General Mills found itself in a media storm when it changed its legal terms to preclude customers from suing who’d done something as simple as “liking” the company on Facebook or visiting their Website. Almost any interaction would constitute agreement to terms of service requiring arbitration, rather than court, for any disputes. General Mills quickly reversed course, but most consumers are unaware how common such clauses are in companies of all kinds, often lurking in the fine print on Websites. We look at what consumers need to know.

Guests

  • Bill Rand Prof of Marketing and Computer Science; Director of the Center for Complexity in Business, University of Maryland's Smith School of Business
  • Andrew Pincus Partner, Mayer Brown
  • Ami Gadhia Senior Policy Analyst, Consumer's Union

Transcript

  • 12:06:40

    MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. We encounter them all day long, those long legal terms of service of pretty much every digital service we use. We click and agree without thinking twice or even reading them in most cases. But what if you didn't click agree at all? General Mills, maker of Cheerios, Bisquick, and thousands of other products, recently took its privacy policy to a new level.

  • 12:07:18

    MR. KOJO NNAMDIIt amended the legal terms to say that just about any interaction with General Mills, from downloading a discount coupon to joining the online community, would mean you agreed to its legal terms, including forfeiting your right to sue. That means any dispute would have to be resolved through arbitration. Customer backlash was fierce and the company quickly reversed course. But similar terms of service are everywhere and most consumers just don't know it. Joining us to talk about this is Ami Gadhia, senior policy analyst at Consumer's Union. Ami Gadhia, thank you for joining us.

  • 12:07:56

    MS. AMI GADHIAThank you.

  • 12:07:57

    NNAMDIAlso in studio with us is Bill Rand. He's a professor of marketing and computer science and director of the Center for Complexity in Business at the University of Maryland's Smith School of Business. Bill Rand, thank you for joining us.

  • 12:08:09

    MR. BILL RANDThank you.

  • 12:08:10

    NNAMDIJoining us by phone is Andrew Pincus. He's a partner at Mayer Brown, an international law firm with offices here in Washington D.C. Andrew Pincus, thank you for joining us.

  • 12:08:20

    MR. ANDREW PINCUSGreat to be with you.

  • 12:08:22

    NNAMDIYou can join this conversation by calling 800-433-8850. Did you know that by using a product or joining a company's online community, you may be waiving your right to sue? Give us a call, 800-433-8850. You can send email to kojo@wamu.org. Ami Gadhia, can you explain for us the move that got General Mills in hot water with its customers?

  • 12:08:44

    GADHIAYeah, so a couple of weeks ago, General Mills quietly announced on their website -- it was a little bar at the top of the website that said, if you download a coupon, if you engage in a sweepstakes with us, if you join us in our online communities, you will be agreeing that if you have any kind of dispute that arises from any of our products -- and, you know, it could be a child who has an allergy, a peanut allergy and the food is not labeled, but it has peanuts in it, they consume the food and they get very sick -- any dispute, even one like that, you were agreeing under these terms of service to give up your right to pursue that in a court of law.

  • 12:09:26

    GADHIAAnd you were agreeing to forced arbitration of those claims. And they got quite a bit of pushback from consumers about that.

  • 12:09:34

    NNAMDIBill, you know that this happened in part because General Mills has pretty effectively used its website and social media. Can you talk about the expectations people have when they're interacting with companies today?

  • 12:09:46

    RANDSure, yeah. I mean, General Mills did -- was very active on social media. Their "Hello, Cereal Lovers" campaign that they've been raising has really been quite a boost for them in terms of getting people involved in dialog. And consumers really expect something different when they work with a company on social media versus when they even go to their website or buy a product or something like that. They view social media as a common space -- a place like a park or something like that, where everyone's interacting and talking about what's going on.

  • 12:10:15

    RANDAs opposed to things like websites, which are viewed more like going to someone's house, where there's a different type of expectation as to what you can do -- or buying a product from someone, in which case there's also different expectations about what your interaction with that brand is. And so as a result of that, companies really need to be aware of how to interact with people on social media and very differently than they would in a normal transaction type basis.

  • 12:10:37

    NNAMDIAmi, as you mentioned earlier, General Mills saw a huge backlash on this and reversed course. But how common are these kinds of clauses?

  • 12:10:44

    GADHIAThey're quite common. And with the General Mills example, specifically, they had very broad language in there that could be interpreted to say that if you even buy their product, you were somehow giving up this right to pursue your claim in a court of law and be put into forced arbitration. As you noted, these claims, excuse me, these kinds of clauses are very common. They're in all sorts of consumer transactions that we see every day. You go to buy a cell phone, you sign up for a credit card, you put a loved one in a nursing home, and you could be signing away some significant rights without even knowing it.

  • 12:11:18

    NNAMDI800-433-8850 is the number to call. Do you read the terms of service when you go to websites, download coupons or buy products online? Give us a call. How much time do you spend doing it? 800-433-8850. Or send email to kojo@wamu.org. Andy Pincus, the General Mills case obviously touched a chord among consumers, but from a company's perspective, what are the reasons to include such clauses?

  • 12:11:46

    PINCUSWell, I think it's important to distinguish the General Mills case which, as Bill said, really I think involved a situation in which consumers were surprised, didn't have notice and there was something done that really didn't accord with anybody's expectations, with question of whether arbitration is a good deal for consumers and for companies. And I think arbitration is a good deal for consumers and companies, because we have a legal system that's very expensive, very slow and very hard for anyone to access. And what arbitration does is make more justice accessible for more people.

