It’s Business, And It’s Personal

Mandatory arbitration comes under fire. What’s that about?

On Behalf of | Mar 18, 2015 | Business Contracts & Disputes |

The importance of a contract, in writing — signed, sealed and delivered, is something that we have talked about before in this blog. But it’s just as important for all the parties who are signing on the dotted line of that contract to understand what the document says.

It’s not just about reading the fine print. It’s about reading all the print. If you don’t get a reading of the details and get your questions answered, it can lead to contract disputes that can wind up being time consuming and costly. And if one party has greater financial resources over the others, the road to resolution can be a long and frustrating one.

There is one particular clause used in many business-to-consumer contracts that has been around for some time, but which is now under significant fire. It is often used in bank, credit card and wireless service customer contracts and it establishes that if you have a dispute over the terms of the agreement, you must submit the issue to arbitration rather than take the business to court.

The reason it’s under attack is that the federal Consumer Financial Protection Bureau has found that millions of possible disputes are never getting aired, in court or in arbitration, because most consumers don’t know about these clauses. In addition, the report found that a comparison of arbitration and court decisions suggests that consumers don’t do as well in the arbitration setting. And companies use the clause to scuttle class actions.

The CFPB has the authority to set new rules restricting the use of mandatory arbitration for the sake of consumer protection, and the report could be a signal that new rules are coming. But some legal observers suggest that the agency’s research might inspire Congress to extend the reach of the rule to non-financial consumer contracts, too.

We expect this is something that experienced North Carolina business law attorneys will be watching.