BE(A)WARE OF CONSUMER ARBITRATION CLAUSES

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Every year, billions of business transactions occur. Not surprisingly, some disputes arise between the businesses and the consumers involved in those transactions. What is surprising to many is that sometimes any legal claims a consumer may have against a business cannot be pursued in court. The reason: a consumer arbitration clause. Many contracts and terms of agreement include a clause announcing that the parties have “agreed” that, in the event of a dispute, the matter will be heard in arbitration and not in court. Often consumers are not even aware that this clause is in the contract they signed because it is hidden away in the lengthy legal document.

Many issues (i.e., criticisms) surround the now common use of consumer arbitration clauses. Questions have arisen as to whether or not such clauses should be honored without more notice to and assent by consumers. Businesses that include these clauses in their contracts, such as credit card companies and cell phone service providers, use standardized contracts and individual consumers rarely, if ever, have an opportunity to negotiate the terms of those contracts. Another criticism of consumer arbitration clauses is that they can prevent class action status, in which a potentially large number of consumers join together to pursue their identical claims against a huge company, claims which the consumers might not be able to afford to pursue individually.

Some or all of these issues may be addressed soon. A recent New York Times series renewed interest in tackling the injustices of consumer arbitration clauses. Congressional leaders and consumer advocacy groups have united to try to bring important changes to the consumer arbitration system. In the meantime, be aware that consumer arbitration clauses may be in contracts or terms of agreement you have signed or agreed to, and be sure to look out for them in the future.

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