  • 12:12:21

    PINCUSIf we have a dispute -- if you have a dispute with a company -- it costs an enormous amount of time and effort to get to court. And arbitration is quick, it's easy. Often you can arbitrate via email. You can do it via web chat. You don't even have to do it in person. You could do it via a teleconference and get your dispute resolved. And courts supervise arbitration to be sure that it's fair. So companies are turning to it because they think it's a good deal because it gives their consumers a better access to an opportunity to get their claim resolved.

  • 12:12:54

    NNAMDIAndy, you successfully argued a key Supreme Court case involving class action suits in 2011 -- AT&T Mobility versus Concepcion. Can you explain briefly that decision and how it relates to what we're talking about here with General Mills?

  • 12:13:10

    PINCUSSure. One of the questions in arbitration is, how will the arbitration be conducted? How will the disputes be resolved. And traditionally, arbitration has been a one-to-one situation. Somebody has a dispute, they bring it to arbitration against the company and it gets resolved. The question was, what do we do about class actions? And can an arbitration system, which allows more access to justice for individual claims, require that everything be done on an individual basis and preclude class-based claims?

  • 12:13:44

    PINCUSAnd what the Supreme Court said is, yes it can because of a federal law called the Federal Arbitration Act that protects the enforceability of arbitration clauses. Now, the Supreme Court decided that case as a matter of statutory construction. It didn't address the policy issues. But I think, and now there's a vigorous policy debate about whether that makes sense as a policy matter. I think it does, because I think what companies say is, we will create this arbitration system. We will absorb much more of the costs of getting a dispute resolved than would be true if a consumer had to go to court.

  • 12:14:21

    PINCUSAnd therefore, consumers are going to bring more claims. But we're going to do that if we can have everything decided in the arbitration system and not have to spend lots of money on lawyers in courts defending class actions.

  • 12:14:36

    NNAMDIAndrew Pincus is a partner at Mayer Brown, an international law firm with offices here in Washington D.C. He joins us by phone. Joining us in our studio is Bill Rand. He's a professor of marketing and computer science, and director of the Center for Complexity in Business at the University of Maryland's Smith School of Business. Ami Gadhia is a senior policy analyst at Consumer's Union. We're inviting your calls at 800-433-8850. Andy Pincus, I'm glad you brought up policy issues, because big companies are often the target of lawsuits. Some of them may be frivolous.

  • 12:15:07

    NNAMDIAnd there are people looking to collect big damages, which gets us into the ongoing debate around tort reform. Some have described these clauses as tort reform by other means. What say you?

  • 12:15:20

    PINCUSWell, I think they're a way to create a fair alternative to the litigation system, because of the problems that you talked about. I think, and I say this as a lawyer, the litigation system works great for lawyers. Plaintiffs' lawyers and defense lawyers, they get the lion's share of the money that gets allocated to dealing with litigation. And that's really not very sensible. And so what companies are trying to do is say, can we create an alternative that lets us reduce legal costs for companies, put more of the expense associated with resolving disputes into settlements or money that goes to our customers?

  • 12:15:57

    PINCUSCan we make it cheaper for our customers to get complaints resolved and basically cut out a lot of the money that goes to the lawyers? I mean, one thing that's quite interesting -- a lot of this controversy revolves around class actions, do you think they're good or bad? And we actually tried -- did a study of class actions filed in a particular year in federal court, a randomly selected group, and here's what we found. First of them -- none of them are decided on the merits. Two-thirds of them don't provide any benefit to the class members. They're resolved with nothing going to the class members.

  • 12:16:30

    PINCUSAnd the one-third that are resolved, first of all, we don't really know who gets the money. We're all familiar with those coupons or things we get in the mail saying, here's a settlement. Maybe you'll get something. And most people throw them away. And so what we found is, for the few settlements that we -- there's data for, an infinitesimal proportion of the class every collects anything. So the defense lawyers do great, the plaintiffs' lawyers do great, but real people really aren't getting much.

  • 12:16:55

    NNAMDII want to go to the telephones to Alexander in Washington D.C. Alexander, you're on the air. Go ahead, please.

  • 12:17:02

    ALEXANDERHi, yes. So, I want to say, a few years ago I worked at the Chu (sp?) Charitable Trust, I've actually lost it now, and we did a study on these sort of arbitration clauses in checking accounts and they're very prevalent. And one of the things it discouraged is consumers bringing action against companies, you know, for sort of nickel and dime actions, that don't -- wouldn't produce a lot of benefit to sue on your own, less -- for an overdraft fee. But suing all together, it can change bad practices. And the new Consumer Financial Protection Bureau actually has the authority to conduct a study on these clauses.

  • 12:17:37

    ALEXANDERAnd if they find out they're harmful to consumers, they'll be allowed to ban them from checking and, you know, from banking contracts. So that's sort of one glimmer of hope here.

  • 12:17:47

    NNAMDIKnow anything about that at all, Ami Gadhia?

  • 12:17:50

    GADHIAWell, I think, you know, that study that Alexander mentioned, you know, it could be interesting to see what the Consumer Financial Protection Bureau has to say about that. And, you know, we're obviously big supporters of the CFPD. But I wanted to go back to something that Andy Pincus mentioned.

  • 12:18:06

    GADHIAYou know, if you hear what he's saying about how arbitration seems to increase access to justice, or increase access to dispute resolution for consumers, I think the question that we, as consumer advocates, have is if forced arbitration, which is very often buried in, you know, that sheaf of papers you get when buying a cell phone or it's buried in some contract which, you know, you get along with your credit card or, you know, it may not even be something that you get when you're engaging in the transaction. You may get it in the mail.

