A recent article by Orange County Register Watchdog Columnist Teri Sforza explains some of the harm done to consumers and employees from forced arbitration, drawing in part on AFJ’s short documentary Lost in the Fine Print. The film details the story of Alan Carlson, the owner of Italian Colors restaurant in Oakland, California, who tried to challenge American Express’s high “swipe fees” in court. A forced arbitration clause buried in the fine print of American Express’s terms of service kept Alan from being able to vindicate his rights.
Marina Hoffmann Norville, a vice president at American Express, told the paper her company recently made changes to its forced arbitration policy to keep customers satisfied.
But how significant are the changes for consumers?
For the past decade, companies have been free to make claims about their arbitration policies with little factual support or scrutiny. There was no way to know what the typical arbitration process looked like, if customers were able to take advantage of seemingly consumer-friendly clauses, and whether consumers were actually winning cases in arbitration. But all that changed earlier this month, when the Consumer Financial Protection Bureau released its comprehensive, in-depth study of forced arbitration. Now, consumers are able to fact-check company claims.
So we decided to fact-check American Express. Is its arbitration clause as consumer-friendly as the company implies?
The answer is a resounding no.
American Express touts its new opt-out policy, which gives customers 45 days from when they first use a new card to opt out of the agreement’s arbitration provision. While “agreeing” to forced arbitration is as easy as swiping your Amex card, opting out is a bit more onerous. To even find the provision, customers have to get to one of the last pages of the cardmember agreement—just past the “governing law” and “assigning the agreement” sections. Customers then have to print, sign, and snail mail a rejection notice to a P.O. box in El Paso.
It’s unsurprising that consumers rarely take advantage of these opt-out provisions. According to the CFPB’s study, though over a quarter of credit card contracts include a similar provision, not a single consumer of the 570 interviewed had opted out. Only three consumers reported being given an opportunity to do so—but those three were mistaken. None of them actually had a contract which would have allowed them to opt out.
We did find one place where American Express is an industry leader: conducting forced arbitration in secret.
Only two credit card issuers of the 66 examined by the CFPB expressly includes a confidentiality or non-disclosure clause in its forced arbitration provision. American Express, which mandates that “[t]he arbitration will be confidential,” is presumably one of them. These clauses prevent wrongdoing from being exposed and remedied on a large scale. Consumer laws, which protect us all from fraud and discrimination, vindicate critically important societal goals. They should be enforced in the full sunlight of the courtroom—not in a private tribunal that American Express closes off to the public.
The rest of Amex’s arbitration clause is similarly unfriendly to consumers. The company provides a carve-out from forced arbitration for small claims court, as do 99 percent of credit card contracts. But like the opt-out clauses, these provisions rarely help consumers; they are more likely to be used by companies trying to collect debt. In 2012, looking at selected states and large cities, the CFPB was only able to identify—at most—39 small claims cases brought against American Express by a consumer.
Like 40.9 percent of credit card forced arbitration clauses, American Express’s includes a right to appeal an arbitrator’s decision—but only to three more arbitrators. The company is also unusual in that it “will consider in good faith making a temporary advance of your share of any arbitration fees.” Over 40 percent of credit card contracts require the issuer to do so.
If American Express truly wants a consumer-friendly arbitration policy, it should give its customers the right to choose whether or not they arbitrate—not in the form of an arcane opt-out policy, but after a dispute arises. If arbitration is as fair, quick, and affordable as proponents claim, it’s hard to imagine why customers would turn it down.