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Federal Judge: Corporations Can’t Slip Fine Print on Websites By Consumers

Federal Judge: Corporations Can’t Slip Fine Print on Websites By Consumers

photo credit: LendingMemo via photopin cc

By Paul Bland
Executive Director

It’s bad enough that corporations are endlessly sticking incredibly unfair terms into the mouse-print contracts that consumers have to sign. Even if we cheat you, you can’t sue us is a common mantra.

But some corporations have taken this a step further, for consumers who buy goods or services online. Instead of telling their consumers the truth—“if you want to buy something from us, we’re taking away your rights”—corporations hide the fine print contract terms and then later claim consumers “agreed” to them by clicking a button to purchase a product. 

On February 5, U.S. District Judge James Zagel said, in effect, that enough is enough! He refused a corporation’s effort to force consumers out of court and into arbitration (a private and secretive system where corporations basically pick judges, who generally favor the corporations), when the corporation had not given the consumers reasonable notice that clicking on a button to complete a purchase would mean that they were losing their right to go to court.

The case is Sgouros v. TransUnion, and it involves consumer deception claims. Public Justice’s Gabriel Hopkins and Leslie Bailey were brought in by the plaintiffs to help keep the case in court. The plaintiffs are represented by Michael Reese and George Granade of Reese Richman and Christopher Sanchez of Cafferty Clobes Meriwether & Sprengel. 

Basically, TransUnion sells consumers credit scores for $39.99, although the scores aren’t really of any value because they don’t actually have the same numbers that creditors get, such as a car company approving you for a loan.

Under federal law, every consumer can get a free copy of their credit report from each of the three big credit-reporting agencies (TransUnion, Equifax and Experian). The credit report has objective facts about what creditors report to the agencies, but it doesn’t make any judgment about what those facts mean. So your credit report should include all the negative things that any creditor says about a consumer (if you paid your cable bill late, that will probably show up on your credit report). Every smart consumer should get their credit report every year, so you can tell if there’s anything false on it, and get that corrected.

But when people go to get their free credit report, the credit reporting agencies try to sell them a credit score. (Instead of a free experience, it’s now a $39.99 one.) Supposedly, the credit score should tell a consumer what companies will think about the information on your report, how they’ll evaluate the importance of all those facts.

The thing is, the credit scores that TransUnion is selling aren’t actually valuable. Most companies that look at credit scores to determine whether to lend to a consumer either look at an industry standard credit score (like the Fair Isaac or FICO score), or use their own scores. The basic idea of Sgouros’s lawsuit is that consumers who pay $39.99 for TransUnion’s credit score are wasting their money because it doesn’t reflect what potential lenders would see. It turns out that the score TransUnion gives consumers is often dramatically different than the credit scores that most companies actually use to judge consumers’ credit-worthiness.

For lots of corporations, it is impossible for a cheated consumer to go to court to fight when a company tricks them into buying a worthless product. Even if a corporation broke all kinds of laws, most corporations require consumers to “agree” to arbitration clauses that say the consumer can’t go to court, but has to go to arbitration. And the five conservative justices on the U.S. Supreme Court just love mandatory arbitration clauses, and have repeatedly said that federal law favors kicking consumer cases out of court.

But even this Supreme Court says that a corporation can only push a consumer into arbitration if the consumer agreed to arbitrate. And that’s where Judge Zagel says TransUnion screwed up. When consumers like Mr. Sgouros go to TransUnion’s website, they don’t get a clear message that explains “if you buy a credit score here, you can never sue us because we’ll force you into arbitration.”

Instead, TransUnion has buried the arbitration clause in a way that most people won’t notice it. What’s more, TransUnion tells consumers that by clicking a button that says “I Accept,” they are agreeing not to arbitration, but to authorize TransUnion to obtain information from the consumer’s credit profile.

Cynics might say “why does it matter if the corporation has to tell consumers? No one reads any of those fine print contracts anyhow.”

It is true that hardly any consumers read the mouse print on standard form contracts. But it still matters. It’s important to insist that people can only be sent to arbitration if they’re told about it, and have a chance to not buy the product. If corporations don’t even have to tell consumers about these tricky contract terms, but can just hide them, then a bad situation (which is what we have now) would lose any trace of being voluntary.

And if you don’t think things can get worse if corporations can do involuntary things to you, then you should read the paper more often.