What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation

48 Pages Posted: 27 Jul 2023

See all articles by Roseanna Sommers

Roseanna Sommers

University of Michigan Law School

Date Written: July 25, 2023


The results of a survey of 1,071 adults in the United States reveal that most consumers do not pay attention to, let alone understand, arbitration clauses in their everyday lives. The vast majority of survey respondents (over 97%) report having opened an account with a company that requires disputes to be submitted to binding arbitration (e.g., Netflix, Hulu, Cash App, a phone or cable company), yet most are unaware that they have, in fact, agreed to mandatory arbitration (also known as “forced arbitration”). Indeed, over 99% of respondents who think they have never entered into an arbitration agreement likely have done so.

Respondents overwhelmingly (over 92%) report that they have never based a decision to use a product or service on whether the terms and conditions contain an arbitration agreement. They largely endorse the following reasons: they were unaware of the arbitration clause, they did not read the terms and conditions, and they thought they had no choice but to agree to mandatory arbitration. Moreover, many respondents presume that if a dispute arises, they will still be able to access the public courts, notwithstanding that they agreed to the terms and conditions.

Consumers are largely unaware of opportunities to opt out of mandatory arbitration. They generally do not pay attention to, let alone retain, information about the steps required to opt out successfully (e.g., contacting the company within a specified time period). Generally, consumers are unaware that companies like Cash App and Venmo (mobile payment systems utilized by nearly 60% of respondents) allow customers to opt out of mandatory arbitration if they act within a limited time period. Among the minority of respondents (21%) who stated that they had been given an opportunity to opt out, vanishingly few could name any of the steps that would have been required to opt out successfully.

When presented with a run-of-the-mill contract, of the type consumers routinely encounter, most respondents did not take notice of the arbitration clause. Less than 5% of respondents could recall that the contract they were shown had said anything at all about arbitration.

Furthermore, most consumers misperceive the consequences of signing a predispute arbitration agreement. Most mistakenly believe that, after agreeing to terms and conditions mandating binding arbitration, they can still: choose to settle their dispute in court, have a jury decide their case, join a class action, and appeal a decision made based on a legal error. For instance, less than 5% of respondents (n = 46) correctly reported that they could neither appeal an erroneous decision to another arbitrator (or set of arbitrators) nor start all over again in court. Indeed, less than 1% of respondents correctly understood the full significance of the arbitration agreement, as indicated by their responses to questions about whether they retained the rights to sue, have a jury decide their case, access the public courts, and appeal a decision based on a legal error.

In summary, consumers are generally unaware of whether their contracts contain arbitration clauses, and consumers who have agreed to such clauses tend to hold mistaken beliefs about their procedural rights, including wrongly believing they can still sue in court.

Keywords: Arbitration, consent, dispute resolution, consumer psychology

Suggested Citation

Sommers, Roseanna, What Do Consumers Understand About Predispute Arbitration Agreements? An Empirical Investigation (July 25, 2023). Available at SSRN: https://ssrn.com/abstract=4521064 or http://dx.doi.org/10.2139/ssrn.4521064

Roseanna Sommers (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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