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Arbitration for Consumers: A Boon or a Bane By Andrew A. Fraser, Esq. If you have recently bought an appliance, opened a brokerage account, applied for a credit card, or hired a home-improvement contractor, chances are you have made yourself a candidate for arbitration – even if you’re not aware of it. An increasing number of contracts for goods and services contain clauses that mandate arbitration to resolve disputes between the vendor and the consumer. Unless you read the contract carefully, you may agree to be bound by terms that are one-sided and consumer-unfriendly. By signing a contract containing an arbitration clause, you agree to submit to arbitration – conducted by an arbitration firm named by the company whose product or service you are purchasing – to resolve disputes. Often, the terms of the contract call for arbitration to the exclusion of litigation. If you sign, what do you agree to waive What are your rights Is arbitration helpful to consumers, or to be avoided at all costs Details, Details, Details As is usually the case, the answer is in the details. Arbitration is a tool useful in settling disputes and keeping courtrooms available to those who really need them to hash out a complex issue. Many arbitration programs are known as Alternate Dispute Resolution (ADR), because they provide an alternative to costly litigation, where the time frame and outcome are both uncertain and the costs are generally high. But like any tool, arbitration works well only in the hands of an experienced professional – a trained, experienced, neutral arbitrator who works for a reputable arbitration service. At its worst, arbitration resembles a rigged game, unfair to the consumer. First you have to determine whether the arbitrator is unbiased, which may not always be the case, given that the self-interested vendor chooses the arbitrator, and the arbitrator has a financial stake in staying in the vendor’s good graces. Even if the arbitrator is neutral, the consumer can still be inconvenienced or damaged by onerous ground rules. Imagine the surprise of customers who bought personal computers from a major manufacturer, which required dissatisfied customers to write to an office in France, pay $2,000 to file a claim, and travel to Chicago to attend a hearing. This is an extraordinarily egregious example, and the manufacturer later rescinded those onerous terms. It remains an example of how consumers can face perils in arbitration. Reputable arbitration firms, such as the American Arbitration Association (www.adr.org), require more reasonable terms. The Association recently adopted a due process protocol that provides consumers with certain guarantees: Hearings are to be held at reasonably convenient locations; consumers retain the right to go to court; and filing fees not exceed $125 on claims of $10,000 or less. The National Arbitration Forum (www.arb-forum.org) charges a $49 filing fee on claims of less than $1,000. The filing fees are in addition to the arbitrator’s hourly fee. Both groups also insist that their arbitrators have at least 10 years of education in their field of specialization. Current Rage, Wave of the Future You can't escape arbitration clauses, because they are everywhere and becoming increasingly popular with vendors who desperately want to avoid the courtroom. How can consumers best deal with the prospect of arbitrating a dispute First of all, read all contracts carefully. Look for the details of arbitration – filing fees, waivers of rights, and locations of hearings, for instance. Don’t be overly concerned with arbitration clauses covering relatively minor purchases, especially if the vendor is local. If a $50 toaster oven breaks, it’s unlikely you would go to court over that anyway, so arbitration may be a moot issue. Also, a local shop owner or contractor may negotiate terms of arbitration with consumers, rather than risk losing a sale and alienating a customer. If you are contemplating a major purchase or business deal that may obligate you to arbitrate disputes, consider consulting an attorney – but only an attorney trained and experienced in the field of arbitration and ADR. Most general practitioners lack the training and expertise to counsel you wisely in this complex, evolving field of law. A skilled attorney, experienced in arbitration, can steer both parties toward arbitration in its highest, fairest, and most satisfying form: a voluntary undertaking, agreed to by both parties, under the guidance of a neutral, well-trained arbitrator working for a reputable firm. Under those conditions, consumers need not fear arbitration of commercial disputes.
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