Well, you can add Paypal to the growing list of sleazy companies that seek to impose mandatory arbitration clauses on their unsuspecting customers. I learned of Paypal’s slimeball approach to this dirty consumer trick a week ago while checking my email on a Sunday evening. Before detailing Paypal’s mandatory arbitration trick, let me fill you in on the history of this epidemic of corporate chicanery.
Many companies have jumped on the mandatory arbitration bandwagon over the past couple of decades. It is a particularly popular strategy for employers and consumer services organizations. The trick works like this: A company decides that it does not want to run the risk of having a customer or employee sue it in court before a jury of peers. Doing so is not fun for companies because juries often times frown on things like false and deceptive business practices and go on to hold companies accountable for them. Worse, juries sometimes go so far as to award punitive damages against companies in cases of intentional misconduct.
Realizing this, companies love to impose arbitration agreements, which state that the parties “agree” to arbitrate their claims before an arbitrator, or panel of arbitrators, instead of before a jury. The arbitrator is a lawyer, and typically one that is affiliated with some organization that is friendly to the business interests of whatever category the company is a member of. Once that arbitration “agreement” is established, the consumer has no right to bring lawsuits against the company in a court of law.
The problem runs far deeper than losing the right to trial by jury and replacing it with an arbitrator who is usually aligned with the defendant company. These agreements also typically require the parties to “share” or split the costs of arbitration. The problem here is that arbitrations are extremely expensive. Why? Because arbitrators are paid for everything they do, whereas judges and juries generally come free of charge once the lawsuit filing fee has been paid. As attorneys, arbitrators charge premium rates, typically in the range of $200 – $400 per hour, hardly a frugal or practical approach to dispute resolution. The parties also have to pay the arbitration service that “administers” the arbitration. Check out the American Arbitration Association (AAA) website for a list of the various charges that you will pay half of if you must arbitrate through this service, which is a popular one chosen by companies. The AAA is, by the way, Paypal’s choice of Arbitration service, although Paypal, to its credit, does offer to pay arbitration fees in claims involving amounts less than $10,000.00. (Of course, cynics could argue that this is Paypal’s way of ensuring allegiance of the arbitrator.)
The net result is that arbitrations are incredibly expensive and, for the vast majority of people, cost-prohibitive. In a typical consumer dispute, the consumer can expect to shell out a minimum of ten thousand dollars in arbitration and arbitrator service fees alone (apart from the consumer’s own attorney’s fees) in order to play this game. Consequently, arbitration agreements frequently serve to prevent parties from ever asserting perfectly legitimate claims because of the prohibitive costs required.
Now, here’s the worst part: courts bend over backwards to uphold and enforce these arbitration agreements. Appellate courts announce that arbitration agreements are supported by strong public policy considerations because they serve to lighten the heavy caseload of our court systems. The obvious translation is that judges like arbitration agreements because they help judges avoid having to work on more cases. It’s the ultimate judicial conflict of interest (i.e., for a judge to declare that “it is strong public policy to get it off my desk”), but such is the way of our underfunded and lazy court system.
With this so-called “public policy,” courts go to ridiculous lengths to enforce arbitration agreements, no matter how under-handedly they are imposed by companies. Legally, a valid arbitration agreement must be agreed to by both sides. Nevertheless, companies have become steadily more aggressive in imposing these so called agreements without any agreement, or even knowledge, by the opposing party. These days, the best you as a consumer or employee can hope for is to have the arbitration clause appear in fine print on the back side of a purchase agreement or in the middle of terms and conditions provided after the deal. Check out your credit card terms and conditions for a classic example.
But many companies nowadays don’t even provide this much notice. Instead, they resort to cheap tactics like the one our dear friends at Paypal unleashed last week. Here is how you and millions of other Paypal users have unwittingly “agreed” to waive your rights to jury trials against Paypal. Last Sunday, at 8:42 p.m., Paypal issued a mass email to customers under the boring title line of “Notice of Policy Updates.” As a result of the day and time sent and the inconspicuous title line, I’m sure the majority of consumers simply deleted the message without reading or, perhaps, have skipped over it, maybe to come back to another day. Plenty were probably snagged by spam filters. If you open the message, however, you learn that the snakes at Paypal have chosen to ramrod a mandatory arbitration agreement that requires you to resort only to mandatory, binding arbitration of claims that you may have in the future against Paypal unless you “opt-out” of the agreement by November 1, 2012. That’s another swell touch, notifying consumers of this “new policy” at nighttime of Sunday, October 14, 2012, then giving all of 17 days to read and understand the unilaterally imposed term and to take steps to “opt out” of it.
Best of all, in order to learn how to “opt out” you must logon to Paypal, and click a hard to find notice of the additional terms. You then must patiently scroll through the fine print to learn that Paypal demands you issue an opt-out letter full of various required information to its General Counsel – by U.S. mail, no less. Unbelievable, but true: the same assholes who inflict this waiver of the right to trial by jury on its customers by mass email demand that you opt-out by mailing a stamped letter to them. Heaven forbid you just send them a reply message of “No thanks, guys.”
And with that, you, the consumer, have unwittingly waived your rights to sue Paypal in court, using the judge and jury system that your tax dollars have already paid for. Tune in next post for some more thoughts, warnings, and suggestion on how to deal with this growing business practice and, in the meantime, opt-out of it, please.