Posted On: December 17, 2007 by Finch McCranie, LLP

Arbitration Clauses Attacked By Consumer Advocates In Congress

We have previously written about mandatory arbitration clauses. Just a few years ago, Congressional Republicans made it a priority to limit almost all litigation against businesses. Now, legislation is advancing which could make it easier for consumers to have their complaints heard in the courts. At issue is the fine print in many contracts for goods and services, such as credit cards and cell phones, requiring that any disputes be submitted to arbitration by a third party. Critics of these provisions contend that they deny consumers a basic American principle, the right to go to court. Business groups argue that arbitration clauses prohibit costly litigation which only generally benefits lawyers. Consumer advocates counter that these clauses are unfair, arguing that the arbitration process often favors businesses, because arbitration firms rely on the companies for repeat business and are not inclined to rule against them.

The most controversial piece of legislation pending before Congress was introduced by Georgia Representative Hank Johnson. This legislation would make arbitration voluntary in all consumer, employment, franchise and medical contracts. Johnson reported that he introduced the measure after he considered building a home and found a mandatory arbitration clause in every home construction contract he was presented. Johnson said parties in dispute should be free to turn to the Courts, arguing that mandatory arbitration amounts to a private judicial system that benefits commercial interests at the expense to consumers.

As an example, at one of Johnson’s hearings, the owner of a coffee franchise in Annapolis, Maryland reported that an arbitration with a coffee company took place in Michigan, 5,000 miles from her home and cost her more than $100,000. She was quoted as saying “we never knew how precious our constitutional rights were until they were stolen from us by a binding mandatory arbitration clause.”