A Closer Look at Mandatory Arbitration for Consumers

Judicature, March/April 2008 | Go to article overview

A Closer Look at Mandatory Arbitration for Consumers


Lack of real agreement, the unfairness of the repeat player effect, and the harm secret decisions are doing to our public justice system in mandatory arbitration for consumers have given traditional (i.e., business-to-business) ADR a bad name.

In the John Warner National Defense Authorization Act of 2007, Congress made it unlawful for a lender extending consumer credit to an active duty member of the military or his or her dependent to require the borrower to submit to arbitration. A pending bill, S.2636, would permit a bankruptcy court to decide a core proceeding involving an individual debtor whose debts are "primarily consumer debts" notwithstanding an agreement to arbitrate. H.R. 3010, the Arbitration Fairness Act of 2007, introduced in both houses of Congress, is far broader: it would void pre-dispute provisions requiring arbitration of employment, consumer, or franchise disputes, among others. What is going on here?

It has become increasingly difficult for an individual to enter into any transaction without finding a mandatory arbitration clause lurking in the accompanying fine print. Buy a house, buy or rent a car or other consumer product, schedule surgery, apply for employment, or open a bank, credit card, or brokerage account, and an arbitration provision will likely be part of the bargain. Perhaps emboldened by the Supreme Court's twenty-year run of cases enforcing these provisions under the Federal Arbitration Act, many vendors now insert "class action waiver" provisions as well.

Those who regard agreement as the core of contract law have taken issue with the notion that these provisions ought to create enforceable obligations. There is, of course, no bargaining, and the take-it-or-leave-it nature of the arbitration demand makes it difficult if not impossible to function in the modern economy without "agreeing" to these provisions. Most customers do not see the provisions, and research suggests that, even when they do, they do not know how to assess the likelihood or significance of what seems a far-off, unlikely contingency. An increasing number of courts have agreed, on contract grounds, that mandatory arbitration provisions may be unenforceable because they are unconscionable, particularly if the effect of the provision is also to cancel a right to assert on behalf of a class claims that cannot realistically be asserted by individuals.

Arbitration is said to be good for consumers. It is touted as a simpler, faster, less expensive alternative to litigation, and that reduced cost, it is said, inures to the benefit of all who buy goods and services. Of course, if the process is free or of limited cost to a consumer, arbitration may be the only hope for the resolution of a dispute by a neutral third party. The cost of legal services puts traditional litigation of most consumer grievances out of reach even for the middle class. But arbitration service providers such as the National Arbitration Forum have conducted studies that they say prove that customers actually do better in arbitration than they do in litigation. Claims like these are difficult to evaluate, because these arbitration systems are private. Decisions are not publicly available, and providers guard this information from disclosure. Moreover, recent, publicly available, research demonstrates that many businesses eschew arbitration clauses in their contracts with other businesses, calling in question whether the justifications offered for arbitration in the consumer context are correct.

But what are the costs of mandatory consumer arbitration? We focus on those that ought to be of particular concern to AJS members. At the broadest level, mandatory arbitration is displacing our public systems of dispute resolution for claims between individuals and businesses. Those systems, developed by neutral policy makers, are being replaced by private systems, incorporated by reference in boilerplate contracts. From start to finish they usually lack features that our litigation systems have developed to protect basic liberty and property interests and to provide realistic opportunities to secure compensation for injury and enforce important substantive norms.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

A Closer Look at Mandatory Arbitration for Consumers
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.