Imagine a consumer that goes to purchase a new mobile home from a local mobile home dealer. The consumer agrees to pay a specified amount for a home with specific options. The consumer is then invited into the office to sign documents. Included in the half inch thick stack of documents is an arbitration clause. The salesman fails to mention the arbitration clause. The salesman neglects to tell the consumer that he is giving up his right to sue the dealer or the manufacturer in Court for violation of federal consumer protection laws when he signs the clause. The salesman fails to tell the consumer that the arbitration may be required to be held at the home office of the manufacturer of the mobile home in another state before a retired judge or lawyer that used to play golf with the manufacturer’s lawyers. The salesman fails to tell the consumer that the arbitration clause allows the seller, the manufacturer or the finance company to sue the consumer in court even though the consumer cannot sue them. Most importantly, the dealer’s agent fails to tell the consumer that the arbitration will have to be paid for by the consumer, sometimes at an expense of over $2,000.00.
These facts were recently faced by the State Court of Carroll County. The Court found the arbitration clause unfair and refused to enforce it. Court’s that face these clauses generally look for the following factors. This case was decided under the Federal Arbitration Act. It is exceedingly rare that Court’s strike arbitration clauses under the FAA. However, Georgia’s Arbitration Act specifically excludes consumer cases. Representative Hank Johnson from Georgia has sponsored legislation to exclude consumer cases from the Federal Arbitration Act as well.
Did the consumer knowingly consent to the clause? The timing of the so-called arbitration agreements also raise concern. When you sign such a clause you give up your constitutional right to resolve disputes in court. “It is only once the dispute arises that a consumer can make an intelligent, knowing and voluntary choice regarding arbitration,” says Georgia State University College of Law Mark Budnitz.
Several credit card companies inserted arbitration clauses in their bills and a “stuffer”, amending the terms of the cardmember agreement. The consumer paid the bill without ever reading the “stuffer material.” The Court found that the consumer had not knowingly and meaningfully agreed to the terms. In other cases, the Court’s have found the clause unenforceable because the employee was told he would be fired if he didn’t sign, or the patient was told he would not be treated if he did not sign. In still others, the court failed to enforce clauses which were buried in fine print on the back of forms where the signature is on the opposite side of a contract which was never shown to the consumer until he was asked to sign.
Did the consumer know the expense of arbitration? In the case above, the Court found the clause unenforceable primarily because the consumer was not informed about the potential cost of the arbitration. The consumer was not informed that the arbitration would require him to pay over $2,000.00 prior to filing, in addition to the cost of the experienced arbitrator and travel to Alabama for the hearing. The Court said this was an unfair surprise and that this matter should have been made known to the consumer prior to the agreement.
Is the arbitration clause mutual? Is the company that champions the clause held to the same clause or are they allowed to go to Court? In the Carroll County case above, the Court found the clause lacked mutuality and this was another reason not to enforce it.
Companies claim that arbitration clauses are not mandatory because the consumer can always go to a dealer that does not present such a clause. This ability is illusory when all dealers use the same forms provided to them by the dealer’s association or when all (or most) mobile homes are financed by the same company which requires use of its form. Recently, companies that are paid to conduct arbitrations under these clauses have expressed concern that arbitration clauses are being placed in consumer contracts in situations where the consumer has little choice. These companies, such as American Arbitration Association or National Arbitration Forum, have developed consumer standards requiring pre signature disclosure of the potential cost and the methods or arbitration.
Consumers should make sure the read closely the documents they are required to sign and that they obtain a copy of all documents. Recently a local car dealer had required all consumers to execute arbitration clauses but they had never provided a copy of them to the consumer. As the consumer trustingly signs the stack of paperwork “here, and here, and by this x” they are signing document they never have read and which they will only be faced with in the event they wish to sue the seller. Consumers should require pre signature disclosure of the cost of arbitration and who will pay that cost. Consumers should know the procedures of the arbitration forum and what rights they will have in that forum. Will they get to present evidence or will the case be decided on papers? Who will the arbitrator be? Make sure you are informed.