More on Paypal’s cheap arbitration game

In my last post I came down pretty hard on Paypal for its recently announced “Policy Update,” which imposes mandatory arbitration of disputes on its customers.  I need to give you some additional information about this sleazy scheme and its significance.

First, understand that these arbitration “agreements” are routinely enforced by the courts.  Many people work under the misimpression that unless they sign an agreement they cannot be bound by a company’s unilateral decision to set up its own court system.  How can Paypal possibly send me an email dictating that I must give up my rights to sue it in court, many people ask.  The answer, sadly, is “easily.”  There is, in fact, case law approving of this very underhanded method of mass email as a means of obtaining the “agreement” to arbitrate.  The case law on this subject is not uniform, but most of the cases are quite friendly to this business practice.  As I explained last post, the courts are shamelessly eager to kick cases off of court dockets and into arbitration settings, the better to lighten judges’ workloads.  Consequently, courts are more than happy to find an agreement by silence.  In other words, if you have notice of an announced arbitration system – no matter how flimsy or deceptively labeled – you will be held to it unless you expressly opt-out.

Others wonder why it matters.  Although I provided some reasons in my previous post, there are many others.  In addition to the tremendous costs of arbitration, arbitrator decisions are generally not appealable.  The arbitrator can decide any way he wishes, and, with few largely meaningless exceptions, there is nothing you can do about it.  Remember too that we, as taxpayers, are constitutionally entitled to jury trials.  Furthermore, we pay for courts.  Those tax dollars that you pay each year go, in part, to pay for judges, juries, and the inner workings of the court system.  How asinine is it for a company to demand that you forego that taxpayer funded neutral system of adjudication for a private arbitrator who charges by the hour, plus an arbitration service provider, like AAA, that charges a fee for every scrap of paper you file?

But the biggest concern posed by mandatory arbitration schemes is that it emboldens companies to behave badly.  Traditionally, juries serve as something a great equalizer.  Because juries tend not to be biased in favor of large companies, they do not hesitate to find against one that mistreats consumers.  Paypal, however, is effectively insulating itself from this prospect.  Instead of having to answer to a jury if it commits a false or deceptive business practice, it will now only answer to an attorney – an attorney whose fee Paypal will be paying, by the way.

So what should you do?  The obvious and immediate answer is to opt-out.  As I mentioned before, if you read the Paypal policy, it states that you must mail, via snail mail, a letter to Paypal’s General Counsel to opt-out and you must do so before November 1, 2011.  I recommend that you, at a minimum, send a reply email that states, “I, John Doe, hereby opt-out of Paypal’s proposed mandatory arbitration terms.  My above-stated email address is the address used to access my Paypal account.”

If you send this email (and retain a copy), you will be in good shape to oppose any motion to enforce arbitration if you have a dispute with Paypal in the future.  I have not specifically researched the issue of whether Paypal can indeed require you to opt-out by U.S. mail, but my professional opinion is that it cannot.  I just don’t think a company can dictate the opt-out procedure of an arbitration system that the consumer has not even accepted, particularly when the company itself used email to announce the change in the first place.

If you want to be safer still, mail the letter to Paypal’s General Counsel.  If you want to be fool-proof, mail the letter via certified mail and keep that return card.  If you go this route, please take the time to tell the General Counsel what you think about this entire scheme.  Might as well get your money’s worth out of that stamp.

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