Many consumers are subject to mandatory arbitration from the products and services they purchase – yet few realize it. Several bills have been introduced in Congress that would limit mandatory arbitration, which is generally not consumer friendly, and allow consumers their day in court.

Arbitration: Defined

Arbitration is a procedure for settling disputes. It is similar to having disputes decided in a court of law, but in a less formal environment. Proponents of arbitration say that it is less costly, doesn’t require the formalities of a typical court case and disputes can generally be resolved more quickly. While critics of arbitration agree that arbitration may provide those things, they say that arbitration has become extremely business-friendly as arbitrators have become accustomed to the volume of business thrown their way and rarely rule in favor of the consumer.

Credit cards and cell phone contracts generally require consumers to participate in mandatory arbitration when a dispute arises; however, that language is usually hidden in a lengthy contract with very small type. Certain health maintenance organizations, such as Kaiser Permanente, also require that disputes be resolved through arbitration. However, in many cases – arbitration isn’t cheap.

In a recent Los Angeles Times article, a Maryland based small business owner had a dispute with one of her major suppliers and was forced to arbitrate her claim in Michigan. She told the Times that the arbitration had cost her over $100,000 and forced her to travel to Michigan to resolve the matter.

Proposed legislation

Senator Russell Feingold (D-Wis.), is sponsoring the Arbitration Fairness Act and has been outspoken on the issue. According to a statement on Feingold’s website:

No consumer should be obligated to forfeit their right to a day in court. Arbitration can be a fair and efficient way to handle disputes, but only when it is entered into knowingly and voluntarily by both parties. Unfortunately, in a variety of contexts – employment agreements, credit card agreements, HMO contracts, securities broker contracts and other consumer and franchise agreements – mandatory arbitration is fast becoming the rule, rather than the exception.

Just as its name suggests, the Arbitration Fairness Act is designed to return fairness to the arbitration system. Arbitration can be a fair and efficient way to settle disputes. I strongly support voluntary, alternative dispute resolution methods, and we ought to encourage their use. What this bill does is ensure that citizens once again have a true choice between arbitration and the traditional civil court system… .

Consumer group says arbitration awards are 80% lower

Public Citizen, a consumer advocate group, has reported that their studies show that consumers rarely fare well in arbitration. According to a statement on their website, “Comparisons of average awards by arbitrators and courts in employment cases and medical malpractice cases show that arbitration claimants receive only about 20 percent of the damages that they would have received in court.” And that’s if they win at all… As part of their studies, the group looked at 19,000 California arbitration cases decided by one arbitration firm over a four year period and found that consumers only won 4% of those cases.

For additional information on the Arbitration Fairness Act, please click here.