNBC Make It. "Arbitration may be conducted in person, by phone, email, or Skype, avoiding the need to take time off from work."
But whether consumers actually fare better is disputed. The American Arbitration Association, one of the largest administrators, reports 53.3% of consumers who use its services get some type of relief in the cases they file.
But the EPI found that consumers only win relief in 9% of arbitration cases it studied. Meanwhile, when companies bring claims or counter a consumers' arguments in arbitration, they win 93% of the time and the typical consumer actually ends up paying an average of $7,725, according to the organization.
Why mandatory arbitration is a problem
You're probably thinking, who cares? You don't want to sue anyone anyway. That's good. But lawsuits are about more than just getting reimbursed for past harms. They can shine a public light on bigger issues. Consumer advocates believe that Wells Fargo's employee practice of opening unauthorized bank accounts for millions of customers would have been exposed (and potentially ended) much earlier if the company had not enforced mandatory arbitration.
That's because arbitration is a private proceeding that consumers typically navigate by themselves, so there's no easily-accessible public record and no giant group of people calling attention to the issue. In fact, of the 81 companies that enforce arbitration, 79 also ban class action lawsuits, according to Szalai's research. That, Szalai says, can help companies conceal systemic problems or wrongdoing.
"Companies use fine-print, forced arbitration clauses to deprive people of an impartial judge, forcing disputes into a biased, secretive and lawless forum before arbitrators who do not have to follow the facts or the law, who are typically paid by the company," says Lauren Saunders, associate director of the National Consumer Law Center.
Some consumer agreements, including Chase's updated policy, do allow you to take your dispute to small claims courts, which typically handle cases that involve between $2,500 and $25,000 in damages, though the limits vary by state. But Szalari says small claims court is not an adequate replacement.
"I still see it as a very limited compared to a full blown court system," he says. "If I had to fight on behalf of a client, I'd rather go to a full-fledged federal court." Most small claims courts only offer consumers monetary awards in clear-cut cases and aren't able to weigh in on bigger issues of fraud, negligence and actual harm.
Take the 2017 Equifax data breach. While some customers successfully took the credit bureau to small claims court over its alleged negligence that led to the hack, for many, it proved difficult to document specific harms that occur directly because their personal details had been leaked.
How some lawmakers are trying to change it
Earlier this year, Rep. Hank Johnson (D-Ga.) and U.S. Sen. Richard Blumenthal (D-Conn.) introduced the Forced Arbitration Injustice Repeal (FAIR) Act in an attempt to change the current system. Meanwhile, Rep. David Cicilline (D-R.I.), also put forward a separate bill aimed at ending forced arbitration specifically for those in the military.
"There is a lot of use of the phrase 'rigged system' these days," Blumenthal said in a statement announcing the bill. "One of the systems that is truly rigged against consumers, workers, and the American people is our current system of forced arbitration."
If passed, the FAIR Act would eliminate forced arbitration clauses in any employment, consumer, and civil rights cases. Instead, companies, consumers and employees would need to voluntarily agree to arbitration.
While predictive intelligence firm Skopos Labs estimates the FAIR Act has only a 6% chance of being enacted, the legislation received support from over 80 consumer advocates such as the National Consumer Law Center, American Association for Justice and Public Justice.
Federal appeals courts have also been striking down mandatory arbitration agreements. Last week, the Ninth Circuit ruled companies cannot force arbitration in a trio of cases, including a class action suit against AT&T Mobility for excessive roaming fees.
In the meantime, concerned Chase customers can take action. Customers can opt out of the new mandatory arbitration agreement by mailing a letter to the bank by August 7, 2019. California attorney Sara Haji shared a letter template customers can adapt for own use.
If you do decide to opt out of the mandatory arbitration clause, Chase says will not close your account; rather, you will simply retain the right to sue if a dispute should arise.
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