This post first appeared on the Securities Arbitration Alert blog. The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.
A new survey of over 1,000 American consumers: “reveal[s] that most consumers do not pay attention to, let alone understand, arbitration clauses in their everyday lives.”
We excerpt below verbatim in bullet format the key findings by Roseanna Sommer of the University of Michigan Law School in What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (Jul. 25, 2023):
- Most consumers do not pay attention to, let alone understand, arbitration clauses in their everyday lives. The vast majority of respondents (over 97%) report having opened an account with a company that requires disputes to be submitted to binding arbitration (e.g., Netflix, Hulu, Cash App, a phone or cable company), yet most are unaware that they have, in fact, agreed to mandatory arbitration (also known as “forced arbitration”).
- Respondents overwhelmingly (over 92%) report that they have never based a decision to use a product or service on whether the terms and conditions contain an arbitration agreement. They largely endorse the following reasons:
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they were unaware of the arbitration clause;
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they did not read the terms and conditions; and
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they thought they had no choice but to agree to mandatory arbitration.
- Many respondents presume that if a dispute arises, they will still be able to access the public courts, notwithstanding that they agreed to the terms and conditions. Consumers are largely unaware of opportunities to opt out of mandatory arbitration.
- Generally, consumers are unaware that companies like Cash App and Venmo (mobile payment systems utilized by nearly 60% of respondents) allow customers to opt out of mandatory arbitration if they act within a limited time period. Among the minority of respondents (21%) who stated that they had been given an opportunity to opt out, vanishingly few could name any of the steps that would have been required to opt out successfully.
- When presented with a run-of-the-mill contract, of the type consumers routinely encounter, most respondents did not take notice of the arbitration clause. Less than 5% of respondents could recall that the contract they were shown had said anything at all about arbitration.
- [M]ost consumers misperceive the consequences of signing a predispute arbitration agreement. Most mistakenly believe that, after agreeing to terms and conditions mandating binding arbitration, they can still: choose to settle their dispute in court, have a jury decide their case, join a class action, and appeal a decision made based on a legal error.
- In summary, consumers are generally unaware of whether their contracts contain arbitration clauses, and consumers who have agreed to such clauses tend to hold mistaken beliefs about their procedural rights, including wrongly believing they can still sue in court.
Situation is Different at FINRA
We note that FINRA Rule 2268 aims to eliminate these surprises. Section (a) states: “Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following language in outline form: This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows ….” And, section (b)(1) provides: “In any agreement containing a predispute arbitration agreement, there shall be a highlighted statement immediately preceding any signature line or other place for indicating agreement that states that the agreement contains a predispute arbitration clause. The statement shall also indicate at what page and paragraph the arbitration clause is located.”
(ed: *We are not surprised by the survey results. **The survey analysis is also available in PDF format.)