  • 12:18:40

    GADHIAOr as the General Mills case highlighted, you know, it may be something that you get simply by downloading a coupon or liking something online. I think the question that a lot of consumers have is, if forced arbitration is so great, as Mr. Pincus laid out, why is it not something that consumers are allowed to choose? Why is it buried in these contracts, which are very often take-it-or-leave-it contracts. You know, you go to get your credit card, you go to sign somebody up for a nursing home, you go to get one of these checking accounts that Alexander just mentioned, and you can't sit there and negotiate, you know the individual terms of the contract.

  • 12:19:16

    GADHIAIt's, if you want this service or this product, you got to just take this contract. And so you have no power as an individual consumer to, A, even know this is in the contract, B, negotiate it and, C, make the choice. You know, if arbitration is so great, let consumers decide if that's something that they want to choose, you know, that if it's seemingly so great, it's something that they would then want to -- it would seem they'd want to sign up for it.

  • 12:19:40

    NNAMDIAndrew Pincus, most of us know that when we click, I Agree, online, it means we're entering into an agreement, even if most of us don't take the time to read the fine print. But when it comes to services many of us use regularly, we may not even need to click, Agree. Netflix, for example, has a line in very small print at the bottom of its home page that reads, "Use of the Netflix service and this website constitutes acceptance of our terms of use and privacy policy." Use of the website. Can merely going to a website mean you agree to the terms of service, Andy Pincus? And is this new territory -- can we be bound to the terms of an agreement we do not proactively sign, one that perhaps we may not even be aware of?

  • 12:20:21

    PINCUSWell, courts police these form contracts and forms agreements under a legal rule called unconscionability, which basically says courts are not going to enforce terms that are unfair or that are composed in an unfair manner. So I think consumers do have a lot of court protection both respect to general terms of service, but in particular with respect to arbitration agreements because in order for arbitration to be enforceable, there has to be a contract.

  • 12:20:48

    PINCUSAnd I think the General Mills example, for example, we don't know because it never got to court, but I think a consumer would have a very strong argument that simply liking something, wholly unrelated to the purchase of the product, couldn't possibly create a contract to resolve disputes with respect to a product that the consumer purchased days later that has nothing to do with what they were doing on the website. So I think there are lots of legal protections that are already in the system that would prevent that kind of thing.

  • 12:21:16

    PINCUSBut I want to go back to this question about take it or leave it. I do think stepping back we're in an economy now where consumers get great benefit from the economies of scale, from mass distributions of products. Cell phone companies have more than a hundred million customers. That allows them to provide great economy of scale. The trade off of that is they're not negotiable. I can't go to Verizon and say, gee, I'm interested in this package that you're offering but my kids actually do a lot more text messaging. So can we have less voice minutes and a little more text message and then I'm ready to sign?

  • 12:21:58

    PINCUSThey basically have a take-it-or-leave-it product because that allows them to have economy of scale. And that translates into a dispute resolution system also. What they do is say, if we can put all of our disputes into one system that's going to give us economy of scale that allow us to do better for our customers. And saying, gee we'll let everybody choose means that they won't have those economies of scale. And therefore the additional cost that they incur in setting up an arbitration system won't be worth this.

  • 12:22:30

    PINCUSSo unfortunately, like everything else in this mass consumer society we live in, these contracts provide benefits but the tradeoff is they're not negotiable. But there is court supervision of the terms and especially of the terms of an arbitration agreement.

  • 12:22:46

    NNAMDIBill Rand, I'm so glad that you're director of the Center for Complexity in Business because this is as complex as it gets.

  • 12:22:51

    RANDYeah, yeah, for sure. Yeah, I mean, I definitely agree that there are certain expectations that are placed upon consumers when they're entering into different types of transactions. And one thing that's interesting is the difference between something like a cell phone and something like a cereal box, right. So consumers have different expectations entering into those two different transactions.

  • 12:23:13

    RANDWhen buying a cell phone there are certain expectations that have been placed on them over the years, certain things that they learn to expect, like they're going to lock into a contract for a couple years off it, right. And they're going to have certain requirements about how they're engaging with that.

  • 12:23:25

    RANDOne of the big things that caused the General Mills hullabaloo to blow up so much was the fact that this is something that people bring into their homes and they feed to their children, right. It's something that people have a very different relationship with. And as a result, there should be different expectations of how consumers are going to interact with organizations and what demands the organizations can place on them in that space.

  • 12:23:46

    RANDIf -- one of the benefits of social media and digital marketing is that companies can truly reach out directly to consumers to try and help them in what they're doing and try and talk to them on the same channels that they're used to talking to. On the downside of that is that the consumers then have that ability to reach back across the channel, reach back into social media and tell consumer -- companies when they're doing something wrong or incorrectly. And so as a result we see a lot more discussion about what's going on.

  • 12:24:10

    NNAMDIAndrew Pincus, I know you have to go. Do you have any final comments for us?

  • 12:24:13

    PINCUSWell, I think that last point is really important. I think although, you know, these contracts may be take it or leave it with supervision by court, the advent of social media gives consumers a voice they never had before. And if a company does something that consumers think is unfair or over the line, they're going to be able to complain about it, not just about the contracts that are offered but also going back to the example of a checking account that has unfair terms.

  • 12:24:42

    PINCUSBefore social media really there was only the legal system as a way for people to try and uncover wrongdoing. But now there are a lot of social media sites that can get relief for consumers much faster than a court. I know there was one example a year or so ago that was quite famous. A company said we're going to -- you can pay online but we're going to impose a $5 charge for online payments. Someone started an online protest and within a day the company had retracted the charge. So I think in thinking about the relative power of consumers, we need to take account of the fact that courts are no longer the only game in town.

