Consumers May Be Signing Away Their Rights

Increasingly, lenders, finance companies, credit card companies, and other business entities that deal with individuals in ordinary consumer transactions are inserting mandatory arbitration clauses in their contracts and application forms. These arbitration clauses threaten to deprive consumers of legal options that have previously been used to prevent unfair and abusive business practices. Arbitration clauses are often buried in the fine print of paperwork provided to consumers. Many consumers do not realize that they have signed an arbitration agreement when they enter into a simple transaction with a company, such as filling out a credit card application. Many more consumers do not realize what it would mean to their ability to enforce their rights if they are forced into arbitration.

Arbitration is an example of what is known as alternative dispute resolution. Arbitration is different from litigation in the court system in many respects. The most notable distinction is arbitrated disputes are not decided by juries. In most civil lawsuits, a jury of one's peers will determine the outcome if the case proceeds to trial. With arbitration, there are no juries, only an arbitrator or arbitration panel to determine the outcome. Another difference concerns the opportunity to participate in discovery to learn about the other side's contentions and evidence. In an ordinary lawsuit, the attorneys will use discovery procedures to find out what parties and witnesses may testify to at ttial and to learn about the basis of a party's claims or defenses. With arbitration, there is often little or no chance to conduct fact-finding discovery. In many instances, there is no discovery and not even a hearing. The arbitrator may decide the dispute based upon written submissions of the attorneys without even hearing any witness testimony.

Additionally, with arbitration, the parties must pay the arbitrators' fees, administrative fees of the arbitration association, and the fees of their lawyers. Arbitrators' fees can be more than $200 per hour. Since arbitration clauses often deny consumers the right to join class actions, consumers with small claims lose their only realistic chance of pursuing those claims.

Business entities should not be permitted to include mandatory arbitration clauses in ordinary consumer transactions. Since most consumers' claims are often for less money than it would cost to pursue those claims in arbitration, many consumers are forced simply to write off those losses. Those losses, while relatively small for each consumer, can add up to huge additional, but unearned and unjustified, profits for the business entities committing unfair practices. The high costs of arbitration, the limitations on discovery, and the prohibition of class actions make mandatory arbitration clauses in ordinary consumer transactions unfair.

Arbitration was not meant to replace the court system and the right of parties to have disputes decided by a judge or a jury. Arbitration was not intended for disputes arising from ordinary consumer transactions involving parties with unequal bargaining power. When Congress passed the Federal Arbitration Act in 1925, it was intended that arbitrations would take place between companies with relatively equal bargaining power and financial resources. Nowadays, companies are including arbitration clauses in ordinary contracts, loan documents, and application forms their customers sign. The arbitration clauses that many companies are including in the paperwork often work to deny those customers the right to challenge the companies' business practices.