Contracts with credit card companies, banks, cellphone providers and others often include terms preventing customers from taking a company to court, alone or as part of a class with other customers.
The contracts instead require customers to pursue any claims through another legal avenue, called arbitration, where a third-party assesses and decides how to resolve the dispute.
The clauses are controversial. Supporters argue arbitration is a more efficient way to resolve disputes and that plaintiffs’ lawyers can use frivolous class-action cases to net big fees.
Consumer advocates argue the clauses are just a legal hurdle to shield a company from customers pooling resources to pursue shared claims. A 2015 investigation by The New York Times concluded that few people go to arbitration after their efforts at a class-action case is blocked.
Such agreements are standard fare in many industries (the Washington Post reported the NYT series did not detail a clause for customers of its “Times Journeys” trip-organizing business).
The issue has risen its head in a potential Maine class-action case that could involve thousands of households, filed against the retail electricity company Electricity Maine.
Court filings show the company, whose sale to the Houston-based Spark Energy closed Aug. 1, has added an arbitration clause and class-action waiver to their contracts with customers. The second-largest retail electricity seller in the state, FairPoint Energy, has such a clause, too.
The important part of those terms, from Electricity Maine’s new terms, look something like this:
FairPoint Energy’s looks like this:
The agreements face a blow in one important sector — finance — in the coming weeks. The federal Consumer Finance Protection Bureau plans to unveil a rule in the coming weeks to prohibit banks from including such provisions in contracts for bank accounts, credit cards and loans, according to Forbes.
The passages are an important detail for customers shopping around or offered power contracts, particularly as those supply agreements can be complex.
For instance, they can change once a contract is up.
Our reporting found suppliers regularly charged customers more than the power rate every home gets by default, netting a premium of at least $50 million between 2012 and 2015.
Customers whose individual rates changed told us they started with a retail provider for low introductory rates. They later forgot about their contract.
Customers of FairPoint Energy and Gulf Electricity told us for an investigation published in August that it happened to them.
State law allows companies to automatically renew those contracts when they’re up, notifying customers by letter or email, without any confirmation that customers got the message. Customers have a right to reject a contract for up to five days after the company sends the new terms of service, if they happen to see them in that time.
For such customers, arbitration clauses mean they are on their own to try and reclaim any money from those contracts.
Lawyers for the two customers suing Electricity Maine have said the company’s terms before September 2016 did not include arbitration agreements or class-action waivers.
An attorney for Spark said the addition of the arbitration clause was not in response to the lawsuit and wrote that the company’s formal response to the plaintiffs’ latest motion would address multiple points the company said “are not accurate.”