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Consumer Watch: Beware of the Forced Arbitration Clause

By BOB RICHARDS
The Capital Times (Madison, WI)
Saturday, August 10, 2002; Page 8C 

Binding arbitration. If it's not a concept you understand, it might be worth your while to invest some time learning how it works. The reason is that consumers are increasingly being forced into binding arbitration when they have a dispute.

That's because corporations are writing mandatory arbitration clauses into everything from credit card and telephone service agreements to home improvement projects, even car and jewelry store purchases. Consumers often don't realize what's happening until it's too late.

As we reported in this space last week, because those mandatory arbitration clauses sometimes are not part of the initial sales materials, consumers sometimes don't find out what they've agreed to - until they've already purchased the service or product.

Wisconsin consumer protection officials, for example, are currently investigating several dozen complaints from consumers who feel they were misled by the satellite company Direct TV and
companies who sell and install equipment for Direct TV.

Direct TV has a binding arbitration clause in its consumer agreement, which says that any dispute will only be resolved by binding arbitration by the American Arbitration Association. Consumer Protection Investigator Steven J. Foemmel says that language appears to violate Wisconsin law.

"The consumer's right to file a claim in circuit court, individually or as a class, with a claim for double damages and attorney's fees cannot be abrogated by the arbitration requirement in your agreement," Foemmel wrote to Direct TV in early May.

Foemmel says he is still waiting for a response.

When we remodeled our home, our builder initially proposed a binding arbitration clause, saying that his association told him it would be a cheaper alternative than the courts for resolution of any potential dispute. But when we asked a few questions, we found that the arbitration service provider was a Texas company, and no one could refer us to anyone who had experience using their process. Our builder then consented to our request that he remove the arbitration clause from our contract.

Consumers who agree to binding arbitration may not realize they are giving the arbitrator total authority, according to Madison Attorney Tony Varda.

"You can throw out the statute book," he says. "An arbitrator cannot be forced to follow the existing law and his or her decision most likely still will be upheld."

In our case, the arbitration service told me they would find an arbitrator in our area knowledgeable in construction practices, but we could not pick the arbitrator. We would, however, be required to pay a filing fee for the arbitration of at least $50.

Attorney F. Paul Bland, of the Washington D.C. public interest firm Trial Lawyers for Public Justice, tells Consumer Watch that firms providing arbitration services to businesses are now competing based on what they promote as favorable outcomes for business.

"It's always the companies who are writing the clauses," he says. "There's no employee or consumer who gets to write what they want the arbitration clause to say."

What should you do about this?

If the contract or subscription agreement you are thinking about signing includes binding arbitration, take the time to find out who the arbitration service is and then call them. Ask how much it will cost you to bring a complaint. Ask who picks the arbitrator. Will you have any say in that decision?

Don't forget to ask what rights, if any, you will have to appeal if you think the arbitrator makes an incorrect decision. Then consider whether you'd be more comfortable doing business with a company that doesn't force you into this type of arrangement.

Finding one might not be easy, especially if you are accustomed to doing business with large national companies. As we discovered with our local builder, however, if you ask good, fair questions, my guess is that there will be local businesses interested in serving you under terms of a contract that both you and they can live with.

(Bob Richards is a Madison-based consumer advocate. He's the author of It's in the Fine Print.)