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Mandatory Arbitration Contracts Common

Arbitration More Costly Than Court

WASHINGTON D.C. -- May 10, 2002 -- Although arbitration is usually touted as a low-cost alternative to the courts, it is actually more expensive for consumers and employees, according to a new report by Public Citizen, a national nonprofit consumer advocacy group. In many cases, arbitration costs are so high that people drop their complaints because they cannot afford to pursue them.

The report found that:

  • The cost to a plaintiff of beginning an arbitration is almost always higher than the cost of instituting a lawsuit. Forum costs, or the costs charged by the tribunal that will decide the dispute, can be up to five thousand percent higher in arbitration than in court litigation.
  • Arbitration costs are high under a pre-dispute arbitration clause because there is no price competition among providers. Companies that want to use arbitration costs as a barrier to prevent consumers from asserting their legal rights have no incentive to arrange low-cost arbitration services.
  • Arbitration costs will probably always be higher than court costs because the expenses of a private legal system are so substantial.
  • Arbitration requires claimants to pay many extra fees that they would not be charged if they went to court. For example, the National Arbitration Forum charges fees to issue subpoenas and for discovery requests.

Unfortunately, mandatory arbitration agreements are common in credit card agreements, automobile purchases, leasing contracts, health care agreements, and employment contracts. Recently, an arbitration contract that job applicants were required to sign as a condition of employment was declared illegal (Circuit City v. Adams, February 4, 2002, 9th U.S. Circuit Court of Appeals). Also, a mandatory arbitration clause that AT&T included in consumer telephone agreements was considered "illegal and unconscionable" by the U.S. District Court, Northern District of California (Darcy Ting et al. v. AT&T, January 15, 2002).

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