DOVER - Consumers with a broken computer, a toaster that won't toast, a car that's always in the shop or a bad doctor may have a bigger problem than they realize.

In the past, a consumer could take companies to court to resolve disputes. In many cases today, they may not have that right.

According to the Trial Lawyers for Public Justice in Washington, more than 130 major companies are forcing consumers to go through a process called "mandatory binding arbitration" to resolve product disputes.

Under this process, a consumer must go before a "neutral" party to settle a complaint. That neutral party is the arbitrator, who decides who is right or wrong and if any money is owed. 

In some cases, the arbitrator may be selected by the business and could be in a city thousands of miles away from the consumer. In most cases, the arbitrator's decision is final.

"Consumers had no idea that when they bought that product that they were potentially forfeiting an important constitutional right," said Deputy Attorney General Olah Rybakoff, director of the Delaware Department of Justice's consumer protection division.

"Consumers should be aware and care. What happens if you have a problem? Are you willing to spend several thousands of dollars to have an arbitrator somewhere across the country decide the case?

"That's the extreme example, but that's exactly what has happened in a lot of cases. It is just fundamentally unfair."

Credit card and lender industries also use arbitration as an alternative to litigation. Cathy Edwards, a spokeswoman for Discover Financial Services in Riverwoods, Ill., said her firm began using the process in 1999. "We believe arbitration is beneficial to card members and the company because it provides a simple expedient straightforward process to resolve disputes in a cost-effective manner," she said.

Opponents say consumers are often unaware they are agreeing to the process when they purchase a product or service.

"These agreements are sent out and marketed in such a way consumers don't know it's there until they have a dispute," said F. Paul Bland, Jr., staff attorney for the trial lawyers' group.

DE Attorney General M. Jane Brady

TLPJ Staff Attorney F. Paul Bland, Jr.

Ms. Rybakoff said her office has received only a few complaints about binding arbitration.

"Consumers don't recognize this was an issue they could complain about," she said, "but as they become educated we expect to see more."

The Delaware attorney general's office has been aware of the problem on a national level, Attorney General M. Jane Brady said.

"What we have been looking for are instances where a Delaware consumer does business with a California company who requires mandatory binding arbitration in Chicago or in St. Louis, where they may have an office and staff, but the consumer has no direct contact with that location, only with that company," Ms. Brady said.

According to Mr. Bland, "Delaware has played a significant role in allowing these agreements to be used by businesses."

He said the California Court of Appeals ruled that a credit card issuer cannot impose binding arbitration on its cardholders via a notice sent with the monthly statement, even if the card holders had initially agreed that "all terms are subject to change."

Shortly after the California decision, the Delaware legislature passed the Delaware Banking and Financial Services Amendments of 1999. Under this measure, a lender is allowed to change the terms, meaning a lender can add new terms, such as arbitration agreements, he said.

"Unfortunately, a few entities have taken this concept to the dark side and have inserted mandatory binding arbitration clauses, which are shamelessly one-sided and practically illegal," Ms. Rybakoff said. "The arbitrators are picked by the business."

The process of mandatory binding arbitration also is moving into employment disputes. According to the U.S. Equal Employment Opportunity Commission, "an increasing number of employers are requiring as a condition of employment that applicants and employees give up their right to pursue employment discrimination claims in court."

The EEOC has issued a policy statement saying "agreements that mandate binding arbitration of discrimination claims as a condition of employment are contrary to the fundamental principles of employment discrimination laws."

Ms. Rybakoff said her office is willing to challenge companies if complaints are filed.

"Attorneys general are not bound by private arbitration clauses," she said. "If there is a company that is using these types of clauses restrictively, unethically and unfairly, it's an issue we are willing to take a look at.

"We have been watching, because it is starting to appear in Delaware."

She said consumers have an alternative.

"You have a choice, and that's the power of the consumer," she said. "You have a choice to say, 'I do not want to do business with somebody that does business this way.'

"You can ask them to strike the clause, or pack up and take your business elsewhere and shop around. Why give up everything and basically have no recourse if anything goes wrong?"

Jack Brighton can be reached at 741-8225 or jbrighton@newszap.com.