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The Federal Arbitration Act was enacted in 1925 to promote the use of arbitration as an efficient dispute resolution method.  Sadly, in the context of consumer agreements, arbitration has become a method for companies to avoid liability for fraud and other illegal actions. To be fair, when parties of equal bargaining power have negotiated a contract at arm’s length and agreed to arbitrate disputes, the result may be considered fair.  But in recent years, the use of forced arbitration in boiler plate consumer contracts has become abusive. 
 
Consumer contracts for everything from insurance to cell phone service to lingerie to leases to software licenses contain arbitration agreements. These agreements are all contracts of adhesion, that is, take-it-or-leave-it agreements drafted by the business.  Thus, the party (the business) with the greater bargaining power presents these agreements to the party with the lesser bargaining power (consumers) who have no choice but to accept the agreement as is if they want to purchase the goods or services. They are given no opportunity to negotiate the agreement; if the consumer wants the goods or services, they have to accept the contract as written or forego the purchase opportunity.
 
Beginning early in the 21st Century, the use of arbitration agreements in consumer contracts of adhesion exploded.  By now, almost all major companies routinely include mandatory arbitration clauses with class action waivers in their standard contracts. Consequently, the warning of John Adams has come true: “Representative government and trial by jury are the heart and lungs of liberty.  Without them, we have no other fortification against being ridden like horses, fleeced like sheep, worked like cattle and fed and clothed like swine and hounds.”
 
Arbitration agreements in consumer contracts are unfair to consumers for a myriad of reasons.  For starters, consumers often are unaware they have agreed to arbitration as the terms may be buried in lengthy contracts to which consumers consent with the simple click of a mouse.  And, even if consumers are aware of the arbitration clause, they often do not understand the rights they are forfeiting.  What makes this all so much worse is that even if there is a savvy consumer, because arbitration agreements are so prevalent, consumers who fail to agree have no access to most consumer goods or services, including such basic needs as cell phones and Wifi service.
 
This ubiquitous use of arbitration agreements significantly erodes consumers’ rights.  By agreeing to arbitration, consumers relinquish their constitutional rights to a jury trial.  Arbitration decisions are final, and there are only very minimal opportunities for appeal, even in cases of legal error.  Arbitrations often restrict discovery, which hinders consumers’ ability to gather evidence to support their claims.  And, although arbitration is marketed as cost effective, consumers may face substantial costs, including their fees and arbitration charges, which often are prohibitively expensive to average consumers, further deterring them from pursuing valid claims.
 
Arbitration proceedings are weighted in favor of large companies, giving them a virtual “get out of jail free” card.  Businesses that frequently engage in arbitration may develop relationships with arbitrators, leading to biased outcomes.  Even more pernicious is that it is in the best interests of the arbitral forums to find in favor of the businesses, as that enhances the likelihood that the businesses will identify that arbitration forum in its form contracts as one that must be used.
 
Historically, class actions have been the mechanism allowing consumers with modest financial damages to seek redress and hold large companies accountable.  Since most arbitration agreements in consumer contracts include clauses that prevent consumers from participating in class action lawsuits, it has become nearly impossible for consumers to challenge wide-spread corporate misconduct.
 
An example of the harm to consumers engendered by arbitration agreements may be understood by evaluating the recent class action case against Capital One[1].  Capital One did not have an arbitration agreement in its consumer savings account agreements.  If it had, for all practical purposes, consumers would have been denied relief for that bank’s consumer fraud.
 
Until mid-September 2019, Capital One offered the 360 Savings account to members of the general public, and advertised the 360 Savings account as a “high-interest” and “great rate” savings account. The rate paid on the 360 Savings account then was 1.00%.  At that time, Capital One abruptly dropped references to the 360 Savings account from its website and simultaneously introduced a new online savings account with an almost identical name: “360 Performance Savings,” which was advertised as a “high-yield” online savings account. From the moment it was created, this new 360 Performance Savings account featured a higher interest rate (1.90% APY) than the 360 Savings account (1.00% APY). There were, and are, no material differences between these two accounts other than the interest rate.  Although Capital One ceased offering the 360 Savings account to new depositors, it continued to maintain that account for preexisting 360 Savings accountholders. Until after the class action was commenced, Capital One did not notify its 360 Savings accountholders that the 360 Performance Savings account was available, that 360 Performance Savings was, in fact, a different account and not just another name for the 360 Savings account, or that 360 Performance Savings account paid a higher rate of interest than the 360 Savings account. Instead, Capital One left its 360 Savings accountholders in the lower-yield account and hoped that they would not notice.
 
Beginning in about January 2022, Capital One increased the rate paid on the 360 Performance Savings but kept the rate paid on the 360 Savings Account at the same low rate.  At the time of the lawsuit in July 2023, the rate on the 360 Performance Savings was 4.30% while the rate on the 360 Savings remained at 0.30%, all these changes were made without notifying, and in fact, concealing the new 360 Performance Savings Account to 360 Savings Account holders.
 
In a settlement that presently is pending before the Court (final hearing November 6, 2025), in exchange for a Release, Capital One has agreed to provide a common fund in the total amount of $425 Million Dollars, to be shared among those account holders in the 360 Savings Account to compensate them for their lost interest income. If Capital One had included an arbitration agreement in its savings account agreements, depositors in the Savings 360 account would have been unlikely to recoup their lost interest income.
 
If, notwithstanding an arbitration clause, plaintiff consumers try to litigate in Court, they have very few defenses to prevail against a motion to compel arbitration.  The avenue that has had some limited success is to argue that the consumer did not consent to the arbitration clause.  This is particularly useful in challenging on-line agreements.  The notice that there is an arbitration clause must be clear and conspicuous; for example, a hyperlink alone without affirmative assent is insufficient to compel arbitration.  Other factors that may argue against consent to the arbitration clause are that the font is too small, the design is distracting, there is no checkbox to agree to the arbitration clause or there is no statement that continuing with the agreement constitutes consent to the arbitration agreement.  However, arbitration agreements are so effective and their enforcement so widely recognized that businesses now are carful to highlight in bold the arbitration agreements in their consumer contracts as they have no reason to hide them.
 
The statistics are telling.  According to the American Association for Justice, the number of forced arbitration cases skyrocketed 467% in 2022, while the win rates for consumers and employees plummeted to just 0.7%.
 
Since 2017, there has been a series of legislation proposed in an effort to stem this tidal wave.  Most recently, in April 2023, 37 senators and 80 members of the House of Representatives introduced legislation to stop the use of unfair forced arbitration clauses, which they believed were widely used to limit the American’s access to justice.  The FAIR (Forced Arbitration Injustice Repeal) Act would have amended the Federal Arbitration Act to eliminate forced arbitration clauses in consumer, antitrust, employment and civil rights cases, and would have allowed consumers and workers the option to choose freely arbitration after a dispute occurred.  Despite the fact that the present state of arbitration deprives Americans of the basic right to their day in court, this legislation died in committee.