Auto Dealers and Consumers Agree: Mandatory Arbitration Is Unfair

Auto dealers are promoting H.R. 534/S. 1020, in order to seek relief from mandatory, pre-dispute arbitration clauses in their franchise contracts with auto manufacturers. They are working hard to explain why this form of arbitration is unfair. Consumers are faced with the same injustices - but the consumer is even more disadvantaged. What auto dealers and consumers have in common is the desire to not be forced into situations that are inherently unequal and to retain their rights to protect themselves and others when they have been harmed.

What the Auto Dealers Have Said to Argue for Protection from Arbitration: Why Consumers Agree
"By placing an arbitration clause in this 'take it or leave it' contract, the stronger party may impose mandatory binding arbitration on an unwitting or unwilling dealer..."

Testimony of Gene Fondren, President of the Texas Automobile Dealers Association, before a U.S. Senate Subcommittee on March 1, 2000.

Consumers are also forced into compulsory arbitration in "take it or leave it" contracts, but consumers have even less power when they deal with auto dealers. Unlike auto dealers negotiating million dollar auto franchise contracts with auto makers, consumers do not have an attorney at their disposal to advise them of the consequences of an arbitration clause. Furthermore, consumers are increasingly less likely to find merchants who do not require arbitration clauses, contrary to the myth that consumers need only take their business elsewhere.
"In fact, the process is so one-sided, at any time the manufacturer can and does simply mail out an addendum that becomes part of the contract without any agreement or acceptance by the dealer."

Testimony of Gerald Turnauer, franchised truck dealer, before a U.S. House of Representatives Subcommittee on June 8, 2000.

A popular method of "notifying" consumers of compulsory arbitration clauses, often used by credit card companies, is the use of "bill stuffers." This practice is not only one-sided, but often goes unnoticed by consumers who are unlikely to read through all the material sent to them or notice these clauses buried in the fine text.
"Our out-of-pocket expenses alone were far in excess of the arbitrator's award."

Testimony of William Shack, franchised automobile dealer, before a U.S. Senate Subcommittee on March 1, 2000.

While arbitration is often touted as cost effective, many consumer claims are for modest damages that will be exceeded by the arbitration filing and hearing fees, making arbitration a losing proposition. This serves as a disincentive for consumers to pursue a claim. Because class action suits are usually prohibited by arbitration, large groups of consumers who have been harmed for only a few dollars are prevented from forming a class, further allowing companies to escape accountability for wrongful actions.
"All of the people involved in the actual decision making or the administration of the mandatory arbitration procedure owe their economic well being to Saturn."

Testimony of William Shack, franchised automobile dealer, before a U.S. Senate Subcommittee on March 1, 2000.

The arbitrators of consumer disputes owe their economic well being to the defendant corporations because they are paid per case. Companies keep records of which arbitrators found in their favor and can choose companies and arbitrators that are defendant friendly. Since public records are not required in arbitration, consumers have no way of knowing of this bias on the part of arbitration companies and individual arbitrators. In many cases, this conflict of interest is not disclosed to consumers.
"Perhaps the most striking feature of mandatory and binding arbitration is the fact that arbitrators are not required to follow state law or precedent and no remedy is available if the law is misapplied."

Testimony of Mark Stine, Director of Legislative Affairs at the Pennsylvania Automotive Association, before a U.S. House of Representatives Subcommittee on June 8, 2000.

Arbitrators are not required to follow state law or precedent, or federal law or precedent in consumer arbitration either. By forcing consumers to relinquish their rights, companies are able to circumvent laws enacted to protect consumers from harm. Consumers have no recourse because the appeals process is functionally non-existent.

As evidenced above, the reasons to pass H.R. 534/S. 1020 to protect auto dealers from unfair compulsory arbitration argue even more strongly for consumer protection from arbitration. Consumers face similar disadvantages when compulsory arbitration clauses are imposed on them by businesses including, ironically, auto dealers. Auto dealers should not be able to have it both ways, and compulsory arbitration clauses between themselves and their customers should be declared unenforceable. Therefore, H.R. 534/S. 1020 should be expanded to protect the customers of auto dealers at least as much as it seeks to protect the auto dealers from auto manufacturers.