Signing any contract that includes an arbitration clause will effectively waive your right to file suit in a court of law and/or have the issue reviewed by a jury of your peers. Consumer advocates denounce the practice, while businesses defend it as a less expensive way to settle customer disputes as opposed to facing lawsuits in court.
A recent Supreme Court ruling, however, supported the legality of arbitration clauses in credit card agreements and overruled a 1996 federal law that allows consumers to file complaints against credit card companies in court. This latest decision by the Supreme Court found that the arbitration clauses supersede that right. The ruling has some consumer advocates seeing red. Here’s why:
· Awards an Inordinate Degree of Power – The deck is stacked in favor of the financial institution. Arbitrators are in effect judges who do not follow a specific set of laws or rules and are not required to justify their decisions. Arbitrators don’t do the job for free and certainly aren’t going to bite the hand that feeds them. As one consumer advocate said it’s like the credit card companies have a ‘get-out-of-jail-free’ card.
· Strips Constitutional Rights – Arbitration clauses are included in practically every loan agreement you sign, except for mortgages which are strictly prohibited. No matter how crucial the disagreement, arbitration takes away your constitutional right to use the American court system to seek justice. The agreements are binding, meaning you must abide by the decision and have no right to appeal.
· Grievances are Hushed – Many arbitration clauses require that your grievance remain confidential. By contrast, court proceedings are public. By keeping disputes and complaints under wraps, class-action lawsuits are no longer an option.
· Take-it-or-Leave-It – Consumers have no option when a contract includes an arbitration clause. Agree to settle a dispute in arbitration or forget about the service or credit card.
For the time being, consumers will have to accept the arbitration terms to get the credit cards and loans they need. But consumer advocates are pressing for the newly instituted Consumer Financial Protection Bureau (CFPB) to examine the issue. If companies can require arbitration clauses that block access to the courts and from the scrutiny of the public, it’s vital that the Fed investigate the impact arbitration has on consumer rights.