Here, a monthly perspective from Consumers Union on the latest challenges—and possible solutions—facing U.S. consumers today. See archived letters.
When Jon Perz was shopping for a used car near his home in San Diego, he went to the dealership that had serviced his previous vehicle for years. The dealer had a good reputation. So when the Ford Escort that Perz test-drove started to vibrate and the salesman promised to make the minor adjustment needed, Perz trusted him—and the clean vehicle history he provided—and bought the car.
But Perz says it continued to vibrate. He took it back to the dealer several times and was eventually told that his car was simply prone to shaking. He asked for a refund, but delays and repairs had put him past the dealer's 48-hour return period. Perz took the car to an auto expert, who concluded that the car had once been submerged in water.
The contract Perz signed when he bought the car includes an arbitration clause that bars him from suing, but two years later, arbitration still hasn't begun. It's now scheduled for this fall. Perz made all the payments on the car to protect his credit history.
Mandatory binding arbitration was originally intended for disputes between corporations. It's now being forced onto consumers in many contracts, including those for credit cards, cell-phone service, home building, insurance, and nursing homes. Arbitration agreements stop consumers from suing over negligence and defective products. To shield against harassment and discrimination complaints, employers may require employees to sign one as a condition of employment.
The deck is stacked against consumers. Companies choose the arbitration firms and can reward them with repeat business for favorable results. There's no judge, jury, or public record, and courts cannot set aside a decision just because it's capricious. Companies can delay or hold the arbitration anywhere in the country they have a presence. So consumers are locked into a privatized justice system with no accountability or transparency.
Consumers Union believes that consumers should not be forced to sign away their day in court as a condition of doing business. Proposed federal legislation would ban mandatory binding arbitration in consumer, employment, and franchise contracts. CU supports the bill, which hasn't yet had a hearing; it lets consumers and companies that have a dispute agree to resolve problems through arbitration or mediation, while preserving consumers' right to hold companies accountable in court.