Solarbird (solarbird) wrote,
Solarbird
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On the arbitration ruling

Okay, I'd started an econ post, but it got too big, so I'm breaking it into chunks.

The first thing I want to talk about is this ruling from the Supreme Court, which overturns California's law limiting the ability of corporations to send customer complaints against contract violation to court. DISCLOSURE: I haven't read the full ruling, only analysis, but everyone agrees that it basically says that a user agreement can wipe out the ability to go to court in a dispute, and can force you into arbitration on the company's terms.

Corporations have, over the last few decades, captured the regulatory agencies that are supposed to regulate them. This is why no banker, no investment house member, no real-estate interest is going to go to jail despite having deliberately and clearly engineered a system built on fraud from the ground up which led to the real estate bubble and collapse. And that's only one example, of course.

The only rules restraining behaviour at this point are: 1) Do I get away with it? And 2) Do I make a profit? That's all.

Another manifestation of this is the reality wherein violations of law and the tiny fines which result are simply a cost of doing business. They're well aware that no actual punishment will be handed out, and that the fines will be well less than the profits made by various illegal activities, so the fines are merely another cost of doing business. C.f. above: no penalties. (See also how this leads to $220m in bailouts to wives of banking executives, but that's another story.)

But corporations are always looking for ways to get still more money. One way to do this is to nickel-and-dime fraud millions of customers. Most won't notice, but a few will. Until yesterday, a restraining force on this sort of thing has been the class-action lawsuit, one of the few mechanisms wherein the revenue from some form of fraud or abuse might actually be completely lost. It might actually hurt, so it's been a restraining factor.

So they started turning to arbitration clauses to block such possibility of redress; they want to force you, as an individual, to take them to arbitration under their rules (with an arbiter they hire) to get back the $60 they stole from you in illegal or non-contracted fees. As a class, applied to everybody affected, that's real money; but as an individual, it's a lot of work for a single person and even the people who do notice often won't bother.

Various laws have been in place saying no, you can't do that, it's bullshit; it's a way to make violating contract on a mass scale legal. And until yesterday, the courts have generally* sided with that view.

Now the US Supreme Court has removed such protections. Arbitration clauses are upheld, and the California law banning them has been removed. As a result, the restraint against this kind of systemic abuse - one of the last ones remaining, as far as I can tell - has been removed.

The takeaway for you is that the list of bad behaviour which now passes the "Do I get away with it/Does it make a profit?" law just grew a lot bigger. Sure, you can complain, and you'll maybe even get your money back. If I were them, I'd make a show of that, for PR purposes. It's a lot cheaper than the bad publicity, and a lot cheaper than the old class-action payouts used to be.

And it's a tiny fraction of the money to be made this way. Look for this behaviour to become systemic in very, very little time.


*: eta: "generally," a word I meant to have here to begin with. It hasn't been as clear-cut as my original, errant, sentence implied. Also, and importantly, I have not done a survey. See comments.
Tags: economics
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