ADR specialist Harry N. Mazadoorian, distinguished senior fellow in the Center for Dispute Resolution at Quinnipiac University School of Law. Courtesy photo.

The March 2020 issue of Consumer Reports contains an article taking strong issue with mandatory predispute binding arbitration clauses in the consumer setting. While the article challenges such clauses in a number of areas, its primary focus is on their use in connection with the retail sale of products ranging from mattresses to washing machines and child car seats.

The article represents the latest in a growing number of criticisms challenging the use of such clauses in consumer contracts. Several years ago, the New York Times carried a series of articles highly critical of such predispute binding arbitration clauses. The series and a related editorial decried Americans "being locked out of court" and called for "a public outcry loud and long enough to stir the White House and Congress to action." At that time, I wrote about the "ominous clouds of change" following the groundswell of legislative, judicial and other opposition to such provisions.

Critics continue to call for a major overhaul of the growing use of such clauses and in many cases their abolition. Other challenges have extended beyond the product purchase area to other situations, including credit cards and cellphone contracts to employment contracts. The Consumer Report article, like so many before it, takes issue with virtually all aspects of these predispute clauses.

The first challenge is that many consumers are not even aware that they are subject to an arbitration clause and would challenge an assertion that they have agreed to it. Second, the arbitration process provided to consumers often lacks many of the safeguards, such as discovery, available in litigation or even commercial arbitration. Further, arbitrators are not bound to follow rules of evidence and even legal precedent. Similarly, that rights to challenge the award are extremely limited. Critics also claim arbitrators have a built-in bias to support "repeat players."

Consumer Report cites as a special concern the fact that "because arbitration is conducted in private and its outcome is typically kept under wraps, the underlying problem may be kept hidden."

Other issues involve restrictions in such clauses on the use of class actions. Of particular concern is the fact that the use of such clauses is so widespread: Reportedly 81 of the Fortune 100 companies use arbitration in connection with consumers, and 825 million consumer arbitration agreements were in force in 2018.

This mounting criticism of consumer arbitration clauses cannot be ignored or shrugged off as the lament of trial lawyers looking for business. Many of the challenges have merit and the horror stories accompanying many of the articles are truly sobering.

Justifications advanced by corporations for the use of such clauses include their speed, cost and efficiency. Supporters claim that eliminating the arbitration option would essentially deprive the consumer of any meaningful resort other than small claims court.

Moreover, a number of safeguards have already been implemented to ensure fairness in connection with consumer arbitration clauses. For example, leading national ADR providers have instituted due process standards in connection with cases which they will accept for administration. Second, a number of protections exist in federal and state arbitration statutes. Numerous bases exist on which such arbitration clauses can and have been challenged.

There clearly are two sides to the issue, and surely more needs to be done to ensure fairness in all consumer arbitration situations. There are many approaches to make this happen. One avenue involves amendments to the Federal Arbitration Act. The Federal Forced Arbitration Injustice Repeal Act (FAIR), which already passed in the House in 2019, would do so in a way that essentially nullifies such clauses in their entirety.

Still another approach would also amend the FAA, but rather than invalidating all predispute clauses, it would establish standards that must be observed. One leading national ADR organization has suggested that Congress add a new provision to the FAA that would define a national procedural due-process protocol ensuring fairness.

The debate over the dangers or benefits of consumer arbitration clauses can at times become quite shrill. What is most important at the end of the day is to provide the consumer with an easily accessible, cost-efficient and speedy process for the dispute to be heard. Rather than calling for the all-out ban of binding predispute arbitration clauses in the consumer setting, more attention should be given to some basic reforms.

These reforms include guaranteeing consumer basic safeguards such as the right to make an informed decision as to whether to enter into the process, as well as providing an equal voice in the selection of the venue, arbitrator and procedures.

With full notice and choice of the available options, the desirability and fairness of the process offered and whether it meets clearly identified and understood due process standards, the consumer can make the decision as to how to proceed better than can any legislature, court or administrative agency.

Commercial arbitrator and mediator Harry N. Mazadoorian is the distinguished senior fellow in the Center for Dispute Resolution at Quinnipiac University School of Law.