Mandatory Arbitration in Car Purchases

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There has been much litigation regarding mandatory binding arbitration in consumer warranty claims recently. Manufacturers, dealers and finance companies are continuing to insert mandatory binding arbitration clauses in their contracts. These clauses are especially egregious because they impose a cost to the consumer for the arbitration and they are rarely explained to the consumer prior to the signing of the contract. Several courts, notably Alabama (Southern Energy) have struck these clauses down as violative of the Magnuson Moss Warranty Law.

I always suggest that consumers attempt to avoid mandatory binding arbitration of their consumer warranty claims. Recent articles in Consumer Reports and US World News (No Suits for You!) have outlined the pitfalls of mandatory binding arbitration. Fee issues are most important.

Pay-to-Play Requirement Dooms Mandatory Arbitration Agreements

For an example of a case in which the trial court struck down a mandatory binding arbitration clause in a consumer warranty case, see Crawford v. Cavalier Homes and Greentree. For sample briefs see Opposing Mandatory Binding Arbitration Briefs.

Recently, several of the national arbitration forums have recognized the unfairness of mandatory binding arbitration in the consumer context. One arbitration forum entered into a consent order not to perform consumer arbitration after an investigation of bias against consumers.  Others, such as the American Arbitration Association have enacted Consumer Protocols for use in determining whether such a clause is enforceable. AAA will then apply its consumer rules. One advantage of the AAA consumer rules is that the consumer is allowed to file in small claims court despite the existence of an arbitration agreement.

 

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