Published: September 2009

Forced arbitration ubiquitous in consumer contracts

A report from Public Citizen reveals that mandatory binding arbitration clauses, or “forced arbitration,” are prevalent in consumer contracts. Seventy-five percent of companies in eight industries used forced arbitration, according to the report.

Download Public Citizen’s report “Forced Arbitration: Unfair and Everywhere”

Below is an excerpt from the report:

Despite a scandal that compelled one of the largest binding arbitration firms to close its consumer arbitration business and another major provider to acknowledge “legitimate concerns” surrounding debt collection arbitrations, forced arbitration remains almost ubiquitous in many industries.

Posing as prospective customers, we queried major players in seven industries – credit cards, banks, cell phones, computer manufacturers, cable television and high-speed Internet, auto dealers, and brokerages – to determine whether they impose binding arbitration on their customers. We supplemented our findings from these queries with data on major home builders that we published in our May report, “Home Court Advantage: How the Building Industry Uses Forced Arbitration to Evade Accountability.”

Of companies from which we obtained answers, 75 percent use mandatory binding arbitration, and nearly two-thirds force consumers to accept these terms as a condition of doing business. These findings omit auto dealerships, where we believe arbitration is nearly universal but few businesses would provide clear information. By contrast, recent polling shows that 79 percent of consumers expect that they can sue a company if they have a dispute, and 64 percent have no recollection of seeing anything about arbitration in the terms of agreement for goods and services.

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Filed Under

Banking   ♦   Congress   ♦   Consumer Protection   ♦   Credit   ♦   Credit Cards   ♦   Housing   ♦  

Comments

 
1. On 10/29/2009, Hotline Guest says:

   My bank forced me into arbitration with AAA recently on a revolving line of credit.  There has never been a missed payment.  Never a payment 30 days late.  In the life of the credit (9 years) only 3 payments in the 10 day late category.  Always paid the minimum due and often much more than the minimum.  My FICO is 779.  A co-obligor on the line has a FICO in “good” range, but not as high as mine.  Bank claims it feels prospects of repayment are impaired, so debt is in default. 

   Of course, the bank started off the arbitration by serving the suit on my babysitter (while I was at work)—an improper way to deliver the papers.  We didn’t get an arbitrator appointed until after the AAA’s moratorium on consumer debt arbitrations took effect.  So, I asked for the proceedings to be suspended until the new AAA rules are released pertaining to these consumer debt collections.  AAA refused to include my case in the moratorium. 

   Funny, the bank has blown every deadline applicable to it.  Still hasn’t designated its witnesses.  Get this—I also asked for a “reasoned explanation” to be given at the final hearing.  The existing consumer rules seem to say the arbitrator MUST give a reason for the final decision if asked.  The only ruling the arbitrator has made?  She IMMEDIATELY denied the request—said this case was not one for which a reasoned explanation was needed.

   I can see where this train is headed.

 
2. On 11/14/2009, diane says:

   In follow up to my first comment above:

   The contract on the revolving line of credit says that it may not negatively report me to credit agencies while a dispute is pending.  The bank’s lawyer has been assuring me that no negative reporting has been on-going.

   I pulled my credit report last night, the first since the Bank initiated arbitration in April.  The arbitration hearing is not until January.  Clearly, the dispute is pending.  In April, my FICO was 779.  Today it is 630 (poor)—solely due to this line of credit.  Monthly payments above the contractual minimum have continued since April.