CONSUMER ALERT

MIKE COX
 ATTORNEY GENERAL

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading or deceptive business practices, and to provide information and guidance on other issues of concern.

MANDATORY ARBITRATION CLAUSES

CONGRATULATIONS ON YOUR PURCHASE !
...but our regrets on the loss of your rights

We consumers often make purchases without reading the paperwork that comes with the goods or services. Sometimes we're forced to read the "directions" or an instruction manual, but we ignore the enclosures and the fine print that contain the terms of a purchase agreement or warranty.

By failing to read this information, however, you can compromise your rights as a consumer. As a general rule, signing on the dotted line, or even just accepting the goods or services, means that you (the buyer) have agreed to all of the terms and conditions of the "purchase agreement." One such condition often buried in the "fine print" is what is known as a "dispute resolution" or "arbitration agreement" clause. A typical arbitration clause reads as follows:

Any controversy or claim arising out of or relating to the contract, or breach thereof, shall be settled by arbitration administered by the American Arbitration Association, under the Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Most people don't like to ruin a pleasant shopping experience by thinking about what kinds of disputes might arise from the simple purchase of a product or service. Yet it pays to think ahead when a purchase agreement requires the buyer to agree to an arbitration clause.

In accepting an arbitration agreement, you may be giving up a number of rights you assume you have as a consumer, including the right to litigate a dispute in court. Worse, you may be agreeing to arbitrate at a certain place - maybe even hundreds or thousands of miles from your home.

Following are some examples of how purchasing a good or service subject to an arbitration clause may affect a consumer's rights in a dispute with the seller:

1. The buyer may be required to make a claim within a shorter period of time than a court would allow.

2. The buyer may be required to pay a greater fee to initiate a claim than a court would charge.

3. The buyer may be required to participate in an arbitration proceeding at a location less convenient than a local court.

4. The buyer may be required to waive entitlement to certain types of money damages, costs or attorney fees.

5. The buyer may be less familiar with an arbitrator or panel of arbitrators than the seller, who probably has more arbitration experience.

6. The buyer may be required to divulge information about the transaction which would be protected in a court proceeding.

7. The arbitration hearing may be conducted without the benefit of court rules or rules of evidence that would protect against the consideration of irrelevant or prejudicial information.

8. The right to appeal the arbitrator's decision in court may be significantly restricted, whereas the decision of a judge is generally appealable as a matter of right.

Consumers should carefully weigh these considerations, especially when spending a lot of money on a particular good or service.

Remember the following tips next time you make a major purchase:

• Read the fine print and determine if there is a binding arbitration clause.

• Determine if mandatory arbitration is an acceptable way for you to resolve a dispute with your seller.

• Identify where the arbitration is to take place - this can be very important.

• Make sure you know who pays the cost of arbitration.

If arbitration does not make sense for you, you may have to cancel the contract and return the goods within the specified time set forth in the purchase agreement. Otherwise you may be stuck.