The Good, The Bad, and the Ugly: Mandatory Arbitration Provisions in Consumer Agreements

No Jury for You

“At his best, man is the noblest of all animals; separated from law and justice he is the worst” (Aristotle).

The framework of law and justice, whittled from the guidance and interpretation of the Constitution, is what empowers us, the American people. The average American consumer takes solace in knowing that if their rights are infringed upon, the judicial system can be utilized to help right that perceived wrong. This long standing right under common law is reflected in the Seventh Amendment of the United States Constitution.

Most Americans hold on to faint notions of having their day in court in front of a jury of their peers should they be wronged by a product manufacturer or good provider.  This notion is based on what they learned about the Constitution in the class-room or saw reflected on television. There has been a storm brewing for well over two decades now which threatens to permanently wash away a consumer’s ability to be heard by a jury for disputes at common law. The storm I am referring to is the advent of mandatory arbitration clauses in consumer agreements.

What You Are Consenting To

Many product liability cases have been tossed out of court due to this consumer agreement. When a consumer purchases most goods and products they don’t realize they could be waiving a trial by jury and agreeing to submit all future related disputes to binding arbitration. Arbitration is a procedure where a dispute is tendered, as agreed to by the parties, to an arbitrator or multiple arbitrators who will issue a decision on the dispute. Picture the blind consumer masses being herded into these agreements by companies with infinitely more bargaining power and legal drafting know how. The vast majority of consumers fail to read the agreements they are entering.

One example, is when a consumer purchases a computer from companies. When they accept the product they are agreeing to resolve any related disputes via arbitration. The language is usually swimming in a sea of difficult to understand text, which a consumer is unlikely to ever read. Even if a consumer differs from the majority of his brothers and sisters engaging in mass consumption and reads the agreement there is another issue. The agreements offer very little chance for a legal layman to digest the dialect and understand it. It seems to fly in the face of justice that agreements where one side understands everything and the consumer very little could eliminate the ability to bring disputes to a judicial forum.

The most pertinent issue is that the consumer has only phantom bargaining power when engaging in these agreements. Sure one could argue that if consumers didn’t like arbitration clauses they could simply avoid certain agreements, but this is an unrealistic argument. Most every major credit card company requires consumers to agree to mandatory arbitration clauses before being tendered credit if they qualify. In this circumstance what is a consumer to do? Perhaps avoid obtaining credit in a society where a credit score can be the difference in employment and living opportunities, as well as interest rates on purchases. This is why choice in the face of mandatory arbitration clauses is often an illusion. The companies which are adding these mandatory arbitration provisions have the true bargaining power.

Arbitration itself is not an inherently unjust procedure. In fact it can be used to avoid excess judicial costs and expedite decisions on disputes. Arbitration is similar to the sun rays. In moderation it breathes life into our sometimes slow and expensive judicial system, allowing cases to resolve fairly, but with too much exposure, it can burn the very consumers it was designed to help. While an arbitrator for a consumer debt claim may deal with the same credit card company multiple times a year, the consumer in the dispute will most likely only be involved that one time. Common sense dictates that an arbitrator is most likely to favor the entity or individual they deal with more over the course of their career.

Not All Bad

There are both state and federal acts (Federal Arbitration Act) which allow arbitration decisions to be challenged on two grounds. The first is generally whether the arbitration decision is unfair or unconscionable. This first potential decision invalidator is a difficult thing to prove. Essentially, a court would have to determine the arbitrator’s decision was so harsh and shocking it amounts to a highly unfair result, which the court must address. The second way to invalidate a binding arbitration decision would be to prove the agreement between the parties to settle their dispute at arbitration is unfair and/or unconscious able in and of its self.

In addition, arbitration can be a good thing. The ability to avoid years of litigation and receive a timely decision which provides closer can be a great thing. The caveat being a consumer should arm themselves with an attorney who is astute in handling arbitrated claims. In addition, consumers should always be aware of what they sign when entering an agreement. When you purchase a product or service be aware of your rights before you accept anything. And if you need help pursuing a claim against a manufacturer or other party, call Rob Levin & Associates at 800-LAW-1222.