Before you apply for your next credit card, loan application, job, utility service, or any other contract you make with a business, make sure you watch very carefully for the word "ARBITRATION" because if that word pops up, you need to pay careful attention to what it will mean to you in the long run.
An arbitration, quite simply, is supposed to be a fair alternative between two parties to settle a dispute without having to go to court. Many will sell up this idea by telling you this will mean you don't have to front money for a court hearing or be in a formal court setting which might be more than the average person can handle where you will have the extra expense of a lawyer and other fees. However, if you agree to the arbitration service when you sign the contract, the company will pay for the neutrally agreed upon arbitration service to handle everything and all you have to do is show up to present your case to them.
In a world where people are honest and straightforward, then this would be the ideal situation. Two parties agreeing to a neutral party to hear their dispute and have the arbitrator service resolve it in a fair manner that can then be turned over to legal authorities to be enforced. However, things are not that clear in the real world.
There are many arbitration services available, but many have a vested interest in many corporations because they hold stock or are going to benefit from the company that sends them the cases. In a court of law, a judge must excuse themselves from the case if there is a conflict of interest. In the privacy of arbitration law, the so-called neutral party of the arbitration service does not have to disclose if there is a conflict of interest and can continue serving as the neutral party to hear the case. What exactly does this mean to the consumer?
Let's say you really want to get that credit card with a low rate and there are a lot of things to the fine print which include the words, "All credit card holders must agree to use the arbitration services in order to qualify for this program. The arbitration service, XYZ Arbitration, is a neutral party that will settle all and any disputes or disagreements between the company and the cardholder without any up front fees from the cardholder. All decisions made by the arbitrators are binding and final." What exactly are you agreeing to that might come back to bite you?
In many cases, the company will have a limited range of acceptable arbitration companies to handle the dispute. If the consumer disagrees with using that particular company, they may request another one which is chosen by the arbitrators working for the company, not by the consumer. So whether you like the choice of arbitrator or not, you are stuck with whatever "neutral" party the company decides to hear the case. For this and many reasons to follow, an arbitration hearing is a kangaroo court.
Of course you have the right to bring a lawyer with you to the hearing, but the consumer is often misguided that this is an informal proceeding and hiring a lawyer for this informal hearing will not be necessary. You will need a lawyer. You would be foolish to walk into an arbitration hearing without one. The company will have their legal counsel speaking on their behalf. The company most likely paid the arbitrator service to hear the case and may have other vested interest in the company winning the case. If you walk in there alone, you are probably going to face someone with full knowledge of the law and a "neutral" party that is on their side. If you don't have a lawyer and don't know your rights, the company will get its way and you must agree to the terms in the end.
What if you don't agree to the decision of the arbitrator? You could appeal and have another arbitrator hear the case, but you may end up fronting the money to do so or have to put up with another approved arbitrator the company decides upon at your expense. You get another shot, but chances are the result will be exactly the same.
If it is informal, you may think whatever is decided has no real consequences for you. You would be wrong. Anything decided in arbitration is a legal binding document between you and the company and can be enforced. All findings will be recorded and in a court of law it will be considered a done deal and they will not hear a case that has been settled. If it was decided that you must pay a fee, you will pay it or face forced collections. If it is about your home payments being a little late, you could lose your home without recourse. If it is about an on the job injury or sexual harassment, you could lose your job. Whatever goes on in the secrecy of your arbitration case, stays there. They may even have an injunction against you so you can never disclose what happened.
What does this mean in practical terms?
Let's say you decided to pay off your credit card, but refused to pay for the final balance as you dispute the charges belong to you. The credit card company could say the charges are yours and insist you pay them unless you bring proof that you do not owe them that money. A reasonable person would show the proof immediately and the case would be dropped. However, suppose you have no proof you did not make the charge, there was a case of identity theft, or a company who previously made charges from your card overcharged you and refuses to settle the difference? Then you would either have to pay the charge or dispute it in front of the neutral party according to the credit card agreements.
The credit card company will notify you of the date and time of the hearing and you will get a formal letter with a lot of legal language the average consumer will not understand along with a simple explanation that you do have the right to bring in a lawyer at your own expense to the hearing, although it will be implied that this is an informal hearing and you really do not need one.
When you show up, if you have a lawyer, they will present the reasons why you should not have to pay the bill. Often they will find the loopholes you may not understand to have the case dropped. It will cost you a pretty penny to hire a lawyer, sometimes more than the disputed amount, but in most agreements you cannot make the company compensate you for legal counsel.
If you show up without a lawyer, you must present to them the reasons why you do not owe the money. Unless you have an airtight reason with plenty of paperwork proof that cannot be disputed, you will have them render a judgment against you. If the charge was run up by a company overcharging you, unless you had a statement from them they did indeed overcharge, your word will not be good enough. If the charge was made via identity theft, to prove you were a victim may take years and you won't have enough time to establish that fact before your case, but the decision will be final before you can prove it.
You may even find you object the hearing itself. Perhaps the neutral judge seems less than interested in hearing your side, falls asleep while you present your case, or throws out any evidence you wish to present. The only recourse you can have is to object to it and request a different arbitrator who may not be any better than the first and you pay for that privilege.
My recommendation, avoid these agreements that use arbitration services. If the term comes up in a contract, read closely to see if there is an opt-out clause to arbitration where you can go to a real court of law in case of dispute. If an arbitration service is being pressured upon you, ask the other party to include YOUR choice of an arbitration service instead of the company picking who will decide your case. Or if they are stubborn that you agree to an arbitrator of their choice, don't sign the contract unless you are prepared to face the consequences if something goes wrong.
The alternative to an arbitration service is a real court hearing where there is full disclosure, you have a neutral judge who has no interest on either side benefiting from the decision, and the right to an appeal and due process. In arbitration, you don't have those rights.
