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The Good vs. The Bad

by Lucien C. Gwin III


Arbitration is a topic that could easily affect every reader of this article. First, what is it?  One article I read says, “Arbitration Clauses allow companies to force customers with legal disputes against them out of the courtroom, and into a process of often private, often confidential binding agreements.”


This subject has a direct impact on almost all consumers for the simple reason that “arbitration clauses” are contained in almost all applications for credit cards, auto loans, student loans, and payday loans; and forty to fifty percent of banks include these clauses in their account contracts. Furthermore, multiple other companies and industries are moving toward “binding arbitration” in order to avoid having to face juries in a courtroom.


So, how does this process work?  First, let’s assume that you have a credit card with a company that provides for binding arbitration in its account contract. Let’s also assume that you use this credit card to purchase online heath food products through the company. It is understood that the company is going to charge your credit card every month for various items that you have ordered from them. As time passes, you don’t pay a whole lot of attention to your credit card bill; but then, after about a year, lo and behold, you realize that the health food company has been substantially overcharging you to the tune of several thousand dollars.


Well, the first thing you do is call the credit card company and tell them to stop the charges immediately. Now, let’s assume that somehow or another, the credit card company fails to stop the charges, either through inadvertence or negligence (seen it happen).


Again, some time passes, and you realize that your credit card is still being used to purchase products that you never ordered or received. So, you call the credit card company again and demand that your card be credited with the amounts that were wrongfully charged to you after you instructed them not to allow any additional charges. The credit card company basically tells you “too bad” and further tells you that they have no record of your ever calling them. So, what do you do?


Well, unfortunately, you’ll find out that you only have one option in this situation; and that is “arbitration.” Now, you as the damaged person have to initiate arbitration.


The first thing that you have to do is retain an attorney and file an action in court to begin the arbitration process. Under these circumstances, an attorney, in all probability, will want to be paid a fee versus taking a percentage of any recovery. Once the attorney files the proper action, the court will then order that the arbitration process begin.


If the arbitration language is standard, you will “employ” the American Arbitration Association (A.A.A.) or a similar entity. This means that you have to come and pay (out of your pocket) the arbitration fees to start this process. This is usually $1,500 to $2,000 just to get the process started. You will then have to put up monies for the cost of the arbitrator. This can set you back an additional $2,000 to $5,000. Thus, as you probably are starting to see, arbitration can become very expensive for a consumer.


Assuming you even can take the process this far, let’s say that you attend the hearing on your case and you lose. Guess what? There is no appeal. The decision of an arbitrator is admitted to a court of law, and it is reduced to a judgment against you. This is the end of the process for you.


On the other hand, if you win, you can then get a judgment against the credit card company for the amount of damages you incurred. However, it is at the arbitrator’s discretion as to whether you are allowed to recover the expenses that you had to pay on the front end to begin the arbitration process.


My Take:


Believe it or not, there is an advantage to the consumer in the process of arbitration.  Arbitration is a binding matter that often happens within six to eight months versus a court-room setting and an appeal, which can drag on for you for two to five years. Also, your attorney’s fees are usually not as high in an arbitration matter as in a court-room matter because you do not go through formal discovery as you would in litigation.


The down side is that you have to pay arbitration fees to even initiate the arbitration whereas in a court case, court-filing fees only run between $100 and $200 to start an action.


I personally think that the consumer usually gets a cheaper, fairer shake in the courtroom.  Paying an attorney a percentage of the recovery versus paying him/her directly out of your pocket may not be so egregious after all.


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