Arbitration clauses: A rights giveaway
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Arbitration not the same as mediation
Because consumers are ignorant about arbitration, many assume that it is the same thing as mediation. In fact, the two are completely different. Hammond believes this is a fundamental misunderstanding on the part of consumers.

"While both arbitration and mediation are two types of what is known as alternative dispute resolution -- that is, ways to resolve disputes outside of court -- they are very different," she says. "Mediation involves two parties deciding to work out their own settlement of a dispute with the help of a third party. If they can't resolve the problem, neither party is bound by any potential solution."

That isn't the case for arbitration. Because the arbitration is binding, you have to use it and can't mediate or sue. While you can pick from a list of several arbitrators, many of these arbitrators have a background working for companies similar to the one that you have a dispute with, Bland says. The arbitrator decides what evidence to allow each side to present and doesn't have to give any reason for that decision. The result is final.

Marge Rebar of Birmingham, Ala., who is involved in a dispute with Cook's Pest Control, says she wasn't aware of exactly what binding arbitration was when she signed a contract with Cook's for a termite bond on a house she bought in 2000. "I thought it was more like mediation, that if we had a problem there would be mutual agreement on the resolution," she says. "Arbitration is arbitrary and I hadn't made that connection."

Cook's lawyer, Clifton Slaten, says, "Ms. Rebar signed the contract that contained a binding arbitration clause. She's an educated lady with a college degree."

In arbitration, unlike a court, there is no process of judicial review and the arbitrator doesn't have to rely on legal precedents. "I think it's a pretty shaky system of justice to rely on an individual for justice no matter how well-intentioned they are. I'm not sure at all that this is the best system to resolve disputes between consumers and businesses," Hammond says.

Not on a level playing field
For years, arbitration has been a successful method for businesses to resolve disputes with one another. Because both sides have equal amounts of power in the situation, many businesses favor arbitration over going to court. The right of business to arbitrate is laid out in the federal Arbitration Act, which was passed by Congress in 1925.

Many consumer groups object to binding arbitration because they believe there isn't a level playing field. Companies have far more resources and use arbitration firms and arbitrators over and over again, while consumers are likely to use the process only once or a few times at most.

"There is an inherent bias in the system because it leans toward the businesses," says Coulombe. "Businesses use arbitration over and over again, and in such a situation any provider begins to gear their services to the people who use it the most, which are the companies, who are typically the defendants in these cases."