Mandatory Arbitration

The Law and You

Contracts are important for many reasons, including setting out the agreement of the parties and making clear what services will be provided for a fee. However, contracts can be misused by the party or business drafting the contract when hidden fees or unwanted provisions are buried inside a lengthy document. One provision that is often hidden in contracts is a mandatory arbitration provision.

Mandatory arbitration requires the parties to use an arbitrator to settle the dispute, giving them no other option. In many cases, large corporations will hand pick the arbitrator of their choice, giving little hope that the consumer will successfully defend themselves. Discovery of facts can be limited in an arbitration and arbitration can be more expensive to a consumer than a jury trial.

Mandatory arbitration circumvents your seventh amendment right to a trial by jury.

New Proposal Aims to Restore Consumer Rights

Fortunately for consumers, the Consumer Financial Protection Bureau (CFPB) has taken a step in the right direction. The CFPB issued a proposed rule that would ban mandatory arbitration clauses that prohibit joining class action lawsuits.

Because this is just a proposal, more work is needed to turn this into a law and protect consumers from large corporations who haven’t been playing by the rules when drafting consumer contracts.

For now, be alert that any contract you sign may include a clause that waives important rights that you have against shady business practices. These corporations understand the law, and they will use their knowledge to keep you powerless in a dispute.