Binding or Forced Arbitration, the process of requiring customers, patients, and nursing home residents to agree to settle disputes outside of court, has been gaining popularity. From a big business perspective, arbitration significantly reduces the costs associated with a legal dispute and traditionally favors the party being sued over a death, injury, or other grievance.
In the past year, binding or forced arbitration in nursing homes has been a frequent topic of conversation as conflicting actions have played out within the Centers for Medicare and Medicaid Services (CMS), the agency that oversees federally funded nursing homes in this country. Last year, the Obama Administration and CMS passed a rule that would ban binding arbitration clauses as a condition of admission to nursing homes. In December, a federal judge in Mississippi blocked the enforcement of the ban. And in the most surprising move of all, just last month CMS did a 180 and decided that they would support binding arbitration clauses in nursing home admission contracts.
What is Binding Arbitration?
Binding arbitration clauses, one of many rules embedded in lengthy nursing home admission paperwork, require nursing home residents to agree to settle disputes with a nursing home-selected third party serving as a negotiator. Often unsure what a binding arbitration clause entails, residents or their loved ones are signing on the dotted line, unaware that they have given up their 7th Amendment right to a jury trial. Families have found themselves grief-stricken after a loved one has wrongfully died or is injured, only to have their grief compounded by discovering that their only path to demanding accountability is by negotiating with a nursing-home selected represented who essentially holds all of the cards. Studies have shown that arbitration tips the scales in favor of the defendant, leaving the injured party (plaintiff) with less favorable outcomes than they would receive from a jury trial.
Bank Customers and Student Loan Recipients Also Victims to Binding Arbitration
In Closing the Courthouse Door, a New York Times piece published this week, the newspaper addressed other victims of binding arbitration, including bank customers and those who obtained student loans from for-profit colleges and educational institutions.
The Consumer Financial Protection Bureau (CFPB) recently issued a rule that would allow bank customers to initiate or join a class-action lawsuit against their financial institution, thereby eliminating binding arbitration clauses as a legal and cost-saving tactic used by banks. The paper points out the victims of the Wells Fargo banking scandal, which left thousands of customers unaware that 2 million false accounts had been opened in their names as a way to meet banker sales quotas. Wells Fargo clients had to sign binding arbitration agreements, essentially allowing the bank to get away with paying significantly less to the victims of their deceit and fraud.
The CFPB rule has caused a stir among some Republicans, who unsuccessfully tried to stall the rule until they could determine what financial impact it would have on big banks. The rule is currently set to go into effect next year.
For those who receive student loans from a for-profit university, the Department of Education is attempting to reverse another Obama-era rule that prevented the institutions from forcing disagreements over student loans to go through arbitration and not through the court.
The bottom line is that arbitration agreements are everywhere. Former President Obama passed several laws to prevent their use, including in nursing home admission contracts, in employment agreements (for those suing businesses receiving federal funding), and in student loan agreements. However, with a current pro-business administration, it seems binding arbitration is coming back with a vengeance. To quote the New York Times, “If Senate Republicans, once again blinded by their antipathy to President Barack Obama, vote to repeal this rule, they will join their House colleagues and the Trump administration in closing the courthouse door to vulnerable, victimized and defrauded Americans.”