News & Politics  
comments_image Comments

Corporate Legal Rights Grow As Courts Block Pro-Consumer Class Action Suits

Consumer activists find a 2011 Supreme Court ruling has blocked dozens of class action suits, instead forcing consumers into arbitration.

Continued from previous page


Concepcion was the latest in a series of decisions, beginning in 1984, in which the court has expanded the ability of corporations to impose arbitration on their customers. These decisions have been based on an ever-expanding interpretation of a 1925 law, the Federal Arbitration Act, which was intended to support the ability of businesses to settle disputes among themselves.  Since then, corporations have commonly imposed arbitration clauses on consumers as a condition of renting a car, signing up for a credit card or purchasing a cell phone.

In Concepcion, the Supreme Court opened up a giant new area for arbitration clauses to be used against consumers. Essentially, the court ruled that if companies inserted anti-class-action language in their contracts, consumers and states would be forced to live with the terms. The case was brought by a couple, the Concepcions, who were charged $30.22 in taxes on a phone that AT&T had offered for free in exchange for purchasing their service. The Concepcions believed this charge violated AT&T’s promise to provide a free telephone. They filed a class-action lawsuit on behalf of themselves and the thousands of other customers who had paid similar charges for “free” phones. However, AT&T sought to block the class action because its contracts included a class-action ban. Although a district court and federal appeals court ruled in favor of the Concepcions, the Supreme Court reversed the decision in favor of AT&T.

The court’s 5-4 decision amounted to “a shield against corporate accountability,”  said Deepak Gupta, the Public Citizen attorney who argued the case. Gupta likened the decision to a shield because bringing a class-action lawsuit is often the only economically viable way for consumers to hold companies accountable for systemic wrongdoing.

There is hope.  The growing use of arbitration has not escaped federal regulators attention. The Consumer Federal Protection Bureau (CFPB) has announced its intention to study the effects of arbitration agreements in contracts. The CFPB has the power to restrict the use of forced arbitration in contracts for financial services products. The bureau this week proposed the investigation and welcomes comments until June 23, 2012.

But until federal policymakers act to protect consumers from one-sided contracts, April 27 will always mark the anniversary of a devastating day for consumers’ rights.


Negah Mouzoon is a researcher with Public Citizen.