Forced arbitration clauses are a form of wealth transfer to the rich


A federal judge called America's move to forced arbitration and bans on class-action suits -- bans favored and enabled by Scalia -- "among the most profound shifts in our legal history."

The Consumer Financial Protection Bureau (CFPB) is currently floating a rule that would limit forced arbitration, ensuring that people had access to the courts when they were wronged by finance companies. While most of the debate about forced arbitration focuses on unfairness, the outcome of that unfairness is wealth transfer: because forced arbitration takes away your legal rights and bargaining power, it constitutes a parallel system of justice whole laws are literally written by corporations to give them the upper hand when they wrong their workers and customers.

Companies don't rip off the humans they deal with out of sadism: they do it for profit. Unsurprisingly, the effect of a system that enables firms to profit by taking away rights from workers and customers is to make rich people richer, at the expense of poorer people, who become poorer still.

What kinds of claims are run through the forced arbitration system? Claims for wage theft, where companies literally just refuse to pay workers for the hours they have worked (as much as $50B/year is stolen this way in America, affecting everyone from Walmart workers to Oakland Raiders cheerleaders); financial fraud, including deceptive loan practices, hidden fees, and payday loans; and antitrust, where companies conspire to fix prices and rig markets -- health care and pharma companies are particularly aggressive in insisting on antitrust arbitration provisions in their dealings.

A brief from the The American Constitution Society for Law and Policy lays out the case for forced arbitration as a wealth-transfer mechanism in clear language. Several regulatory and legislative initiatives in the coming months have the power to roll back forced arbitration, but they'll need public pressure from people who've taken a moment to learn about this issue which manages to be devastating and obscure at the same time, a bad combination for public policy outcomes!

The trend toward circumventing courts in favor of arbitration, abetted by increasingly consolidated corporate power and a business-friendly Supreme Court, is literally taking money from the pockets of the middle class and working poor. That’s the conclusion Gupta and Khan draw after an in-depth review of the redistributive effects of these increasingly common contract provisions. Gupta and Khan examine the growing use of forced arbitration and bans on class action lawsuits in a variety of employment and consumer contracts and seek to draw attention to the role that these changes to procedural rules play in creating economic inequality in an era when “there is growing recognition that changes in substantive law and legal regimes helped usher in the extreme levels of inequality we see today.”

Arbitration as Wealth Transfer [Deepak Gupta and Lina Khan/The American Constitution Society for Law and Policy]

(Image: Uber)

Golden Lady Justice, Bruges, Belgium, Emmanuel Huybrechts, CC-BY)

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