  • 12:25:21

    NNAMDIAndrew Pincus is a partner at Mayer Brown, an international law firm with offices here in Washington, D.C. Thank you for joining us.

  • 12:25:27

    PINCUSThanks very much.

  • 12:25:28

    NNAMDIWe're going to take a short break. When we come back, Ami Gadhia and Bill Rand will still be here and we'll still be taking your calls at 800-433-8850. Do you think companies should be able to require customers to use arbitration instead of suing in court to settle disputes, 800-433-8850? I'm Kojo Nnamdi.

  • 12:27:29

    NNAMDIWelcome back. We're talking about arbitration agreements in the wake of the brouhaha caused by one such by General Mills which eventually revoked it. In studio with us is Ami Gadhia, senior policy analyst at Consumer's Union and Bill Rand. He's a professor of marketing and computer science and director of the Center for Complexity in Business at the University of Maryland's Smith School of Business. And we're taking your calls at 800-433-8850. I'd like to go to Charles in Washington, D.C. Charles, you're on the air. Go ahead, please.

  • 12:27:59

    CHARLESHi, Kojo. Yes, this is Charles Martin. I'm the author of a book on contracts exactly like this called "Every1's Guide to Electronic Contracts." And I just wanted to make two quick points. One, the point made by the lawyer that the courts are always ready to police these types of contracts is true in theory, but it's totally false in practice. Because very few individuals who buy a $5 box of cereal or a $50 cell phone and feel that they're being cheated out of 2 or $3 in the contract or even $10, it's not practical for them as an individual to go to court.

  • 12:28:39

    CHARLESAnd that's why you have these class actions, but of course the arbitration clauses themselves say you cannot have a class action. So it's a bit of a catch 22 there. The other point is about the caller who talked about the Pew Charitable Trust study. That is one of the basis for the Consumer Financial Protection Bureau study that has already come out with some preliminary results and will be finished by the end of this year.

  • 12:29:06

    CHARLESThere's a lot of anecdotal talk about class actions are bad, you know, the lawyers only make the money, you know, or they're good. But there's very little actual study of data. The Consumer Financial Protection Bureau was the first really broad study of credit cards and checking accounts and what they have supervision over.

  • 12:29:25

    CHARLESAnd if you look at the preliminary results that they released I think in February, it goes to the point made by one of the panelists that if arbitration is so good why don't consumers choose it for themselves. Even in contracts that allow the consumer to choose arbitration, they don't. It's always the company that's choosing arbitration, which makes you have to wonder how great it is.

  • 12:29:49

    NNAMDICharles, thank you so much for your call. Ami Gadhia, you wanted to address this issue of court supervision of arbitration systems.

  • 12:29:57

    GADHIAYes. Charles raised a very important point and took the words right out of my mouth. There was -- Andy Pincus talked about court supervision of arbitration. And as Charles mentioned, a lot of times it's very much in theory. The other thing to keep in mind, which the General Mills case highlighted, was the arbitration -- the forced arbitration clause in some of these contracts itself says that if there are any disputes about the enforceability of that arbitration clause, they've got to go to the arbitrator to be decided It's not like you can go to a court of law immediately or at all and have that decided.

  • 12:30:33

    GADHIAIf you think that's unfair that they're forcing this arbitration on you, the contract that you don't have any choice in signing says you've got to go to the arbitrator to decide whether the arbitrator's the right way to go. I think people also may not be familiar with what arbitration involves. Arbitration is something that's very often done with these associations which provide the actual arbitrator who may or may not be a lawyer, many times is not a lawyer, deciding these cases.

  • 12:31:02

    GADHIAAnd you have an individual consumer who may be coming to this arbitration association one time on this one claim, as Charles mentioned. You know, it could be something like a $5 box of cereal, $50 cell phone. But the company that's on the other side very often is a repeat customer for these arbitration associations. They're going to be coming -- with every claim General Mills will be coming to this arbitration association for business. You know, you can sort of think logically about where...

  • 12:31:30

    NNAMDIHence a relationship develops between -- here's an email we got from AG in Hyattsville, Bill Rand. "Your guest (unintelligible) states that companies that impose arbitration for the good of the companies" -- I'm sure of that -- and customers seriously forced arbitration exists solely for the benefit of the companies who use it. The arbitration systems are created, managed and often staffed by the companies. It's like playing basketball but every game is played on your court and you get to pick and pay the referees. Any benefits to the consumers," says AG, "is purely coincidental. What do you say, Bill Rand?

  • 12:32:01

    RANDSo as Andy pointed out, social media does give a great way for consumers to express these problems, to express the facts that they don't like the way that these arbitration claims are being handled and what they're doing, right. And that can result in policy changes. That can result in law changes. They affect the way the consumers can then pursue their claims against large organizations.

  • 12:32:23

    RANDAnd yes, consumers don't like unfair organizations. And they've taken that out again and again against those organizations when they're given the power within law to do so, right. And so they've gone off their organizations and pursued unfair claims. And, you know, the power of the voice that they now have is that everyone can talk. Everyone has the ability to get up on their soapbox, on their blog, on their Twitter feed, on their Pinterest board, right, and express their disinterest. And they're quite hatred at companies that don't do what they want them to do.

  • 12:32:56

    RANDAnd we've seen the rise of the consumer powers as a result of that, right. Consumers now have an increasingly amount of power when it comes to discussing these things in the open form.

