There is an ongoing debate over the use of arbitration clauses in consumer contr

Question

There is an ongoing debate over the use of arbitration clauses in consumer contracts. Differences between arbitration and litigation include the costs charged to the parties, the speed of resolution, and the procedure of resolving a case, including how and where the arbitration is conducted and limitations on discovery. Critics of consumer arbitration say that arbitrators and arbitration administrators can be biased , arbitration clauses are not conspicuous, and for many classes of consumer goods and services, nearly all providers require arbitration. Proponents of consumer arbitration cite "consumer-friendly" terms that lower the cost of arbitration to consumers and provide incentives for consumers to bring claims in arbitration. Most arbitration clauses require parties to waive their right to proceed on a class action basis in either court or arbitration.

1. Give an example of a company that uses consumer arbitration. (You've probably signed quite a few. Contracts for cell phones, gym memberships, leases for apartments.)

2. Should companies be permitted to include binding arbitration clauses in consumer contracts?

Explanation / Answer

1. Paypal is one of the many companies that have mandatory consumer arbitration clauses in their user agreements. Section 14.3 of the Paypal user agreement says:

"You and PayPal each agree that any and all disputes or claims that have arisen or may arise between you and PayPal, including without limitation federal and state statutory claims, common law claims, and those based in contract, tort, fraud, misrepresentation or any other legal theory, shall be resolved exclusively through final and binding arbitration, rather than in court,..."

Web reference: https://www.paypal.com/us/webapps/mpp/ua/useragreement-full?locale.x=en_US#14

2. Decisions taken in consumer arbitration are often lopsided and given in the favor of companies as the arbiters rely on the companies for future business. The Federal Arbitration Act enacted in 1925 makes arbitration agreements legally binding. But consumer arbitration agreements take away from the consumers' their fundamental right to sue a party in a formal court of law. Thus, consumer arbitration agreements are undemocratic. Under these agreements, consumers cannot even appeal a decision. Necessary amendments should be made in the Federal Arbitration Act to invalidate mandatory consumer arbitration agreements.

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