Mandatory Arbitration Clauses Raise Concerns

By Michael Ferry Legal Services of Eastern Missouri | St Louis Post-Dispatch (MO), November 5, 1994 | Go to article overview

Mandatory Arbitration Clauses Raise Concerns


Michael Ferry Legal Services of Eastern Missouri, St Louis Post-Dispatch (MO)


Q: This question is from me to the readers: Have you had any experiences with mandatory arbitration clauses in consumer contracts? If so, I'd like very much to hear from you. I'll summarize your responses in a future column, without using your names.

Some of you may be asking these questions: What are mandatory arbitration clauses, and what do you think of them?

A: In the legal world, the use of "alternative dispute resolution," often shortened to "ADR," is becoming more popular. New ways of resolving disputes are being tried because of crowded court dockets, the high cost of going to court and general unhappiness with the process and outcome of litigation.

With arbitration, you don't go to court. Instead, both parties to a dispute agree on an arbitrator, to whom both of you present evidence. The arbitrator makes a decision, usually one that is binding and cannot be appealed.

As an option agreed on by both parties, used in the right circumstances, I think arbitration is fine. It has some real advantages over traditional litigation in some cases.

I have referred many people to the Better Business Bureau's arbitration process. I have on occasion represented people in arbitration, and I've had no reason to complain about it.

However, something new on the arbitration scene is what I call mandatory arbitration clauses, like the ones some large banks and finance companies are putting into their standard consumer contracts.

Under these clauses, if you have a dispute with the bank or company over your account or credit card and want to take the matter to court, you can be forced to go to arbitration instead.

As far as I know, no St. Louis banks are doing this yet. But it is becoming a practice elsewhere. What it does is take away your rights to go to court. These clauses change arbitration from an option to a substitute for the courts.

Consumer advocates are worried because such forced arbitration could have some serious flaws. Because arbitrators' decisions usually cannot be appealed, arbitrators are in essence not bound by the law. This includes not only the law that applies to the case at hand, but fundamental laws we take for granted like the right to due process.

Unlike court hearings, arbitrations are done in private; neither the press nor public can attend. The parties have limited discovery rights, which tends to work more against the consumer than the bank. After all, banks are likely to know more about you than you know about them.

Also, in bank arbitration systems, arbitrators are under a built-in pressure to favor the bank, because offending the bank with a decision could end the arbitrator's career in the system. Remember that either side in an arbitration can veto the proposed choice of arbitrator.

Arbitration costs can be higher than court costs, and fee-shifting provisions could require the losing party to pay the winner's attorney fees. …

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