Consumer Watchdog – Arbitrary Rights?

Use of mandatory, binding arbitration clauses

Marketplace Morning Report (MN Public Radio)

The following commentary by Jamie Court was broadcast on the Marketplace Morning Report radio program on NPR on Weds., Dec. 28th, 2005. Listen to the commentary.
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SCOTT JAGOW, anchor: This is MARKETPLACE. I'm Scott Jagow.

For your sake I hope your credit card bill wasn't too high this holiday season. But when you get your statement, make sure you check it carefully just in case there are any mistakes. Although if there are any big errors, you might not realize what could happen down the road. Consumer advocate Jamie Court says you've probably already signed away an important right.

JAMIE COURT: You should not have to give up your right to trial by jury to use a credit card, have surgery in a hospital or buy a house. But more and more, that's exactly what we're expected to do in mandatory, binding arbitration clauses.

These clauses appear in the fine print of purchase agreements or admission papers that many hospitals, doctors, realtors and credit card companies have you routinely sign. They may seem innocuous, but they're nothing less than the waiver of our Seventh Amendment right to trial by jury. That's right, the Seventh Amendment of the US Constitution, the only amendment unanimously ratified by every state. And if there's ever a problem with the credit card company or your surgery or your home, you will have lost some key leverage.

If you end up having a problem with a vendor or service provider, you won't be able to make your case before a judge and jury. You'll wind up in the office of a private attorney known as an arbitrator, and the big company you have a bone to pick with is usually the one picking the arbitrator. That attorney wants more business from the company. That's because companies often give arbitrators lots of repeat business if they like how they rule. Such repeat business appears to be why First US Bank filed over 50,000 cases with one arbitration firm and won 99.6 percent of them.

Here's what rights consumers generally lose in arbitration. Consumers don't have a right to appeal if the arbitrator makes a legal error. Typically, consumers also don't have an absolute right to gather documents in a legal process known as discovery. Arbitrators have total discretion over whether to allow discovery, and usually there's no public record of the case. That means there's no scrutiny of the case in the media either. The public does not know about problems. Defense attorneys say all sorts of things they would never say if they had to go to court.

So a company that's mischarged thousands of consumers, and arbitrated with dozens of them, can hide the evidence from the next consumer who takes the company on over the same problem. So what do you do? Cross the arbitration clause out of the contract and save a copy of the change for your records. That's what many lawyers who know better do. Or send a letter to the company or doctor you've just signed up with afterward saying you do not agree to the arbitration clause.

Will it work? You may never know unless you have a major dispute. But if the Founding Fathers thought the Seventh Amendment was that important, maybe you should, too.

JAGOW: Jamie Court runs the Web site consumerwatchdog.org. Your comments are always welcome. Our address is marketplace.org.

In Los Angeles, I'm Scott Jagow. Thanks for listening and have a great day.