Consumer Watch: Do You Really Want to Go to Arbitration?

By BOB RICHARDS
The Capital Times (Madison, WI)
Saturday, August 3, 2002; Page 8C 

When you take out a loan or select a credit card company, when you choose a telephone company, when you buy almost anything these days - especially from a large company - there is almost always some important fine print tied to the purchase.

It's often not easy to find, difficult to understand if you do find it, and tempting to just skip, because after all, we're buying this because we've decided to trust this company or this product.

Besides that, in the past if we needed to, we could rely on state and federal consumer protection laws and the courts to help resolve disputes. Today, however, more and more consumers are discovering that by failing to carefully read and understand the fine print before signing the company's subscription agreement, loan document, or purchase contract, they have forfeited these rights.

The reason is that many major companies now have clauses in their fine print that force consumers to go through mandatory binding arbitration to resolve their disputes. Under this process a "neutral" arbitrator often receives complete authority to settle the dispute, and only in rare circumstances can a decision be appealed to a court.

You may recall the furor last year when the major long distance telephone companies began sending new service agreements to their customers that contained binding arbitration clauses in the fine print.

Wisconsin has sued AT&T, contending that the clause requiring Wisconsin consumers to forfeit their right to sue in court, either individually or as part of a class action, violates existing state
law. In California, consumers already have won a court decision finding such a clause to be unconscionable, but the decision is being appealed. AT&T has petitioned to transfer the Wisconsin case to federal court, contending that state law does not pertain.

Attorney F. Paul Bland, of the Washington, D.C., public interest firm Trial Lawyers for Public Justice, has identified more than 130 firms that have binding arbitration in their contracts. Besides
telecommunications companies, he says consumers across the country are encountering the clauses when hiring home improvement contractors, borrowing money, purchasing vehicles, even making a purchase from a jewelry store.

Businesses generally portray arbitration as a cheaper and quicker way for consumers to settle disputes, Bland says, but a recent report by the advocacy group Public Citizen found many binding arbitration clauses are very costly.

The vast majority of arbitration clauses, he says, require confidentiality, which means the facts of the dispute, related documents, and the decision all are kept secret. The arbitrator may or may not be a lawyer and may or may not choose to follow the laws that normally would apply. Only in the most extreme circumstances, Bland says, will courts consider overturning an arbitration decision.

For all of these reasons, Bland says, companies realizing that some of their customers will have a problem or a dispute have been writing binding arbitration clauses into their contracts. The corporate advocates of binding arbitration, he says, tell company leaders they should adopt these clauses so they'll never be embarrassed. Even if there is a serious problem, he says, "no one
will ever learn about it."

Most customers who don't expect to have a problem, he says, usually are not on the lookout for this type of language. Yet many contracts say that by continuing to use the company's product or
service, you are agreeing to binding arbitration.

"We urge people not to do business with a company that says as a condition of doing business with us, you are agreeing to give up your constitutional rights," says Bland. "The arbitration clauses are usually rigged deals that make sure the consumer will never get a fair break."

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