Reports & Factsheets

Mandatory binding arbitration, or “forced arbitration,” is ubiquitous in many industries, according to a study released today by Public Citizen. Seventy-five percent of companies in eight industries use forced arbitration, the organization found in a study released a day before a key congressional subcommittee holds a hearing on whether mandatory binding arbitration is fair or voluntary.

Millions of new home purchasers each year are forced into binding mandatory arbitration by deceptive "warranties," and those warranties may violate the law in as many as 17 states, Public Citizen has found. These warranties are particularly insidious because consumers often do not learn of their details until after moving into their new houses. The process is inherently secretive, and arbitration firms routinely flout the few laws that require them to disclose basic information about their cases.

Written Testimony of David Arkush, Director, Public Citizen’s Congress Watch division before the HOUSE OF REPRESENTATIVES COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW Hearing on the “Federal Arbitration Act”: Is the Credit Card Industry Using the Act to Slam Shut the Courthouse Door?” May 5, 2009 [PDF]

Start the slide show

Download the PDF

Forced arbitration clauses – which are buried in the fine print of credit card terms, employee handbooks, health insurance plans, nursing home admissions forms and many other contracts – eliminate consumers’ and employees’ access to the courts and require that they submit their disputes to a private legal system that favors corporations. Forced arbitration clauses enable big business to undermine consumer protections, circumvent civil rights laws, bypass product safety and escape accountability for wrongdoing.

Below are stories about individuals and small businesses that suffered severe hardship due to forced arbitration.

Findings from a recent national survey of likely voters show a commanding majority of Americans opposes the practice of forced arbitration - otherwise known as binding mandatory arbitration. Opposition to forced arbitration is broad and intense, translating into a groundswell of support for reform. Roughly six-in-ten support federal legislation - the Arbitration Fairness Act - which would prohibit forced arbitration in Terms of Employment and Terms of Agreement for goods and services.

One strategy the corporate lobby uses is to blur the line between mandatory arbitration, which frequently allows corporations to violate laws intended to protect ordinary Americans with impunity, and other, consumer-friendly ways of resolving disagreements that don’t involve taking someone to court, such as mediation (often called “alternative dispute resolution”). For example, corporate lobbyists often cite a 2005 national survey, funded by the U.S.

Mandatory binding arbitration clauses are hidden in the fine print of everything from cell phone, credit card, franchise and employment agreements to nursing home care contracts. Just by taking a job or buying a product or service, consumers, employees and others are forced to give up their right to take their case to court if they are harmed by a corporation. Instead, any dispute must be decided in arbitration by an arbitrator that is usually chosen by the corporation.

Buried in the fine print of credit card billing inserts, cellular phone service disclosures, employee handbooks, health insurance plans, and franchise agreements, mandatory arbitration clauses eliminate Americans’ access to the courts, forcing them instead into a costly, private legal system that favors corporations.

H.R. 1020 would permit parties to choose arbitration voluntarily, but prohibit corporations from forcing consumers into expensive, secretive, and biased arbitrations.