|Arbitration clauses: a rights giveaway
Binding arbitration, a little noticed clause in many
agreements and contracts, strips consumers of their fundamental
rights, including the right to sue individually or join a class-action
suit if they have a problem with a company.
Under binding arbitration, a consumer can be forced
to pay thousands of dollars upfront to pursue a complaint, travel
thousands of miles to a location of the company's choosing for the
hearing, argue their case before an arbitrator who depends on the
company for future business and surrender such basic legal weapons
as the right to discovery and the right to appeal a decision.
In some cases, the clause allows the company to sue
the consumer while denying the consumer the right to sue the company.
Labeled by the National
Consumer Law Center as "astonishingly unfair and undemocratic,"
these clauses affect millions of consumers across the country. Corporations
insert them into employment and home building contracts, in agreements
for credit cards, computer software and hardware purchases, and
many types of loans.
"Many people don't realize what they are signing
when they sign a contract with a binding arbitration clause. People
don't realize they are giving up their right to a trial and that
there is no appeal. It is very different than litigation,"
says Celeste Hammond, who serves as an arbitrator in business cases
and who is also a professor at John Marshall Law School in Chicago.
"There is a reasonable basis for justifying arbitration when
both parties consent, but consumers aren't consenting and I question
whether it is appropriate."
Forced on consumers with little
Because binding arbitration clauses are so wide-ranging in contracts
and agreements for services and products that you use every day,
it's difficult to find an alternative. For example, virtually every
credit card company in the country has a binding arbitration clause
in its customer agreement, so if you want a credit card, you must
agree to its terms.
You can find these clauses in agreements and contracts
that cover, among others:
- New and used car purchases, leases and warranties
- Car, home equity and consumer loans
- Home construction, repair, inspection and mortgage loans
- Brokerage and banking agreements
- Cell and landline phones
- Health insurance, doctors, medical treatment
- Hospital and nursing home admission and treatment
- Computer hardware and software
- Cable TV, video and DVD rentals
- Gym memberships
"Pretty much any company that you make an agreement
with before entering into a relationship is using these clauses,"
says Samantha Coulombe, a Civil Justice legal fellow with the Congress
Watch division of Public
Citizen (www.citizen.org), a consumer advocacy group. "The
clauses are presented on a take-it-or-leave-it basis. It's hard
to find a company that isn't going to have one of these clauses
in their agreement."
Consumers in the dark about
their true impact
Since consumers sign these clauses before entering into a relationship
with a company, most don't realize what they are giving up if they
do have a dispute. "There are literally tens of millions of
consumers that are bound by binding arbitration clauses without
knowing it," says Paul Bland, a lawyer with consumer advocacy
group Trial Lawyers for Public Justice. He calls binding arbitration
the biggest issue in consumer law today.