  • 12:33:06

    NNAMDIBut I want to get back to the peanut example that you used earlier, Ami, because a lot of people's minds go to that. If a child is injured by eating peanuts that were not mentioned on the list of ingredients, could an arbitration clause preclude a lawsuit? Have any courts weighed in on a case like that?

  • 12:33:22

    GADHIAYeah, if you look at what was in the General Mills language that they then eventually retracted, they said any dispute or claim involving their products, use of their product or purchase of their product would have to be then pursued through forced arbitration. And it's also binding. Whatever decision the arbitrator comes up with -- which by the way the arbitrator's not bound by the same sort of legal precedence that a court of law would be bound -- whatever that arbitrator decides, you then are stuck with it as the consumer. You don't have a chance to then bring it to a court of law to appeal it.

  • 12:33:55

    GADHIAAnd so after the 2011 Concepcion case, Supreme Court decision, there was -- the decision came down from the Supreme Court that said that, listen anything that -- even if a state law tries to say that class action arbitrations where consumers can ban together, even in the arbitration forum to try to pursue claims as a group, which they may have -- that levels the playing field, right, between a group of consumers and the company on the other side -- even that the Supreme Court didn't uphold.

  • 12:34:26

    GADHIASo I think it's a natural extension of that to say that if you are forced to go into arbitration -- and based on this language that's buried in a terms of service or terms of use -- that you never saw and never had a say in, that peanut allergy claim, which could've made your child very sick, you may be stuck with the arbitration.

  • 12:34:47

    GADHIAIn that arbitration, it's you the consumer versus this company one on one. Andy Pincus said, listen it's cheaper, it's faster, it's easier. But who's coming -- who would General Mills be bringing to that arbitration? They wouldn’t send the bee. They wouldn't sent the Trix rabbit. They'd send their army of lawyers, you know. That's a pretty unfair deal for a consumer who's then, probably to try to protect themselves, going to have to hire an attorney. And it's no cheaper.

  • 12:35:12

    NNAMDIHere is Katrina in Washington, D.C. Katrina, your turn.

  • 12:35:17

    KATRINAHi. I've heard a lot of thought-provoking questions here but I'm going to force myself to stick to the point. I haven't been involved in a lot of arbitration but I think to me, and I think to most people, it feels like you're settling, like you're meeting somewhere in the middle, a compromise. So -- and I'm hearing, you know, that this is the trend of the future. And I've even heard somebody refer to arbitration as justice.

  • 12:35:44

    KATRINASo looking at any kind of debate, dispute, argument, whether it's over a product in the neighborhood association, a national debate, increasingly I see one extreme presented, another extreme presented and the solution is always, always somewhere in the middle.

  • 12:36:06

    NNAMDIBill Rand, does an arbitration necessarily imply compromise?

  • 12:36:11

    RANDFrom a consumer's point of view it could potentially lead to that, right. It could potentially. They might perceive in that way. A lot of them feel like the day in court is something that gives them the ability to speak up and have a voice, right, and have their positions held. Now I would argue that even if companies get their way and arbitration is the wave of the future and that's what happens and, you know, we imagine a world in which there is no way for a consumer to seek recourse, companies still have to watch out what they're doing, right.

  • 12:36:37

    RANDI mean, the fact of the matter is, in the General Mill's case they never even got to the point of actually pressing into these arbitration claims before they had to take back their language. And the reason why that happened was because of the uprising of citizens and consumers who were concerned about the language that was in there, right. So even in a world in which arbitration is the de facto standard, companies still have to react to what consumers are saying on social media, still have to react to the new power the consumers have via digital marketing and the internet, have to react to what's going on in their blogs and their (unintelligible) .

  • 12:37:05

    NNAMDINevertheless and in spite of, Ami Gadhia, congress has considered legislating on this. Can you talk about the Arbitration Fairness Act and where it stands?

  • 12:37:16

    GADHIASure. So the Arbitration Fairness Act is legislation that's been introduced in both the House and the Senate that would ban this kind of forced arbitration that's buried in these take-it-or-leave-it contracts. It would ban it in consumer and employment contracts. We at Consumer's Union are supporters of the Arbitration Fairness Act.

  • 12:37:33

    GADHIAI just wanted to turn to something that the caller said about arbitration seeming like a compromise. I guess the question in response to that would be, you know, why is it buried? Why is it something that companies are not up front about? Why is it forced on consumers? They don't get any choice to decide that that's how they want to determine their dispute.

  • 12:37:51

    GADHIAIn a lot of these arbitration contracts it says, you cannot -- you have to go through this arbitration association that the company elected. And that arbitration association could decide the dispute on the other side of the country. So you're having to hire a lawyer to go up against the legal team that the company's bringing. You're having to fly across the country to even arbitrate the case. You're having to give up time at work. This becomes a very expensive forced proposition on consumers.

  • 12:38:15

    GADHIAThe other thing that I wanted to touch on was the Federal Arbitration Act which, you know, was the original statute that was discussed in that Supreme Court case in 2011. But it's important to know that that federal arbitration case -- Federal Arbitration Act, excuse me, originally was intended to address business-to-business arbitrations where you had level playing field, you had equal parties coming to arbitration. But it's overtime been used to justify this unequal secret proceeding known as arbitration that's forced on consumers.

  • 12:38:49

    NNAMDISpeaking of level playing field, I think that's what Jennifer in Rockville, Md. would like to address. Jennifer, you're on the air. Go ahead, please.

