Kudos to MSNBC’s Red Tape Chronicles for reporting again on a quiet but important consumer issue.  As the good people at Public Justice explain, the U.S. Court of Appeals reversed a federal court’s dismissal of a claim brought against a who’s who of credit card companies, claiming that they colluded to require subscribers to take to arbitration any dispute with each company. (Public Justice posted a copy of the case, Ross v. B of A in pdf; you’ll find it in the linked post.)

As I’ve noted before, the problem with arbitration clauses isn’t arbitration, as much as the limitations on claims and rights that consumers face in that forum. In credit card cases, for example, a common feature of the arbitration clause is that it prohibits class actions.  When a class action ban is enforced in a credit card case, it gives free license to banks to rip off small amounts from millions of consumers. When a credit card company dings you five dollars illegally, you simply can’t afford to do anything about it by yourself. And if you’re one of five million card holders, congratulations, the bank pulled in $25 million illegally and did so simply by making it impossible for consumers to enforce their rights.

So this case–which is in the early stages–may lead to a re-balancing. After all, if the banks got together to collude in a way that prevented consumers from opting out of arbitration clauses, they should be held to answer.

David Sugerman

If you read fiction about trial lawyers, you know there are some pretty inventive plot lines out there. John Grisham thrillers and Phil Margolin crime novels always have neat plot twists.  But I don’t think any lawyer/author working in fiction could conjure up a story this bizzare.

The angels at Public Justice filed a class action lawsuit today to stop the marketing of a kids toy set based on CBS TV’s popular CSI series. The toy contains asbestos.  According to Public Justice, the toy’s fingerprinting powder is laced with a deadly form of asbestos, and kids’ normal use of the product will lead to inhalation of this toxic compound.

Hard to imagine that this kind of thing can happen. Worse than that, it apparently takes a lawsuit to get this irresponsible manufacturer’s attention.

David Sugerman

Good article today at MSNBC on the problem with class action bans. This installment of the Red Tape Chronicles covers the class action ban problem.

You probably “agreed” to this when you bought a cell phone, applied for a credit card, or subscribed to cable. Buried in the fine print of many form contracts is a clause that recites something like, “We agree that all matters will be handled by arbitration, and that neither party will file, pursue or participate in a class action.”

Sounds fairly benign. But what happens when the seller engages in a small, wide-spread rip off? What happens, for example, when they charge you $5 per month illegally, or hit you with late fees in violation of law, or use creative accounting to gin up the monthly just a bit? The problem is that you can’t as a practical matter pursue the $100 rip off. About all you can do is cancel the service and mutter at the unfairness. That is why class action litigation is essential to protect consumer rights. Because when a corporate entity engages in wide-spread small rip offs, they make millions at the expense of consumers. Consumer class actions provide a healthy check on the natural tendency toward corporate greed.

That brings us to the case filed in Seattle by Public Justice against AT&T/Cingular seeking to overturn the class action ban in subscriber agreements there. It’s a particularly nasty example because subscribers got caught without any decent choice in the changeover between the two wireless companies. Leslie Bailey of the public interest law firm, Public Justice, explains it well. I’m a supporter of Public Justice, so no doubt I’m biased. Even so, they’re fighting the good fight for all of us. We should wish them Godspeed because the end of consumer class actions means that corporations can chisel at will.

David F. Sugerman