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Robert N. Heath, P.A.
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Why mandatory arbitration clauses are so onerous for consumers

It's safe to say that the majority of people, whether they are making an online purchase, renting a car, applying for a credit card or engaging in any sort of transaction, choose not to read through the many pages of boilerplate before signing on the dotted line.

While this makes sense given the time commitment involved, people might not realize they are actually forfeiting certain rights and/or agreeing to otherwise onerous terms. By way of example, one needn't look any further than the arbitration clause.

Buried deep within the language of most contracts, arbitration clauses dictate that in the event any dispute arises, the consumer must resolve their dispute in private arbitration rather than the court system.

For those unfamiliar with the arbitration process, it's a form of alternative dispute resolution that has many of the same components as a trial only more streamlined. Indeed, both sides will generally have the ability to make arguments, present evidence, question witnesses, etc.

While proponents argue that arbitration is a faster process, critics indicate that it can prove to be a rather one-sided affair.

That's because a contract will specify the exact rules and timelines that must be followed, such as the selection of a venue and arbitrator(s), meaning there is no room for negotiation as to the form it will take.

Furthermore, they argue that arbitration leads many consumers with otherwise small but still valid claims to simply abandon them given the potential costs they would be forced to incur.

Finally, critics point out that most mandatory arbitration provisions are binding, meaning the decision reached by the arbitrator(s) cannot be challenged in court, and that the consumer cannot join a class action at a subsequent date.

It's likely this latter phenomenon of preventing consumer class action lawsuits that has motivated so many consumer industries, particularly banks and financial firms, to embrace the secretive arbitration process.

Interestingly enough, the Consumer Financial Protection Bureau, the embattled federal agency created back in 2010 in the wake of the mortgage crisis, announced earlier this week that it was adopting a rule that, if ultimately enacted, could drastically alter the ability of the financial industry to pursue mandatory arbitration.

We'll examine this rule in our next post …

If you have questions or concerns relating to your rights as a consumer, consider speaking with a skilled legal professional to learn more about your rights and your options for seeking justice.

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