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ARBITRATION

Debt-Credit Consolidation April 3, 2024

ARBITRATION

 

Companies are turning to mandatory arbitration in hopes of resolving disputes more quickly and less expensively than in the courts.  But lawyers and other experts say that for the consumer, arbitration can cost more, with fees that could run into thousands of dollars.  Arbitration also permits less evidence-gathering that can help win a case, usually doesn’t allow for appeals, and may be less likely to result in a victory.

 

The growing use of mandatory arbitration clauses is beginning to attract the attention of regulators at the Federal Reserve Board and Federal Trade Commission, who fear that consumers may be losing significant rights without realizing it.  The Federal Reserve Board is looking carefully at the use of arbitration clauses in all consumer credit agreements, including mortgages and car loans, to make sure “consumers are not being deprived of their rights.”

 

Clauses Obscure

 

The problem is that many consumers agree to mandatory arbitration without knowing it.  The clauses may be buried in the pile of documents a consumer is asked to sign quickly, such as during a real estate settlement or tacked onto the back of a sales receipt.  A growing number of companies – among them banks, computer makers, insurance firms, and car dealers – that are rewriting the fine print of their contracts and sales agreements require that consumers agree, in advance, to give up their right to sue.   Such clauses also bar class-action lawsuits.

 

Many credit card companies, large and small, also are turning to arbitration.   First USA Bank, the largest issuer of Visa cards with 58 million customers, began requiring mandatory arbitration in 1997.  American Express customers, by using their card after June 1, 1999, will give up their right to sue the company.

 

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