  • 12:38:56

    JENNIFERYes, thank you. to me this conversation has missed a critical point which goes back to some of the things the gentleman was talking about in terms of what people expect, what they're expectations are. I think that the ability to bring a class action suit against a company in some way holds open a rhetorical possibility that a company can be held accountable by the people for what they're doing, by a big group of people.

  • 12:39:32

    JENNIFERThat it's not framing a relationship of, you know, oh well we just did this thing wrong to you. Well, we just did this little thing wrong to you over here. No, it's we did this thing wrong to everybody and now we have to be accountable to the things we did wrong for everybody. And sometimes I'm less interested in whether class action suits are effective for individuals who bring them. But I'm very interested in holding open that rhetorical space that they preserve that companies can be held accountable on a mass scale for the things that they do.

  • 12:40:07

    NNAMDIWe talked earlier about class action suits. Why is -- and is the reason that Jennifer is citing, is that why class action suits are important in your view, Ami? Bill?

  • 12:40:18

    GADHIAWell, I think she raises a very good question. You know, you have to ask with arbitration, with this forum that the companies are repeat customers for, they go to these arbitrators all the time, so they know them and they're known quantities and they're good business for the arbitration associations, is that something that maybe the companies are starting to view as a way to control their legal costs and make any type of wrongdoing simply a cost of doing business. Is it something that then you can compartmentalize, as opposed to being forced to change on a larger scale, practices that are not consumer friendly?

  • 12:40:55

    NNAMDIBill?

  • 12:40:55

    RANDYeah, I think the caller has a very important point here, which is that just the expectation of being able to pursue a class action lawsuit, even if it never is actually pursued, provides the consumers with a certain view of the company, a more positive view potentially of what they could have as recourse. A study a couple of years ago showed that when companies make a mistake, when they do something wrong to a consumer, simply saying I'm sorry to the consumer actually vastly increases customer satisfaction with that firm. Right. Nothing else, right.

  • 12:41:26

    RANDAnd it's just that simple rhetorical act. And so in many ways the class action law suit, its existence might provide that rhetorical act, even if it's very inefficient in terms of -- or efficient -- it doesn't matter -- in terms of its practical consequences.

  • 12:41:38

    GADHIAWell…

  • 12:41:38

    NNAMDIGot -- go ahead, please.

  • 12:41:39

    GADHIAOh, sorry. I was just going to add also that, you know, another thing that came up earlier was this idea of, you know, you get a settlement for a very small amount of money. You get the notice in the mail after a class action you had been a part of, maybe even not knowing it. And, you know, we don't think that those sorts of coupon settlements are a good thing for consumers either, but it's about this idea of leveling the playing field, as you said, Kojo, between, not just an individual consumer, but a larger group of consumers that may have been harmed versus a company.

  • 12:42:08

    GADHIAAnd we don't think arbitration provides that level playing field. I also wanted to touch on something you said, Bill, about social media giving a chance for consumers to respond and hold companies accountable. I think we wouldn't have known about this General Mills situation if it hadn't been for that New York Times article. I think that really is what got forwarded on Facebook and people went, "Oh, my goodness. Is this real? Is this really happening?" So I think the power, even with social media and the faster response times, I think a lot of the power lays with -- not in the consumers' hands.

  • 12:42:39

    RANDSo they're -- I mean, it's definitely the case that social media and traditional media reverberate back and forth right now. In fact, we're actually pursuing a study right now that -- at the Center for Complexity in Business -- where we're looking at what are the effects, in brand-crisis situations specifically, of consumers' statements on social media. How does that affect what mainstream media covers?

  • 12:42:58

    RANDHow does mainstream media's coverage effect social media? And we think that'll be -- that's something that's going to be a trend in the future. And I truly believe that social media will be increasing in power, consumers will increasingly have more of a voice as a result of that, and we'll be able to sway these discussions.

  • 12:43:14

    NNAMDIGot to take a short break. Jennifer, thank you very much for your call. You, too, can call us at 800-433-8850. Do you think there are too many frivolous lawsuits? You can also send us email to kojo@wamu.org or a tweet @kojoshow. You can go to our website, kojoshow.org, ask a question or make a comment there. I'm Kojo Nnamdi.

  • 12:45:14

    NNAMDIWelcome back to our conversation on arbitration agreements. We're talking with Ami Gadhia, senior policy analyst at Consumers Union, and Bill Rand, professor of marketing and computer science and director of the Center for Complexity in Business at the University of Maryland's Smith School of Business. I'm taking your calls at 800-433-8850. Bill, can I, as an average consumer, actually read the terms of service for all of the services I use, even if I wanted to?

  • 12:45:42

    RANDSo there was an interesting study done a couple of years ago that basically said that the amount of time it would take you to read all those terms of service is about 27 hours. So -- and those are the terms of service you interact with in a single 24-hour period. Right. So you -- the answer's, no. You can't. Right. You simply can't read all those terms of service in that amount of time. And so there's been some interest on the point of view of consumers of potentially standardizing some of those terms of service, making them a little bit more boilerplate.

  • 12:46:13

    RANDAnd so as a result of that, any exceptions to them, especially on the web, would have to -- where there's frequent interactions with terms of service -- would have to be called out and brought attention to. And that might increase consumers' willingness to interact with companies and brands, even more than they're willing to do so right now.

  • 12:46:30

    NNAMDIWhat are the chances of really arriving at a standardized terms of service agreement that you're talking about? First, kill all the lawyers? I'm sorry about that, Ami.

  • 12:46:40

    GADHIANo. It's quite all right.

  • 12:46:41

    RANDI mean, I do think there's -- currently, under the current situation and the political and legal climate, I don't see much chance, but I'm not an expert in that space. I defer to Ami to talk a little bit more about that.

