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Beware arbitration clauses

Almost all of the contracts that an ordinary consumer is faced with contain a mandatory arbitration clause. Rental car agreements, cell phone contracts, warranties for electronics; they all require that, if there is a dispute between the consumer and the company, the issue will be settled out of court. In theory, these methods of alternative dispute resolution are good for both corporations and consumers, as neither side will be have to be saddled with legal fees and as arbitrations move much faster than court cases. However, a recent California law has provided insight into why this system is not working in practice. In 2002, California passed a law requiring statistics to be kept on cases that were resolved through these mandatory arbitration agreements. An analysis shows that the consumer almost always loses in arbitration, which is probably why only 118 out of 34,000 cases were filed by consumers. In addition, because the winner in arbitrations gets its costs paid by the loser, arbitration is frequently a lose-lose option for the consumer. As a result, there has been recent efforts in the Senate to make most mandatory arbitration clauses unenforceable.

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