Finance: Losing the Right to Sue

By Linda Stern
Saturday October 9, 2:49 PM EDT

WASHINGTON (Reuters) - More and more businesses are sticking mandatory
arbitration clauses into their contracts, forcing consumers to give up their
right to sue if they want to conduct business, and consumer groups have made the
elimination of these clauses a top priority.

The practice started with brokerage and credit card contracts but has become
increasingly popular with mortgage lenders, car dealers, employers and even
hospitals and doctors.

"These clauses are the single biggest threat to consumer rights in recent years,
a de facto rewrite of the Constitution that undermines a broad range of consumer
protections painstakingly built into law. No other consumer issue hits so many
Americans where they live every day," said the National Consumer Law Center.

But groups like the NCLC have a tough fight ahead of them. The Supreme Court in
particular has upheld the legality of these clauses and they are becoming
ubiquitous, says Paul Bland, a staff attorney and arbitration specialist for
Trial Lawyers for Public Justice.

It has become almost impossible for consumers to conduct certain kinds of
business, such as getting credit cards, without signing these clauses.

Arbitration, mutually agreed to by both parties in a dispute, isn't always a bad
thing. Many legal experts have embraced lawsuit alternatives like arbitration
and mediation as cheaper, quicker alternatives to full-blown court cases.

But consumers should be free to opt for arbitration on a case by case basis and
not be obligated to go that route, say the opponents of these relatively new
clauses.

The new clauses are pre-dispute, binding, and often require consumers to use a
particular arbitration firm, paying their fees and following their rules.

Consumers with small budgets often can't get the legal help their corporate
opponents can get in a case like this, unless they use an attorney willing to
work for a percentage of the final judgment.

Consumers who have been wronged by fraudulent corporate practices or negligent
hospitals, for example, can't often afford to prove it unless they can hire help
on a contingency basis. And professional arbitrators are far less likely than
juries to drop huge cash awards on aggrieved plaintiffs.

Moreover, consumer groups say the arbitration system seems to favor the
corporations that provide its bread and butter. Some large arbitration firms
market themselves exclusively to businesses and stress the amount of money they
will save clients. They actually write the clauses that businesses insert in
their contracts.

The trial lawyers group has observed that arbitrators that do give consumers big
awards tend to not get called back for future cases, Bland said.

But consumers, patients, and borrowers shouldn't just throw up their
hands. There are ways to fight back. Here's what to do if confronted with such a
clause:

-- Don't sign it. Some companies put them in all contracts but will go ahead and
   do business with you even if you cross out the arbitration agreement or
   refuse to sign that portion of the contract. If the company you're seeking
   won't allow you to avoid the clause, you can hunt for another that will.

   Even with credit cards, there are still some credit union issuers that don't
   include arbitration clauses in their contract. Both Fannie Mae and Freddie
   Mac, buyers of mortgages, have said that they will avoid buying loans that
   have arbitration clauses written into them. Remind your lender of this;

-- Amend it. It's bad enough that you may find yourself forced to agree to
   binding arbitration, but the clause itself may be unfavorable to you. If the
   clause requires you to use a specific arbitration firm, cross that portion
   out and instead write "both parties must jointly agree upon an arbitrator,"
   and initial it, suggests Bland;

-- Look for other limitations. Some contracts also limit your right to join in a
   class action suit or don't require arbitration but do require you to waive
   your right to a jury trial. Try to avoid those clauses as well.

   It may be true that some lawsuits and class action cases are nuisance
   suits. But the way to eliminate the high cost of nuisance litigation isn't
   for consumers to automatically abdicate their legal rights before they do
   business. Fight these clauses in the same way.

-- Complain. Even if you are forced to sign such a clause, let the salesperson,
   doctor, or whomever else is asking you to sign it know that you are unhappy
   about it. Just maybe, this will matter. Also complain to your Congressional
   representatives and state consumer offices. There are always efforts under
   way in the Capitol and in state houses to limit or eliminate these clauses,
   so make your opinion known.

(Linda Stern is a freelance writer who covers personal finance issues for
Reuters. Any opinions in the column are solely those of Ms. Stern. You can
e-mail her at lindastern(at)aol).