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Feb. 24, 2005

Consumers Unwittingly Give Up Rights Through Binding Mandatory Arbitration (BMA) Clauses Tucked in Contracts

Statement of Public Citizen President Joan Claybrook

Most people don’t realize that when they get a new credit card, take out a mortgage, obtain health insurance, hire a broker to buy or sell stocks, or even arrange for their pets to be groomed that they are probably forfeiting their right to go to court if they are defrauded or have a dispute with the company.

It happens every day through BMA (binding mandatory arbitration) clauses – insidious paragraphs that are tucked in the fine print of an array of contracts. When you accept the credit card, you accept the arbitration clause, usually unwittingly. Most Americans are bound by many of these clauses, which companies have been quietly slipping into consumer contracts more and more frequently in the past decade.

This means that homeowners ripped off by a shady mortgage broker, patients denied medical coverage by an HMO or injured in a nursing home, employees victimized by discrimination, and consumers caught in credit card billing scams or identity theft cannot take their claims to court. The result is a systematic undermining of consumer protection, civil rights and other laws that level the playing field between big businesses and individuals.

Binding mandatory arbitration is bad for consumers in many ways. First, it is costly – consumers must pay high fees up front that they do not have to pay if filing a court case, and they must pay half of the expensive arbitrator fees. Second, it stacks the deck against consumers before they start. Only businesses are repeat users of arbitrators, so arbitrators have an incentive to rule against consumers to assure future business.

Further, arbitrators’ awards are generally lower than those given by judges and juries because arbitrators often split the difference between two parties’ positions and want to please the future client – the company. Unlike judges, arbitrators do not have to know or follow the law, do not have to write an opinion, are not legally accountable for errors, are not required to take legal precedent into account and are rarely subject to oversight by courts. Finally, the decisions and data on which a decision is based are secret and not recorded for others to use or reference.

Arbitration was conceived as an informal, expedited process for resolving routine disputes between businesses of equal knowledge. But now, Big Business is forcing it on unknowing consumers in billions of pre-printed, take-it-or-leave-it contracts as part of its larger push to erode consumer rights and cut off consumers’ access to the courts. We’ve seen it in their attempts to curb class actions, cap awards for those most harmed by medical malpractice and close off avenues of redress to workers harmed by asbestos on the job. But all those require legislation. By contrast, BMA is imposed on consumers in everyday contracts, usually without their knowledge.

Arbitration clauses prohibit class actions, prohibit punitive damages and injunctive relief, and often require that hearings be held in locations inconvenient to consumers making the claims. More galling is that many arbitration clauses allow companies to take consumers to court, even though those individual cannot sue the companies.

We are here today to fight back. Consumers shouldn’t have to give up their access to public justice just because they take out a bank loan or credit card. We will fight back through every means possible.

Today, we are announcing a 10-point plan of action designed to educate consumers, give them tools to fight back in the marketplace and change the law.

Our educational outreach includes two Web sites. The first, which we are announcing today, is www.givemebackmyrights.org. It explains what BMA clauses are, where they are found and what they mean to consumers. The second, www.callbeforeyoubuy.com, helps consumers purchase vehicles without being forced into contracts with BMA clauses. Remar Sutton will provide more details about that.

To help consumers help themselves, we are encouraging them to take a variety of actions, ranging from avoiding companies that use these arbitration clauses to sending “bill stuffers” with their payments repudiating BMA clauses. Consumers must clamor and be heard.

Finally, we are calling for congressional hearings, and state and federal legislation to stop companies from using these arbitration clauses to harm consumers.

Without access to the public courts, a major deterrent to corporate fraud, abuse and deception in the marketplace is lost. Arbitration might be the right remedy in some cases, but it should be the voluntary choice of both parties, not mandated by corporations seeking to avoid accountability under a system of private commercial dispute resolution.

We cannot allow consumers’ rights to be eroded. The use of binding mandatory arbitration clauses must be stopped.

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To read the press release, click here.

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