If you’ve ever signed up for a credit card or a loan, there’s a good chance you’ve agreed to what’s known as a mandatory arbitration clause. At its most basic, arbitration is a form of alternative dispute resolution where both sides agree to waive their Seventh Amendment right to trial by jury and submit to the final decision of a neutral third party. Mandatory arbitration agreements are legally binding and cannot be appealed the way a court ruling can be.
Not all arbitration is mandatory. Voluntary arbitration is a popular option in resolving international trade disputes and other issues of commercial or business disputes. When voluntary and used in good faith, consumer arbitration can be a useful legal tool beneficial to both plaintiff and defendant. In a complex business dispute where both sides are on fairly equal footing and have equal strength and resources, arbitration can tremendously mitigate the amount of time lawyers on both sides spend on discovery, oral arguments and other aspects of a trial. This can result in reduced legal costs and speedier resolutions.
Still, arbitration lacks many of the key protections claimants benefit from in a court of law, such as a jury of peers and an impartial judge. Arbitrators are usually selected and paid by the company defending itself in a dispute. And since companies are often involved in frequent suits they develop relationships with arbitrators who come to rely on them for repeat business. As a result, arbitrators almost always side with the defendant or business. Since the decision can’t be appealed, plaintiffs have no further recourse if an arbitrator rules against them.
More and more these days, large companies are forcing mandatory arbitration clauses on their consumers and their employees. It’s generally understood that mandatory, or forced arbitration, is a predatory practice. In the consumer lending market, regulators from the Consumer Financial Protection Bureau are working to ban mandatory arbitration clauses from credit card and loan contracts, but are coming up against fierce lobbying from the banking sector.
There are ways to defeat arbitration clauses, particularly when they are found to be unconscionable, or unenforceable, in which case plaintiffs become free to pursue their case in open court. Before entering into an arbitration, a claimant should always consult with an attorney first to determine whether there are better avenues for redress.
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[…] is arguing against the right of two informed parties to enter into voluntary arbitration. We’ve previously written about the various benefits of alternative dispute resolution in cases where it is consensual and […]