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Article
An Arbitrary Matter
Author: Robert Hohenberger
Your aboveboard credit card company has advised you that by using its card you are agreeing to settle any dispute with them through arbitration. So you're vaguely aware that in the slim possibility of a misunderstanding you'll have to sit down with an arbitrator to settle the thing.
Sounds reasonable... doesn't it?
There are too darned many lawsuits today anyway.
While that may be true, do you really understand what arbitration means? And do you know that there are arbitration clauses in many sales contracts today, including everything from appliances to home purchases? Even your insurance company may entice you into voluntary arbitration. Do you understand what you're giving up by signing that contract or using that credit card?
First of all, don't confuse arbitration with mediation. Mediation is not binding on the parties, and one can still get one's day in court. No so with arbitration. Simply stated, an "arbitration clause" is an agreement within the major contract between two parties whereby they agree to settle any future disputes through an arbitration service, rather than seek a court ruling. Since the sellers (and credit card companies) are writing the contracts, they hold all the cards - including the right to select the service.
In early clauses, neither side was allowed to seek a court's ruling. Lately, in what seems to be an over-the-top advantage to an already one-sided situation, some sellers give themselves the additional right to sue the consumer in court.
There are two major arbitration services: The National Arbitration Forum and the American Arbitration Association. The service gets to select an arbitrator, the place for the hearing, as well as the date. The arbitrator acts as "judge," hears both sides, and makes an "award" -- a decision to which both parties are bound.
It is extremely difficult to appeal that decision to a court.
On the other hand, the award can be filed with a court, which finds itself having to enforce an order not of its own making.
Here's an example of what can happen to unsuspecting consumers: One couple, after ordering a Gateway computer by phone and subsequently being unhappy with the customer service, filed suit in court. Imagine their surprise when the court ordered them to arbitrate, even though they had never signed an agreement to settle any disputes in that manner. The 30-day warranty, which the couple had overlooked in the shipping box, stated that if the buyer kept the computer f or more than 30 days, the only recourse for dispute was arbitration.
The U.S. Court of Appeals for the Seventh Circuit found the couple had agreed to arbitration and were bound by it, even though they had never read the "terms". Furthermore, Gateways's telephone order taker was not required to inform them of the warranty.
The Court held that today many purchases are made before the buyer learns the terms of the sale. Rarely does the consumer come out ahead in these matters. In a May 26, 2004, Houston Chronicle article, Rick Casey described one of those rare instances involving an arbitration settlement that ruled against a couple that had tried to sue their homebuilder. The ruling was later overturned by the Court of Appeals because the arbitrator had failed to disclose that he was a lawyer for the Greater Houston Builders Association.
How did this whole nasty business get started?
Blame it on Congress. In l925, it enacted the Federal Arbitration Statute. It was meant to relieve overburdened courts from hearing contract disputes. Large corporations found advantages to quickly resolving disputes without the greater costs and time delay of seeking court resolutions.
With the enactment of Deceptive Trade Practices Acts (DTPA) during the 1970's, big businesses began looking for immunity from the triple damages that could result from DTPA lawsuits. So their lawyers solved that sticky wicket by embedding arbitration clauses in their contracts, which would simply prohibit consumers from going to court.
It didn't take long for credit card companies to see the huge benefit of arbitration. That's when you began to receive those notices, in very small print, advising that further use of your card would constitute your agreement to arbitrate any dispute.
Can you avoid this problem by telling the seller or sales person, "No thanks, I'd rather keep my options open"? Sure, as long as you're willing to lose that source of credit. In most cases, it's a take-it-or-leave-it deal.
If you're hoping I'll tell you that the whole scenario will change in the future - I'm sorry to disappoint you. In my opinion, it will only get worse. There will be more and more mine fields for the unsuspecting consumer. Meanwhile, we should give even broader consideration to the phrase, "caveat emptor". Let the buyer beware