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New rules for disputes with American Express and Instagram

It may not seem fair, but a company can stop you from suing them to settle a dispute. Mandatory arbitration clauses are routinely used by banks, cable and satellite services, wireless companies, pay day loan stores, and online service providers.

When you become a customer, you automatically agree not to sue them or join a class action lawsuit. Instead, you promise to abide by an arbitrator’s decision if there’s a dispute.

Companies that require mandatory arbitration claim it speeds up the dispute process, saves money and prevents nuisance cases. And they point out the U.S. Supreme Court has ruled they have the right to do this.

Last year, eBay, and PayPal gave customers the chance to opt out of their mandatory arbitration agreements. That window has now closed, except for new customers, who have 30 days after joining.

Right now, American Express and Instagram are giving customers a chance to opt out of their mandatory arbitration agreements. Last year, eBay and its PayPal subsidiary did the same thing. But that opt-out window has now closed except for new customers who have 30 days to act.

This seems like a good thing, right? But consumer advocates are highly skeptical.

“It’s just a clever way to appear to be fair while making their arbitration clause more legally bulletproof should someone try to challenge it,” said Edgar Dworsky, founder of ConsumerWorld.org. “They know full well that very few customers will actually opt out, but could argue to a judge with a straight face that no one was forced into arbitration.”

Consumer groups hate arbitration clauses. They are disappointed with the Supreme Court’s ruling and they are annoyed that so many companies now use them – even if they give customers the ability to opt out.

“Requiring people to opt-out of mandatory arbitration clauses is making private arbitration – a system that benefits the company – the default,” said Christine Hines with Public Citizen who wrote a report on how the high court’s ruling has hurt consumers. “The default should be the civil justice system.”  

The details: American Express

American Express instituted a new dispute resolution process on January 1 that gives cardholders the ability to opt out of mandatory arbitration and retain the option to sue in court.

But this is a limited-time offer – it needs to be done in writing by February 15. Here is a link to a sample opt-out form you can use. The company says customers who do not opt out will still be able to take a dispute to small claims court.

Before this, American Express had a mandatory arbitration clause. So why is the company giving its customers the ability to opt out?

“We review our claims resolution processes to incorporate best practices and the latest legal developments, and this change provided more choice to our card members as well as reflected best practices in the marketplace,” said Marina Hoffmann Norville, a spokeswoman for American Express.

The details: Instagram

New terms of service at Instagram take effect on January 19 that include a new way all disputes will be handled. Subscribers agree to “expressly waive trial by jury” and to resolve any dispute through “binding, individual arbitration.”

Instagram says users can still take their gripe to small claims court, but they are barred from taking part in “any class-action (lawsuit) or class-wide arbitration” against the company for any claims covered by the new dispute agreement.

When asked to explain why it is instituting the new policy, Facebook (which now owns Instagram) told NBCNews.com it did not have any comment.

Instagram users have until Feb. 15 to opt out and retain all of their rights. New subscribers have 30 days to do this. Again, it must be done in writing. Here is a link to a sample opt-out letter you can download and use.

Should you care about this?

There are many reasons why a company prefers to go the arbitration route. They argue that this prevents costly class action lawsuits that only benefit the lawyers.

Critics question the fairness of mandatory arbitration because the business you have the dispute with chooses the arbitration company.

“Since many businesses provide these companies with thousands of cases, which generate huge sums of money for the arbitration companies, it’s not surprising that they rule against consumers the overwhelming majority of the time,” noted Paula Selis, an adjunct professor at Seattle University School of Law.

Arbitrators are not required to provide an explanation for their decisions and unlike a court ruling, the outcome is final and cannot be appealed.

Companies also prefer arbitration because the process is secret, so others who have the same problem will never know about it. Class action lawsuits can benefit thousands of people who have been hurt in a similar way.

Even if you win your case, an arbitrator can’t do what a judge can – require the company to change the way it does business. With arbitration, there is nothing to stop the unfair practices that will victimize others.

Should you take the time to opt out of mandatory arbitration when given the chance? Absolutely.

“If a company permits it, the consumer should embrace the opportunity to opt out and preserve his or her rights,” Selis said. “Though you may not think you’re going to sue a company when you first contract with them, some day you may appreciate the right to do so.”

What’s next?

In the Dodd-Frank Act, Congress instructed the Consumer Financial Protection Bureau (CFPB) to study the use of pre-dispute arbitration clauses by financial service companies. It also gave the bureau the power to issue regulations, if needed, to protect consumers.

Last Spring, the CFPB began a public inquiry into how forced arbitration clauses affect both businesses and consumers. In August, it proposed rules that would prohibit mandatory arbitration clauses in both mortgage and home equity loan documents. Final rule are expected to be published this month.

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.