16 Pages Posted: 21 Dec 2007
Arbitration agreements remove disputes from our court system to a private system of justice, paid for by the participants. Although arbitration can have certain advantages over litigation, such as confidentiality, speed, flexibility, and ability of the parties to choose the arbitrators, such a forum also has disadvantages. At particular risk of being disadvantaged is the consumer, who may be unaware that by agreeing to an arbitration clause she has given up her right to a jury trial, and she will pay higher fees for the arbitral process than she would have to pay as court fees in litigation. Moreover, she will have no right to an appeal on the merits of the case, and may be prohibited from bringing her action as a class action. Although a party's consent is supposed to be required in order for the dispute to be resolved in a private forum, in many consumer transactions, there is no willing and knowing consent to arbitration. Adhesion contracts that are imposed on consumers by banks, telephone companies, credit card companies, pest control companies, and a myriad of other vendors and service providers are neither read nor signed by most consumers. Nonetheless, the arbitration provisions in such contracts - referred to as pre-dispute arbitration clauses - are regularly upheld by the courts. This article will focus on how the Supreme Court has interpreted the Federal Arbitration Act in a way that undermines consumer protection, in particular by holding that states' attempts to limit arbitration abuses will in most instances be preempted by the Federal Arbitration Act.
Keywords: arbitration agreements, Federal Arbitration Act, adhesion contracts
JEL Classification: D21, D74, K41
Suggested Citation: Suggested Citation