  • 12:46:51

    NNAMDIWhat do you think, Ami?

  • 12:46:51

    GADHIAWell, I don't purport to speak for all of the, you know, legal counsel in every corporation in America by any means. I speak, you know, just for myself. But I mean I think you're right. I think it would be difficult to say, you know, that every company signs onto these terms of service. And I think even if you had the 27 hours in the day to read them, they're written in really obtuse legalese.

  • 12:47:13

    GADHIAIt's not something -- it's even I, as a lawyer, don't understand what they're saying sometimes. So it's far from transparent and a lot of times it's forcing things like arbitration. There's no consumer choice involved.

  • 12:47:24

    NNAMDIOn to the telephones again. Mike, in Blacksburg, Va. Mike, your turn.

  • 12:47:30

    MIKEHi. One of your panelists was speaking about the power of social media to, you know, correct issues that consumers have with various companies that would have probably or possibly been solved via class action lawsuits in the past. How does that apply to companies like internet providers that have, in many places, monopoly control or at least face very little competition where, you know, anything you say on social media doesn't really change because they can do whatever they want with no competition? Thanks.

  • 12:48:08

    NNAMDIWell, I guess image, Bill Rand?

  • 12:48:11

    RANDYeah, for sure. So there's definitely been a number of companies in the past that have suffered horribly from comments made on social media due to monopoly-type conditions. Comcast in particular was one that went through a huge downturn in customer satisfaction for the product and what they're able to provide. And it was only later that they really started to increase their efforts to reach out to people on social media, to do a better job of providing better customer service, that they were able to recoup some of those benefits.

  • 12:48:42

    RANDBut it is a concern. Right. I mean, image is definitely something that companies need to worry about, even in monopoly situations. Right. They have to worry about how they're being portrayed, what people think of them and how they're interacting. You know, people might not have a choice to deal with them, but they can definitely decrease the share of wallet that that company takes away from them.

  • 12:49:01

    RANDAnd so there are other actions that they can pursue as well. But having options outside of social media is always beneficial to the consumer and simply having that ability provides them with more of a level playing field in that space.

  • 12:49:11

    NNAMDIMike, thank you for your call. You, too, can call us at 800-433-8850. Did you know that by using a product or joining a company's online community you may be waiving your right to sue? We move on to Kelly, in Washington, D.C. Hi, Kelly.

  • 12:49:27

    KELLYHi. Thank you for taking the call. I'm really pleased that you all are having this conversation. I want to talk about a group of consumers that I don't believe has been mentioned, and that is residents in long-term care facilities, nursing homes, assisted living. And they are increasingly -- they are forced to sign arbitration agreements when they're admitted to these facilities. And they are waiving their right to access to court and jury trials for wrongful death and abuse and neglect.

  • 12:49:58

    KELLYAnd I'd appreciate if your panelists could speak a little bit about that because you've talked about the imbalance of power and how the FAA was designed for, you know, business-to-business conflicts, but, you know, a person entering a nursing home, for goodness sakes, they're at a critical stage in their health. They're in a health crisis. And they're certainly not reading the arbitration agreement and weighing whether or not, you know, their admission is worth waiving their right to go to court if they end up, you know, being hurt or killed even when they go into a nursing facility.

  • 12:50:30

    NNAMDIWell, Kelly, apparently it's not just nursing homes. We got an email from Richard, in Alexandria, Va., who says, "Forced arbitration isn't just an issue when you sign up for cell phone, it's spread to employment contracts. If you face discrimination or sexual harassment on the job, a forced arbitration clause may bar you from going to court. Landmark laws, like the Civil Rights Act and the Equal Pay Act, can be undermined." What do you say, Ami Gadhia?

  • 12:50:55

    GADHIAAbsolutely. Both Kelly and the individual who emailed in, they raise very important points. We're not just talking about cell phones and cereal. We are talking about, as Kelly mentioned, if your grandparent suffers abuse, sexual abuse at a nursing home, you could be signing away your right to go to a court of law to pursue that. You are talking about going to this proceeding that doesn't have to follow any legal precedence, any existing law, and it -- the outcome's never known.

  • 12:51:25

    GADHIASo if you, as a consumer experience the same thing that a friend or a neighbor did, if your grandparent was mistreated in a similar way, you may never know because these proceedings are buried. And I think it was Richard who also raised a very good point that you could be undermining -- the arbitration could be undermining existing law because, unlike a court of law, it doesn't have to consider legal precedence.

  • 12:51:48

    GADHIASo these have very, very serious implications for consumer contracts. They're ubiquitous. You know, we all have to get our magnifying glass, as Bill mentioned, on a regular basis to read these terms of service or these contractual clauses. And they can be far-reaching and going in to employment contracts, too.

  • 12:52:06

    NNAMDIWell, let me pile on the legal issues even more. Michelle, in D.C., says, "In the American Express v. Italian Colors case last year, the Supreme Court held that a forced arbitration clause trumped the federal antitrust laws, even where that meant that antitrust violations would never be exposed and remedies? What other federal laws are at risk from forced arbitration?"

  • 12:52:28

    GADHIAI mean, it could be things like the Americans with Disabilities Act. These are -- it could be certain equal rights claims under federal law. These are significant protections that have been long fought and apply to all Americans. And if you were to go to a court a law the Americans with a Disabilities Act would have to be -- the precedent on that would have to be followed. It's just not the case with arbitration.

