Giving Away Your Right to a Day in Court

Giving up your right to a day in court is shockingly simple. It can be as easy as throwing away the "dispute resolution" flyer in your department store bill, purchasing services online and checking the "I agree" box without reading the disclosure, or signing a new cellular phone contract without examining the fine print.

That's because many merchants, finance companies, health-care providers, and even employers are using the fine print in agreements to state that you will settle any disputes that may occur by arbitration instead of in the court system. This practice is called "mandatory" because the arbitration process becomes the consumer's only option for resolving a dispute, and "predispute" because the consumer agrees to arbitration before a problem arises.

Those two words create a major problem for consumers, according to Stuart Rossman, director of litigation for the National Consumer Law Center (NCLC), Boston. The nonprofit organization is an advocate for low-income and elderly consumers nationwide and takes a strong position against mandatory arbitration.

"Mandatory, predispute arbitration has one intent: to deprive consumers of rights. It enables various merchants and finance companies to be 'protected' and puts them in a much better position than consumers," Rossman says.

Rossman says companies that require mandatory, predispute arbitration know that few consumers read the printed notices stuffed into envelopes along with their bills. That's why some companies send notices of arbitration requirements with a monthly statement, instead of providing the information up front. In most cases, mandatory arbitration notices sent with bills automatically take effect unless consumers write or call to opt out.

Understanding arbitration

But participating in arbitration also can have benefits for consumers, according to Richard Naimark, senior vice president of the American Arbitration Association (AAA), New York. When consumer protections are built into the process, Naimark says arbitration can reduce legal costs and give consumers a chance to present their side of a dispute in a timely manner. AAA provides worldwide arbitration services through a network of more than 8,000 arbitrators.

"Arbitration is potentially a big advantage to consumers because it really can level the playing field when you have a dispute with a large corporation," Naimark says.

The AAA protects the rights of consumers through its Consumer Due Process Protocol, Naimark says. The AAA also provides a "quick guide" that explains the protocol. Unfortunately, some companies that require consumers to agree to mandatory, predispute arbitration hire private arbitrators who work outside ethical guidelines. When that occurs, Naimark agrees that the process can be stacked against the consumer.

Naimark says the consumer arbitration process used by the AAA requires the consumer to contact the business to try to resolve the dispute directly. If that fails, consumers file for arbitration by completing a simple, one-page form and paying a filing fee of $150 for claims of $10,000 or less. The fee rises to $350 for claims of $10,000 to $75,000. Higher claims usually involve a separate fee schedule.

Both parties to the dispute then may ask the AAA to name an arbitrator. Once an arbitrator is named, both parties submit documents that explain their positions and provide supporting information. Naimark says most cases less than $10,000 are decided solely on these documents, although either party can request a hearing. Hearings must be held in an accessible location, which usually means a site a consumer can travel to within a single day's round-trip. Participants pay their own travel expenses.

Getting a decision usually takes three to four months after a consumer files the form. "That's lightning fast compared to the courts," Naimark says. He adds that AAA follows a "no reduction of remedy" standard, which means that all the remedies available to the consumer in court also must be available through arbitration. But the arbitrator's decision is final. Attempts to use the court system to overturn arbitrators' agreements are rarely successful.

Protect yourself

While arbitration can be beneficial when it is a voluntary choice, Rossman argues that mandatory arbitration is designed to sidestep consumer protection laws. He notes that companies requiring mandatory arbitration may be involved in hundreds of cases annually, which means their familiarity with the process creates an unfair advantage over the consumer who may use arbitration only once. This is particularly true for low-income or elderly consumers who may be intimidated by the process, unable to afford filing fees, or have difficulty traveling to arbitration hearings.

"They are at a disadvantage from the very beginning," Rossman says.

The widespread use of mandatory arbitration creates another problem. Because mandatory arbitration clauses are required by so many providers in so many different fields--including physicians, telephone services, cable companies, and many others--consumers may be forced to accept an arbitration clause to obtain desirable services. Yet savvy consumers still have some options for protecting their rights.

Shop around. There still are service providers who refuse to require mandatory arbitration, so ask about mandatory arbitration provisions when you compare prices and services.

Contact a credit union. Many credit unions issue credit cards and provide other types of loans without mandatory arbitration agreements. The Credit Union National Association's Member Credit Union Mortgage Lending Standards and Ethical Guidelines require credit unions that provide mortgages to exclude the use of mandatory arbitration clauses.

Read the fine print. Look for words like "dispute resolution" or "settling claims" in contracts and service agreements. You can attempt to nullify these mandatory arbitration clauses by crossing them out before you sign agreements, or by following specified procedures for opting out. You should be aware, however, that the company might force you to choose between accepting the clause and dropping the service.

Read statement stuffers. When finance companies or service providers include a notice with your monthly bill, read it carefully. Again, you can find out if the company still will provide service if you opt out of mandatory arbitration.

Check the arbitration provider. When you really need or want the service and the provider insists that you agree to arbitration, delay your decision until you check the fine print to learn the name of the arbitration provider. Naimark says responsible companies list the arbitration provider and its Web site so you can see whether its ethical guidelines promote fair decisions.

Look for consumer-friendly options. Some companies refuse to be involved in mandatory arbitration. For example, national mortgage companies Fannie Mae and Freddie Mac both refuse to participate in mortgage agreements requiring mandatory, predispute arbitration, based on their mission to increase home ownership and the availability of affordable rental housing.

Be wary

Although it can be difficult to battle mandatory arbitration agreements, awareness is the first step toward protecting your rights. As more people become aware of what they're giving up, Rossman hopes that discontented consumers will make lawmakers take notice of the downside of mandatory arbitration.

"It's a real threat," Rossman says. "It's not voluntary, it's not fair, and it's intended to deprive people of rights they're entitled to."

Published June 21, 2004