Beware the Hazards of Mandatory Binding Arbitration

Every day, consumers throughout the country are unwittingly waiving their constitutional rights when they use products or services held to binding mandatory arbitration agreements. Consumers rarely know that by swiping a credit card or signing an employee manual, they may be shuffled off into a private world of dispute resolution rife with pitfalls, such as:

High Costs
Binding mandatory arbitration is very expensive for consumers, creating a hurdle that leaves many defrauded consumers left holding the bag because they cannot afford to seek a remedy. Consumers may have to front between $250 and $2000 just to pursue a claim, and agree to split arbitrators’ fees, which may range from $200 - $300 per hour. Consumers may also have to pay to travel out of state for arbitration proceedings.

In many instances this up-front financial hurdle of arbitration will prevent individuals from pursuing legitimate claims altogether. Often, losses in these disputes – including foreclosure on a home, job loss or loss of business – mean that a consumer simply cannot afford the costs to pursue arbitration. If a consumer has been fraudulently assessed small amounts of finance charges by a credit card company, he or she is surely not going to assume hundreds of dollars in fees to pursue the claim. Meanwhile, the corporation pockets its ill-gotten gains without penalty. The consumer cannot hire an attorney or file in small claims court to fight unfair charges, because they have waived the right to do so.

Stealth
Most consumers are completely unaware that they have signed away their constitutional protections. These clauses are all but hidden in the fine print of contracts, bill stuffers or employee manuals. Some examples:

Credit card consumers may unwittingly agree to the clauses simply by using their credit card. Employees may waive their right to trial in discrimination or sexual harassment claims by signing an employee manual. Patients may not be able to hold an irresponsible doctor accountable for a botched surgery because of an HMO enrollment form. Homeowners may lose their rights to hold builders accountable for shoddy construction when they collect their keys.

Tilted Justice
Binding mandatory arbitration tosses 200 years of legal precedence, democratic principles and constitutional rights out the window. The binding mandatory arbitration system creates its own private justice system, subject to biases that benefit corporations at the expense of individual citizens.

Arbitration firms are for-profit ventures whose revenue comes from the very credit card companies, mortgage companies and other industries against which consumers have claims. Arbitrators are hand picked by big business and have no legal or public accountability for their decisions, yet these decisions are binding upon consumers who effectively have no appeals process. Unlike the public court system, consumers have no right to information or evidence concerning their cases.

And often, arbitration clauses are one-way arrangements. Consumers or employees may only use arbitration, while the credit card company or employer is still free to sue the consumer or employee.

End of the road
With binding mandatory arbitration, the decisions of private arbitrators are the end of the road for consumers. Unlike the public system in which consumers may appeal decisions and findings to higher courts, consumers can only appeal an arbitrator’s decision on severely limited occasions such as fraud. Because arbitrators do not need to issue written findings or conclusions, consumers lack the ability to appeal these decisions.

Hiding Risks
While the public court system shines a light on illegal and fraudulent activity, confidentiality agreements cloak binding arbitration proceedings in secrecy. Arbitrators do not release written findings or establish public precedent, often hiding patterns of fraudulent corporate behavior, public policy concerns or public safety risks.

This article was adapted from the Web site of the Texas Family Safety Foundation, where you can find much more information about mandatory binding arbitration.