  • 12:52:50

    GADHIAAnd I think consumers just don't know, very often they don't know these clauses are in the contracts. And if they are able to cut through legalese and the tiny print and see it, they don't realize the extent of the rights that they are signing away.

  • 12:53:03

    NNAMDIBill Rand, what kind of a case study might this General Mills issue be as a lesson in business schools going forward?

  • 12:53:11

    RANDYeah, I think this is a great valuable insight into how to do business in the modern world of social media and visual marketing. Right. We believe that there is a lot of power that consumers have, via social media, to reach out. There's also a lot of power they have to potentially change a company's message in a way the company didn't want that message to be portrayed. Right.

  • 12:53:32

    RANDWhether or not the exact terms -- whatever the terms specified in this particular case, they were definitely changed and altered as people kept spreading the message and saying what they were happening with them. However, that same ability to reach out and spread your message, as a consumer of social media and a producer of social media, is also it gives companies the ability to monitor what you're saying. Right. To be able to see what's going on and then react to it.

  • 12:53:57

    RANDGeneral Mills, you know, did a fairly good job in terms of reacting quickly to what was coming out on social media, similar in many ways to Gap, when they changed their logo a few years ago. There was a huge outpouring on social media that they hated the new logo. Gap quickly reverted back to the old logo and continued on. And really that's what the lesson is, is that you can use this tool, this tool of social media, both to spread marketing messages, but also to monitor what your consumers are saying at the same time.

  • 12:54:24

    NNAMDIOn to Elaine, in Arlington, Va. Elaine, you're on the air. Go ahead, please.

  • 12:54:29

    ELAINEHi, Kojo. This is an interesting show and I got in on the middle of it, but you asked the question before the break about frivolous lawsuits.

  • 12:54:36

    NNAMDIDo you think there are too many?

  • 12:54:38

    ELAINEWell, I think there. And in the law there is a term -- there is such a thing as a frivolous lawsuit and lawyers are not supposed to take frivolous lawsuits. That is lawsuits that have no basis. Unfortunately -- and I'm not a lawyer, but I have been involved in lawsuits where I had lawyers representing me and I've represented myself, a number of lawyers do take frivolous lawsuits.

  • 12:55:03

    ELAINEIt ties up the time of the court. It makes them money. And they, as officers of the court, should not be taking these kinds of suits. They should be saying, "There's no ground here. We're not going to waste our time or the courts time or your money on this."

  • 12:55:18

    NNAMDIAnd you think these forced arbitration clauses in contracts can lead to a reduction in frivolous lawsuits?

  • 12:55:23

    ELAINEI'm not sure whether it will lead to a reduction. I think lawyers -- this is sort of a parallel issue -- doing a better job of policing themselves and really looking at the grounds for lawsuits, so even with these arbitration clauses, are there grounds there, would -- could make a huge difference.

  • 12:55:44

    NNAMDIWhat do you think Ami Gadhia?

  • 12:55:46

    GADHIAWell, I think that there are mechanisms in place to keep frivolous lawsuits from moving forward through the system. And we think that if consumers have legitimate claims, they should be able to bring them in a court of law and not go into a forced arbitration where the deck is stacked against them. So I think it is a separate issue, but we do think that there are already systemic protections in place to kick out frivolous lawsuits.

  • 12:56:11

    NNAMDIOn to Mike, in Reston, Va. Mike, your turn. We only have about a couple of minutes left, Mike.

  • 12:56:18

    MIKEMaybe I can just get a comment briefly from the guests on a more general question of, can companies just put just about anything they want in these agreements that we have hard time reading? And if we sign them we sign on to anything they've decided. You know, there are some cases, General Mills, Facebook and so forth in which there's consumer backlash. The previous guest mentioned legal recourse if something is illegal. But, I mean, how much…

  • 12:56:46

    NNAMDIIs there any limit to what…

  • 12:56:48

    MIKE…is legal and how much…

  • 12:56:48

    NNAMDI…companies can put in this?

  • 12:56:49

    GADHIAI think that's a very open question? I would think that there is a broad amount of leeway for these companies to put a lot of language in these arbitration clauses. And it can be interpreted extremely broadly. You saw in the General Mills case that they said that any kind of purchase or use of their products, so even buying a box of cereal, could then put you into this forced binding arbitration.

  • 12:57:10

    GADHIAAnd the -- as I mentioned earlier -- the issue of whether that language could be conscionable or could be allowable, very often that question doesn't go to a court of law, it goes to the arbitrator themselves to decide, which seems to be quite problematic.

  • 12:57:25

    NNAMDIIn the 30 seconds or so we have left, Bill Rand, which companies are engaging with customers online successfully?

  • 12:57:30

    RANDSo there have been a number of companies that have done this. We often, as shocking as it is, point to the airline industry most recently because of the fact that their use of things like Twitter to respond to customer complaints or rebook flights, be very responsive as to what they're going on there, has been -- really brought them a way to interact with consumers that they didn't have before. Companies like Jet Blue and United have been very successful in their use of social media in the space.

  • 12:57:52

    RANDGeneral Mills is great in their use of this space, but, you know, the thing you have to worry about putting too many terms in here is that you might scare consumers away from those exact services.

  • 12:58:01

    NNAMDIBill Rand is a professor of marketing and computer science and director of the Center for Complexity in Business, at the University of Maryland's Smith School of Business. Thank you for joining us.

  • 12:58:10

    RANDThank you.

  • 12:58:12

    NNAMDIAnd Ami Gadhia is a senior policy analyst at Consumers Union. Ami, thank you for joining us.

  • 12:58:18

    GADHIAThank you very much.

  • 12:58:19

    NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.

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