Mandatory consumer arbitration

Introduction

Disputes between consumers and businesses should be resolved by an independent neutral arbitrator. Most consumer arbitrations occur pursuant to a pre-dispute arbitration clause where the arbitrator’s award is binding. The buyer or the ultimate consumer rarely has the ability to negotiate substantive terms present in these contracts and will either have to take it or leave it, as the terms exist therefore this article proposes that it is required to be mandatory.

Arbitration a type of alternative dispute resolution (ADR) is a way to resolve disputes. The dispute will be decided by more persons like the ‘arbitrators’, ‘arbiters’, or ‘arbitral tribunal’, which renders the ‘arbitration award’. An arbitration award is legally binding and enforceable in the courts. ADR also include mediation, conciliation, negotiation, and arbitration
Arbitration can be either voluntary or mandatory arbitration can only come from a statute, in which the parties agree to hold all current or future disputes to arbitration and can be either binding or non-binding and it is also enforceable. Non-binding arbitration is similar to mediation.

Below are several key steps to consider:

  • Clearly communicate with consumers regarding changes in policy and price increases and also procedures.
  • Devote adequate resources to customer service, including training of customer service representatives and also to ensure to the consumer complaint processes are effective and provide feedback all over the country.
  • Ensure that contract arbitration clauses are brought to the attention of the consumer at the time of entering the agreement for consumer financial products and services, using prominent and understandable language, and to also be prepared to litigate customer disputes in court, just in case.
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Consumer arbitration clauses

There are a lot of concerns with consumer contracts and several grounds for criticism.

  • First, the main problem with consumer contracts is the lack of meaningful consent. The dispute resolution clauses are hidden in the contract clauses. Consumers are hardly understood what they are getting. By giving up the right to litigate, parties waive an important right.
  • Second, the problem is that the arbitration clause is pre-drafted. It is one-sided and beneficial for the company.
  • Third, the companies that draft the clauses to prevent them from securing legal representation, and to decrease their chance of securing significant relief if they do bring claims.
  • Thus, the main problems with mandatory arbitration clauses are the lack of real consent, lack of negotiability on part of the consumer leading to unfair terms, and excessive cost burden on the consumer.

The location of consumer arbitration proceedings can be set by the arbitration organization’s rules or by terms in the arbitration clause.

Speed of resolution

Arbitration is generally faster than litigation, in part due to the limited amount of discovery available in arbitration. According to a 2009 paper by the Searle Civil Justice Institute, in a sample of 301 cases by the American Arbitration Association that resulted in an award in 2007, the median length of time from the filing of a case to an award was 207 days. Only seven of those cases took more than one and a half years to resolve. Cases resolved on the basis of document submissions only were resolved in an average of 139 days. One of the greatest advantages of arbitration is that cases are resolved faster than in litigation.

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Consumer-friendly” arbitration terms

Some of the businesses began adding “consumer-friendly” provisions to their arbitration clauses. According to David Horton, following court decisions striking class action waivers, some businesses unilaterally added: “elaborate schemes” that would provide an incentive for consumers to bring low-value claims in arbitration, such as paying all arbitration costs and automatically awarding successful plaintiff’s attorney’s fees.
To avoid a ruling of procedural unconscionable, some businesses began allowing consumers to reject arbitration agreements at the time of entering into a contract without penalty. They also added that having an opt-out option would only affect procedural unconscionability and would not apply to other defenses, nor would it prevent a ruling of unconscionability in jurisdictions.

Precedent and publicity

Arbitration decisions are not precedent. Consumer arbitration for allowing businesses to avoid unfavorable precedents rather than working within the legal system to change them. Arbitrators do not provide a written award in commercial arbitrations. Arbitrations are generally private unlike in court trials; members of the public can’t attend an arbitration hearing or obtain an award. The preliminary report on arbitration states that arbitration rules typically do not impose express confidentiality obligations on parties to the dispute, although the arbitrator imposes ethics rules and do impose confidentiality obligations on the arbitrator.” Arbitration agreements also contain a confidentiality clause barring the parties for disclosing a dispute or any of the arbitration-related proceedings.

Mandatory consumer arbitration outside the United States Consumer arbitration agreements isn’t as regularly enforced in Europe and other countries like the United States.
• European Union classifies pre-dispute consumer arbitration clauses as “unfair” and “unjustified” terms.
• Under French law also pre-dispute arbitration agreements are considered as “unfair” but after a reform enacted in 2016, they are allowed.
• In Germany, consumer arbitration agreements “must be written in an ‘intelligible and in a transparent manner'” and must be a separate document signed by both parties.
• In Japan, consumer arbitration agreements are revocable by the consumer at any time.
• In Canada, consumer arbitration is a matter of provincial jurisdiction and three provinces (Ontario, Quebec, and Alberta) have passed legislation expressly in the courts.

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Conclusion

Despite all the problems with mandatory arbitration clauses, such contracts are still regarded as valid and enforceable in the world. These arbitration provisions are given the same deference as those agreements were parties of equal bargaining power voluntarily agree to resort to arbitration. There is a need to recognize and enhance that arbitration clauses present in consumer contracts are distinct from those where parties voluntarily agree to pursue arbitration and greatly detriments consumer interest. Given the judicial approach and the limited opportunity for challenging such arbitration clauses, the only scope for change appears is through legislation.

Author: Anjali Thakur,
Gitarattan international business school ip university

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