Hidden Arbitration Agreements Can Cost You Big

WHEELING, WV, February 25, 2013

Have you ever taken a careful look at the long service contract you are usually presented with when signing up for a new cell phone plan? Do you read every page on your credit card contract before you sign up? For many Americans, the answer is no. Oftentimes, these dense, long contracts include a section requiring mandatory binding arbitration as a way of adjudicating any dispute you might have with the company or its services. In fact, requiring the signing of a mandatory binding arbitration clause has become standard business practice for industries as diverse as credit card companies, real estate contracts, bank loans, nursing homes, car leases and nursing homes. Consumers who actively refuse to submit to arbitration can face great difficulty when trying to sign up for a credit card, insurance, health care or even for a new job. Many of the consumers who do submit to arbitration do so unknowingly, as they are unaware of the terms of the contract they signed.

So what is arbitration? Arbitration is a process where parties to a contract agree, before any dispute arises, to settle that potential dispute in front of a third party, instead of in the court system. When fairly administered and explained to both sides to a contract, arbitration can be a just and effective way of settling a dispute quickly and inexpensively. However, mandatory arbitration contracts can often be to the detriment of the party who didn't draft the arbitration agreement: usually, the consumer. The reason for this is simple: when a large corporation has the time and opportunity to choose who will decide the dispute, the corporation often wins. A particularly egregious example is the National Arbitration Forum, a past arbitrator of choice for many companies and corporations. In March of 2008, the City of San Francisco filed a lawsuit against the National Arbitration Forum, citing the fact that the NAF had found for the consumer in less than 0.2% of all the disputes it had heard between January 2003 and March 31, 2007. In July of 2009, the Minnesota Attorney General also sued the NAF, claiming that the Forum engaged in deceptive practices by hiding its ties to the debt collection and banking industry. As part of a settlement reached with the State of Minnesota as a result of their lawsuit, the NAF, at the time the largest arbitrator of credit-card and consumer collection disputes, stopped handling any consumer arbitrations in 2009. Although the NAF no longer handles consumer arbitrations, mandatory arbitration agreements remain fraught with unfairness for the everyday consumer.

Credit card users are not the only consumers who are put at risk when they sign mandatory arbitration agreements. Many nursing homes request that their residents (or residents' representatives) sign such agreements before they agree to admit an elderly patient. As stated by Michelle Andrews in a recent article published in the Washington Post, "Signing an arbitration agreement means that in the event of a problem that is not amicably resolved - Mom slips on a wet floor and breaks her hip, say, or Dad wanders off the premises and gets hit by a car - you agree to bring the dispute before a professional arbitrator rather than file a lawsuit for negligence or wrongful death, for example." Agreeing to arbitrate these sorts of disputes can often not be in the best interest of the patient or the family, as the amount awarded in arbitration can often be less than should the case have gone to trial. For example, in a study conducted by Aon Global Risk Consulting analyzing 1,449 closed claims involving long-term-care providers between 2003 and 2011, researchers found that no money was awarded in 30 percent of claims where a valid arbitration agreement was in place, compared with 19 percent of claims in which there was no arbitration agreement or the agreement was determined to be unenforceable.

What should consumers do? In her Washington Post article, Ms. Andrews urges residents and their families to not sign arbitration agreements. While valid advice, this doesn't address the fact that some residents feel pressured to sign an arbitration agreement, and many others may not even know that they've signed such a document! In a broader context, many other arbitration agreements, such as those signed by an applicant for a credit card or a cellular phone do not give to the consumer the right to opt out. The best answer is that you should always read very carefully the terms of any legal document that you sign. When in doubt, don't sign, take your time and ask to think things over.

For similar articles, please see the blog about arbitration and the blog about nursing home abuse.

To learn more about our Wheeling injury law firm, please visit our website at www.bordaslaw.com.