Arbitration may also be voluntary or mandatory. In voluntary conciliation, both parties voluntarily agree in the dispute to submit their disagreement to ensephalation after it arises and after they have the opportunity to consider their best options for resolving the application. In mandatory arbitration proceedings, a company requires a consumer to file all disputes that may result from binding arbitration proceedings and waive their right to sue, participate in a class action or appeal. For more information on mandatory arbitration, see our Mandatory Arbitration FAQ. In 2005, four individuals and two couples, all African-American, filed a lawsuit in federal court against the automotive companies of Jim Koon, a major car dealership in Washington, D.C. They claimed that they had been racially discriminated against by financing their purchases through the dealership because they had higher interest rates than similar white customers. The court asked them to refer the matter to an arbitration tribunal, as the « Buy Order » contained a mandatory compromise clause for their purchases (although it was not the funding agreement, which was at the centre of their complaints). To settle the case, the six complainants would have had to pay a total of $85,800 in arbitration fees. After a long argument, Koons agreed to pay the fees. The trader then agreed to a transaction in which he made payments to the purchasers, but did not admit fault.
Mandatory arbitration clauses are becoming more common in day-to-day transactions, but many consumers are unaware that they are subject to binding arbitration rules. The dealer usually chooses the arbitration company – « the judge. » In theory, both parties agree to the selection of a neutral and independent arbitrator. In reality, the dealer refers to the arbitration company in the contract. In any case, this situation may affect the impartiality of the arbitrator. Studies show that whenever a company depends on another company for a large percentage of its life, a systematic bias can arise in favour of that company. Not all traders are subject to arbitration clauses. Some consumer advocates discourage customers from signing sales contracts with arbitration clauses. They also suggest that consumers avoid dealing with merchants who need arbitration to settle disputes. I always propose that consumers try to avoid a binding reconciliation of their rights to consumer guarantees. Recent articles in Consumer Reports and US World News (No Suits for You!) have outlined the pitfalls of mandatory arbitration.
Pricing issues are the most important. Rosemary Shahan, president of Consumers for Auto Reliability and Safety, an interest group in Sacramento, California, said the compromise clauses can be a legal trap for buyers – « as traders know after gaining the right to retain their constitutional rights to builders. » If the dealer doesn`t give in, ask yourself why it`s become so important to them.