Arbitration is a legal process that resolves disputes between two or more parties without taking them through the formal court system.
Instead of relying on a judge or jury to make decisions, in arbitration, parties select an impartial individual (arbitrator) and agree to be bound by the arbitrators resolution or determined "award". An arbitrator is generally an expert with training in an area related to the dispute. Sometimes, arbitrators are part of a professional arbitration agencies.
While the most common use for arbitration is the resolution of commercial disputes, other arbitration cases may include debt, divorce, securities and credit card arbitration.
An arbitration clause is typically a statement contained within a larger contract. The clause functions as a pre-dispute agreement, which provides that if any dispute should arise between two parties, it will be resolved by arbitration.
While an arbitration clause can be a simple, consensual agreement between two parties seeking to avoid litigation, in the worst cases, it can also be misused as a means to deprive individuals of their right to trial.
Unfortunately, one area where consumers are likely to be duped is in dealings with credit card companies and providers of other consumer products, such as mobile phones.
In a survey published by Law & Contemporary Problems in 2004, more than two-thirds of finance-related consumer contracts were found to contain mandatory arbitration clauses. Credit card companies, in particular, tend to include arbitration contracts in the fine print of their customer terms and conditions contracts.
What this essentially amounts to is that if you have been over-charged, or the credit card company makes some gross error in your statement, you probably won''t have the opportunity to fight it in court. Instead, your case will probably be brought to an arbitrator. This, in itself, isn''t such a bad thing.
However, it can cause problems if the arbitrator works for an arbitration group privately chosen by the banks. In these cases, the so-called neutral third party arbiter may turn out to carry some bias.
Consequently, reading the fine print so you don''t unwittingly sign an agreement that contains an arbitration clause is important. If you know that it''s there and understand what it means, that''s one thing. The problem is that most consumers don''t know what arbitration is. Thus, when they face a problem with a credit card company, they may not know how to respond.
Credit card companies maintain that consumers have ample opportunities to dispute claims. Notices are sent by certified mail, and a consumer has the option of requesting a hearing in person or accepting a document hearing. When consumers don''t know what arbitration is, however, they''re less likely to respond to such notices than they would be to a court summons.
The arbitration system, unlike a traditional court of law, tends to require more savvy and self-direction from those who choose to use it. Knowing how to choose an appropriate arbitrator and to negotiate contracts gives you an edge in protecting your rights.
Unfortunately, most credit card companies and other producers of consumer products are far more versed in such matters than consumers. Similarly, they may also have the unfair advantage of possessing pre-established relationships with arbitration groups (since they are, after all, repeat customers), which increases the possibility that arbitrators may discriminate in their favor.
This has become such a common problem in the past decade that it''s begun to receive more attention in the public eye. Laborious as it may be, the best way to protect yourself is to read the fine print in any agreements you sign. If you choose to undergo arbitration, make sure to research and equip yourself with the knowledge you need to make good choices and protect your rights.