Arbitration Overload
In torts this past semester we spent a bit of time discussion arbitration clauses in contracts. Many companies now make you agree to settle any disputes with them through a third party (that most of the time they choose) deciding a fair settlement, instead of the company risking you taking them to court in front of a jury.
The argument the companies use is that this brings their litigation and settlement costs down so they can sell you a cheaper product. I don’t buy it, I think they just make more of a profit. The other argument in support of this tactic, is that theoretically you could find a service provider that doesn’t make you sign an arbitration clause. The problem is that these are so common now that you will be hard pressed to find such a retailer. I know my cell phone provider puts the clause in their contract when you sign up for a cell phone. A report from Mother Jones magazine shows that absolutely no car dealer they contacted- new or used – would sell them a car without an arbitration clause. The really funny part is when they decided to purchase from an individual they had to get a loan from their bank. The loan contract had an arbitration clause.
The bank agreement was worse than the sales contract we’d walked away from a month earlier at the dealership. You can read the whole thing here (PDF). Essentially, if we signed it, we would be forced to submit to mandatory binding arbitration through a private firm hired by the bank, should a dispute arise. We wouldn’t be able to sue SunTrust if the bank defrauded us or illegally repossessed our car. We’d have to give up our right to be part of a class action against the bank over any future rip-offs, and we wouldn’t have any of the usual rights to discovery and appeal. Most importantly, we’d never get to have a jury hear our case.
I understand this may be a workaround reform for arguably out of control tort cases, but I just don’t see it working out in the long term for consumers. I also posed the question to my torts professor- If I run xyz company. What is to stop me from also starting xyz mediation and arbitration services, and putting in the contract that you agree to arbitration by that provider? I would imagine that wouldn’t lead to the most fair application of justice. He didn’t really have an answer except that a study showed that a some credit card companies’ arbitration went to one company, and of those cases 96% or so came back with results finding in favor of the credit card company.
