THE CONSUMER PITFALLS OF BINDING ARBITRATION
A Report by the Texas Watch Foundation
Executive Summary
Most people would think twice before they signed away their right to free speech. Many
would hesitate before they agreed to waive the right to vote, and more than a few would
pause before they passed on the right to freely worship the god of their choosing. The
same can be said of the fundamental right to a jury trial. However, it is now simply
commonplace for Texans to unknowingly sign away this cornerstone of democracy.
Everyday, folks from all walks of life—parents, homeowners, medical professionals,
business executives, consumers, small business owners, and nursing home
residents—unknowingly encounter binding arbitration agreements. These hidden contract
clauses may pose significant pitfalls for consumers as they take conflict resolution out of
the public domain of court proceedings and into private venues controlled by profit-
driven arbitrators.
The first and most significant pitfall occurs as the vast majority of hard working Texans
to inevitably and unsuspectingly waive their constitutional right to a jury trial1.
Other consumer pitfalls include:
• The loss of time-tested court procedures and processes designed to produce
impartial and fair justice;
• Secrecy of legal proceedings;
• Limited public accountability over entities rendering decisions;
• Increased potential for bias against consumers; and
• Higher costs to consumers making claims.
“Binding arbitration” arises out of a purported agreement between two or more parties
where disputes arising from a contract are to be resolved before a private judge called an
“arbitrator.” A ruling by the arbitrator is by and large final, leaving unsatisfied
participants with no place to turn.
By all accounts, binding arbitration has increased largely through the careful and
methodical use of adhesion contracts.2 Contracts of adhesion are large boiler-plate
documents with a dizzying amount of fine print. By definition, adhesion contracts occur
in take it o