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Keep Our Families Safe: Consumer News For Families
Newspaper Columns

Mandatory Arbitration: Taking Away Big Rights with Small Print

[Column 339, May 30, 2005] | Archived Columns

By Todd A. Smith*

To understand what mandatory arbitration means to consumers and patients, consider the case of Ms. Helen Etting. She went into the Regents Park nursing home in Miami, Florida, in early 2000. The next year and half was a nightmare of bed sores, malnutrition, dehydration and poor hygiene. She was hospitalized several times and died of her injuries.

After her death, Helen's family was outraged at her care, but they could not hold the nursing home accountable in court because of a binding mandatory arbitration clause the facility claims Helen signed. Helen was legally blind and her "signature" appeared nowhere near the signature line on the contract, but the clause was still upheld.

Helen’s case is a particularly egregious one. But if you’ve opened a new credit card account, switched phone companies, gotten a mortgage from a bank, or gone into a hospital for treatment, chances are you’ve also signed away your rights in a mandatory arbitration clause.

Mandatory arbitration clauses (often located in the “fine print” of bills and service/purchase agreements) say that if a customer has a problem with a product or service, that customer cannot go to court to resolve the problem. Instead, the customer must pay a private company – generally one selected by the company against whom the customer has a complaint – to resolve the dispute. There are no exceptions.

Steve Tripoli with the National Consumer Law Center calls them "the number one threat to consumer rights today."

It’s not surprising. In arbitration, the consumer is playing on the corporation’s turf, because the corporation often gets to pick the arbitrator. And it’s expensive too, far more so than going to small claims court.

Filing fees can range around $500 to $1,250, daily hearing fees can cost $150, a daily room rental fee can cost $150, and arbitrator fees run from $100-$350 per hour. Although large corporations may have the cash to pay these costs, that's often more than a consumer or small business can afford.

Your odds aren’t very good either. According to recent report on CBS News, consumers won only 87 out of 19,000 arbitrations for debt collection. Senator Patrick Leahy, ranking member of the Senate Judiciary Committee, has said that binding mandatory arbitration "... is an abuse that is quickly spreading, and it's time to blow the whistle and start giving consumers a break."

How can you protect yourself?

1. Be aware. Without even knowing it, you have already signed or otherwise agreed to dozens of these clauses. They are everywhere….car contracts, credit card contracts, leases, loans, mortgages, nursing home admittances, building contracts and many more.

2. Read the fine print & cross it out. Be sure to carefully read all the provisions in a contract or service agreement. You should look for words like "dispute resolution" or "settling claims." You have the power to nullify mandatory arbitration clauses simply by crossing them out before you sign the agreements or by opting out under set procedures. The company may require you to agree to mandatory arbitration in order to receive services, but often there are other service providers in the area that may suit your needs.

3. Shop around. Some service providers do not require mandatory arbitration. When comparing prices and services, be sure to check their arbitration policies. Shop for consumer-friendly companies that refuse to be involved in mandatory arbitration.

4. Read mail stuffers. Thoroughly read any paper that comes with your monthly statements to be sure they don't include new provisions to your contracts, including mandatory arbitration clauses or changes.

5. Join a credit union. Most credit unions do not have mandatory arbitration clauses in their loan or credit card contracts. Some credit unions do have mandatory arbitration clauses for other services, so you should read the fine print to be sure.

*Todd A. Smith, president of the American Association for Justice, is a partner in the Chicago, IL, law firm of Power Rogers & Smith.