Telephone and cell phone service providers routinely stick their customers with forced arbitration terms that prohibit them from pursuing legal action as a class.
In 2002, seven million California long distance customers who had been subjected to the terms of a forced arbitration clause in their contracts filed a class action lawsuit against their provider, AT&T. They were challenging an AT&T arbitration clause that: 1) stripped consumers of various rights, including the right to file or participate in a class action; 2) exempted AT&T from several California consumer protection laws; 3) forced consumers to pay costly arbitration fees; and 4) used a gag rule to prohibit any consumers from discussing disputes that arise with AT&T. The U.S. Court of Appeals for the Ninth Circuit struck down the arbitration provision. Still, AT&T successfully argued that the Federal Arbitration Act trumps California state consumer protection laws, such as the Consumer Legal Remedies Act. This completely undermines the power of states to provide relief and protection to their consumers forced into arbitration.
In 2007, two groups of California T-Mobile customers challenged T-Mobile’s $200 flat early termination penalty and practice of installing a locking device in its handsets to prevent consumers from switching services on the same phone. T-Mobile attempted to use its arbitration clause to shield the company from a class action lawsuit over the unfair terms of service. The California Supreme Court struck down the class action ban. The same year in Washington, Cingular customers brought a class action over improper long distance and/or out-of-network “roaming” charges, alleging that individual customers were overcharged up to $45 a month. Like California, the Washington Supreme Court also stuck down the class action ban in Cingular’s arbitration clause.