Arbitration clauses: a rights giveaway
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A consumer usually doesn't recognize the import of the binding arbitration clause in a particular agreement or contract until there is a problem. "Usually what happens is that someone has a problem and they call a lawyer," says Coulombe. "These days, many lawyers will notice these clauses right away. If you do bring the dispute to court, the business will bring up the arbitration clause and in 99 cases out of a 100, it will be dismissed."

At that point, the consumer needs to decide whether to file for arbitration or drop the matter. Richard Naimark, a vice president with the American Arbitration Association (www.adr.org), a nonprofit organization that handles hundreds of thousands of disputes a year, says that in many cases, a company will settle with the consumer once a consumer actually files for arbitration. He believes it is an effective way of holding companies accountable.

Costs almost always higher than litigation
Consumers' costs for arbitration vary widely and depend on the arbitration company, the type of dispute and the cost of the proposed remedy. The American Arbitration Association offers a streamlined process for consumer disputes that limits costs, but limits your rights too. While the American Arbitration Association is an umbrella group for arbitration companies, not all arbitration companies follow its suggested rules.

Under these consumer rules, there is a filing fee of $125 if your dispute is under $10,000 and $350 if it is over that amount, according to Naimark. However, in exchange for the low filing fees and streamlined process, you must give up some of your rights, says Thomas Campbell, an attorney in Birmingham, Ala., who handles many pest control disputes that have ended up in arbitration.

"In order to get that cut-rate deal, you have to agree to limit your monetary recovery to $75,000 as well as your right to get an equitable remedy," he says. Bland adds that this streamlined process also means there is no hearing, no discovery and no filing of legal briefs. The arbitrator in these cases frequently bases his or her decision on documents filed by each party.

Campbell and his clients have found that it costs $12,000 to $16,000 to go into arbitration under the commercial rules and that much of that has to be paid upfront. There is no contingency in arbitration. Also, these costs don't include costs for an attorney if you want one. Bland says that in many cases, a consumer's cost can easily exceed $10,000. "We've seen employment cases in arbitration where the fees go as high as $50,000 for the consumer," he says.

At the start of one of these cases heard under commercial rules, you have to pay upfront filing fees higher than those under the streamlined consumer rules. Then you get a bill that is an estimate of the costs that are split between you and the company, Bland says. If you don't pay, the case is dismissed. Contrast this with going to court, where taxpayers cover the costs of the judge, staff and courtroom and where you may not have to pay any legal fees until your case is resolved.