Do Corporations Own US, or Do We Have a Dog in the Fight?
by Mike Chada
On June 3rd, CAC had the pleasure of kicking off its 2014 Summer Speakers Series with CAC founder and first executive director, Theresa Amato. Ms. Amato currently serves as executive director of Citizen Works, an organization devoted to rebalancing the power between corporations and citizens. She is also the Director of its Fair Contracts Project. Ms. Amato brought a very important message concerning consumer law, specifically, adhesion contracts. Here’s a brief recap with some history on the subject:
“The meat would be shoveled into carts, and the man who did the shoveling would not trouble to lift out a rat even when he saw one—there were things that went into the sausage in comparison with which a poisoned rat was a tidbit.” This excerpt from Upton Sinclair’s 1906 book, The Jungle, graphically describes the meatpacking industry’s practices at the turn of the 20th century, which led to a wave of consumer protection laws being passed. At this time, the United States was experiencing unprecedented growth in the manufacturing industry, which spread to all facets of life. Consumer protection was not a widespread issue until after the release of the book.
This newfound consumer awareness led to the first wave of major consumer reforms through the Pure Food and Drug Act of 1906, which created the Food and Drug Administration (FDA) in the interest of providing more information on the products to consumers. As the economy kept growing, the market for new goods and services grew with it. In 1938, after about 100 people died due to poisoning from elixir sulfanilamide, a popular strep throat medicine turned into liquid form, the government recognized and responded to the need for increased safety regulations by passing the Food, Drug and Cosmetic Act. This was the second wave of consumer laws focused not just on awareness, but more importantly on safety, by including the testing and approval of new products. In 1958, in his book The Affluent Society, John Kenneth Galbraith critiqued the economy for its championing the supremacy of commercial values without attention to public values, thus shedding light on corporate marketing tactics on unsuspecting consumers.
In the 1960s and 1970s, consumer legislation saw its heyday. By the 1960s, with the rise of affluence in the middle class, the automobile became an extremely hot commodity. According to the US Census Bureau, the number of registered vehicles doubled from 1950-1970 to a total of 110 million. Ralph Nader, a young lawyer seven years out of Harvard Law School, noticed an increase in fatal car accidents and those ending in serious injury, especially in the Chevrolet Corvair. After some investigation, Nader wrote Unsafe at Any Speed, a book that criticized the poor safety standards of many American cars with a focus on General Motors (GM). His work quickly became recognized around the country, and he was summoned to testify before Congress. The country was riveted to the televised hearing held against the industry giant GM. The prevailing attitude was, “What is good for GM is good for America.” In an effort to discredit Nader and alter his testimony in front of Congress, GM hired a private investigator to tail him. The Washington Post, among other media outlets, exposed GM’s plot, and Nader won a lawsuit against GM for $6 million for harassment. The head of GM had to apologize to Nader in front of Congress for intimidating a witness testifying before it. This began the third wave of new consumer activism, and Nader used the money to set up various consumer-friendly organizations. Meanwhile, Congress passed bills to protect our water, our air, our safety rights in the workplace, and our rights to access government records.
After this event, there was a lull in the fight for consumer rights. For 30 years there were virtually no laws until the Dodd Frank Wall Street Reform and Consumer Protection was passed in 2010, in which the Consumer Financial Protection Bureau was created.
Although there was much improvement in consumer advocacy during the first half of the 20th century, there is still much work that has to be done. It is estimated that 70% of the United State’s gross domestic product (GDP), or the sum of all spending in the economy, consists of consumer spending. According to Trading Economics, the United States has a GDP of roughly $15.6 trillion, which comes close to $11 trillion in consumer spending. It is the duty of the Federal Trade Commission (FTC) to monitor this spending; yet, the FTC has fewer than 1,200 employees and an annual budget of $300 million--not quite $1 per U.S. resident per year. In addition, the Internet age has created a whole virtual world that must also be regulated by the FTC with no additional funding or employees. Overall, there are simply not enough people on the side of the consumer to make it a fair fight.
This brings us to the current issue of adhesion contracts. Have you ever clicked “agree” to terms and conditions to use services or software such as iTunes? If so, did you ever take the time to actually read these contracts? Most likely you did not. These contracts are typically very long and complex, causing many people to simply agree without truly understanding the agreement., which is not surprising since they can number 75,000 words and written at a post-graduate reading level. These are known as adhesion contracts, meaning that they are an agreement by two parties to do a certain thing that are drafted up and heavily favor one party over the other. Particularly troublesome is that most adhesion contracts are standard across entire industries, which leaves consumers with no other choice but to agree.
Even more troubling are the arbitration clauses that are included in many of the contracts, which require that consumers resolve their disputes outside of the courts. The Supreme Court of the United States favors the power of corporations to pre-dispute mandatory arbitration clauses. This is a major disadvantage for the common consumer who does not understand the implications of waiving their right to sue in court. Arbitration is private and expensive; there is no rule of law or precedent; and the arbiter need not be a lawyer.
While, it seems like this issue is an uphill battle for the common consumer; however, it is not a hopeless fight. One simple tactic to try to battle these contracts is to ask for an explanation of what the contract actually says. This will typically cause frustration for many companies that use these contracts with the intent of increased efficiency. Recently, General Mills decided to change its Legal Terms to include arbitration clauses on its coupons and claimed application to all General Mills products. This revision of the Legal Terms was met with widespread opposition from consumers, causing General Mills to quickly rescind their modifications and return to the original Legal Terms that the consumers supported. This is a perfect example of educated consumers successfully challenging a major corporation without lengthy court trials or large financial loss.
This program was made possible in part by a grant from the Illinois Humanities Council, which is supported by the National Endowment for the Humanities, and the Illinois General Assembly.
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