What is an arbitration clause?
"Arbitration clauses? What's this guy talking about? I'm just an average guy, non of that stuff applies to me. Only big businesses have to worry about
that arbitration stuff, not individuals like me. Right?"
Wrong. I'll bet you've got at least one binding mandatory arbitration agreement ("BMA") that applies to you right now. Many credit card agreements,
automobile purchase agreements and mortgages have BMAs. If you have credit cards, a car or a house, you may be subject to several BMA
agreements right now.
So what is arbitration? What is a BMA? Why should you care about any of this?
Arbitration is an alternative method of resolving disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of
arbitrators. The arbitrator, who is supposed to be neutral, then weighs the facts and arguments of both parties and decides the dispute. Decisions in an
arbitration are usually final and cannot be appealed. In binding mandatory arbitration, a company requires a consumer to agree to submit any dispute
that may arise to binding arbitration prior to completing a transaction with the company. Consumer are required to waive their constitutional right to
have their dispute heard and decided by a jury of their peers (i.e. usually other consumers).
"Well, that doesn't sound so bad. After all, I get to avoid all the hassle of a lawsuit, right?"
Here are a few things to think about. First, arbitration providers are organized to serve businesses, not consumers. All of their marketing is targeted
toward businesses, and most of the arbitrators are either executives or lawyers in the corporate industry. Because only businesses are likely to be
"repeat customers" of an arbitrator, there may be an inherent bias toward the business clients and against the consumer.
Also, "discovery" is greatly limited in arbitration. Discovery is the process by which the parties to a dispute obtain from the "other side" information and
documents that are relevant to the case. In a regu