Forced Arbitration Threatens Consumers

A lawsuit is how most legal disputes are settled. But due to the explosion of forced arbitration clauses within contracts, the option of a lawsuit is made increasingly unavailable to consumers.

In arbitration, a case is decided by an arbitrator instead of by a judge or jury. Arbitration has been around for years and has long been used by business because it can be quicker than a trial and is confidential.

In the past 15 years or so, more and more companies, including banks, cell phone carriers, and brokerage, homebuilder, and credit card companies, have put arbitration clauses in their contracts. Settling differences is now a “take it or leave it” nonoption for the majority of Americans.

Arbitration is almost always bad for consumers. The fees to file an arbitration case are high, and claimants must additionally pay the arbitrator, who can run hundreds of dollars per hour. Arbitration agreements often limit available remedies and offer no right to appeal. Finally, many arbitrators take the side of business in any dispute. For example, a recent study reveals that one large arbitration organization sided with credit card companies a whopping 94% of the time.

Not only does arbitration work against the consumer, but it is also not easy to avoid. Many companies do not let consumers opt out of arbitration clauses, and those that do often bury the requirements for doing so in the fine print, set impossible deadlines, or otherwise make carrying out the requirements difficult to accomplish. The law is also very friendly to arbitration: The Supreme Court has ruled time and again that the Federal Arbitration Act is to be interpreted broadly in favor of arbitration, and most states will enforce arbitration agreements in almost every case.

None of this is good for consumers. Many people cannot bring a claim because they cannot afford arbitration. Those who do bring claims often get less then they should or nothing at all.

Calls are increasing for limitations on arbitration agreements. Some consumers want to limit the kinds of claims that can be arbitrated. Others want to refuse to force arbitration of claims worth less than a certain amount. Still others want to completely ban mandatory arbitration for consumers. These calls for reform have run directly into the business lobby, which knows that an end to arbitration will cost them money.


One service provider quick to embrace arbitration has been nursing homes. The contracts for many nursing homes contain mandatory arbitration clauses, taking away a family’s right to sue if their loved one is injured or killed.

These clauses are often hidden in the fine print of long admissions documents; sometimes a home will even have the senile elderly person being admitted sign the document. As the accompanying article points out, if a nursing home can force a claim into arbitration, the home benefits by avoiding much of the damages costs caused by its own negligence.

Ultimately, we all pay the cost. Most nursing home patients receive Medicare or Medicaid, and when they are injured and the family cannot recover from the nursing home, it is the taxpayer who foots the bill.

The Law Offices of Richard M. Katz is striving to bring forced arbitration under more strict guidelines and limitations to ensure the protection and safety of present and future consumers and their loved ones. Please help us by calling today if you have been the victim of forced arbitration.

**Actual resolution of legal issues depends upon many factors, including variations of facts and state laws. This newsletter is not intended to provide legal advice on specific subjects, but rather to provide insight into legal developments and issues. The reader should always consult with legal counsel before taking action on matters covered by this newsletter.

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