By: Jonathan Vaitl

The Federal Communications Commission (“FCC”) recently announced that it has begun internal processes toward a proposed rule that would ban or restrict mandatory arbitration clauses in consumer contracts with Internet Service Providers (“ISP”) and wireless service providers.[1] The FCC expects to produce a Notice of Proposed Rulemaking by February 2017.

The FCC’s announcement comes on the heels of an editorial in Time by FCC Commissioner Mignon Clyburn and Senator Al Franken attacking the practice of mandatory arbitration clauses in these consumer contracts as unfair and harmful.[2] In the editorial, Commissioner Clyburn and Senator Franken note that a study by the Consumer Financial Protection Bureau in March 2015 found that 99.9% of wireless contracts contained a mandatory arbitration clauses, of which 99.7% also specifically prohibited class-action lawsuits.[3] Senator Franken has introduced legislation to ban pre-dispute arbitration clauses in consumer contracts, but the bill has stalled.[4] With Senator Franken’s bill being dormant since it was referred to the Judiciary Committee on April 29, 2015, the FCC may offer the best chance of restricting or banning the use of arbitration clauses in these types of contracts.

The concern for Senator Franken and the FCC is the inability to bring class-action lawsuits. This goes right to the heart of AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), in which the U.S. Supreme Court held that an arbitration agreement waiving consumers’ right to bring contract claims as a class was valid. In the realm of Internet or wireless provider contracts, the damages any single consumer might suffer is likely too insignificant to warrant the expense of a dispute. In the view of Franken and the FCC, if consumers cannot band together to fight against “surprise fees” or price increases, then they lack all power to hold Internet and wireless providers accountable.

The FCC likely would not promulgate a rule until the end of 2017, and likelihood even of a proposed rule may depend on the outcome of the presidential election. Support for this type of restriction has rested almost entirely with Democrats. A Republican president may alter the makeup of the FCC (currently three Democrats and two Republicans), which could spell the end of this effort. Regardless, this remains worth watching, as mandatory arbitration clauses in consumer contracts affects virtually all of us.

Endnotes:

[1] Federal Communications Commission, Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, WC Docket No. 16-106 (2016) (statement of Chairman Tom Wheeler).

[2] Senator Al Franken & Mignon Clyburn, How Your Internet Provider Restricts Your Rights, Time (Oct. 23, 2016), http://time.com/4541176/al-franken-arbitration-clauses/?iid=sr-link2.

[3] Consumer Financial Protection Bureau, Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a) (March 2015), http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.

[4] See S.1133 Arbitration Fairness Act of 2015