Arbitration FAQ's
What Is Arbitration?

Arbitration is an alternative method of resolving disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator, who is supposed to be neutral, then weighs the facts and arguments of both parties and decides the dispute. Arbitration may be voluntary or mandatory.

What Is Voluntary Arbitration?

In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises and after they have an opportunity to investigate their best options for resolving their claim.

What Is Binding Mandatory Arbitration?

In binding mandatory arbitration, a company requires a consumer, prior to completing a transaction with the company, to agree to submit any dispute that may arise to binding arbitration. The consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal.

Are These Clauses Easy to Find in the Paperwork?

Generally not! Some companies print them in boxes, and a few have you sign a separate sheet of paper which contains the clause. But many companies simply make the clauses an extra paragraph of fine print in their contracts.

Is “Binding Mandatory Arbitration” Always the Name of the Clause?

Definitely not! Some companies call these clauses “Dispute Resolution Mechanism” and other equally hard-to-understand names.

What's Wrong With Arbitration?

Nothing, if it is “voluntary” arbitration! In fact, voluntary arbitration can be a great thing in preventing lawsuits and alleviating backlogs in the judicial system. In fact, you always have the right to arbitrate with a fair arbitrator. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right and to be forced to use their hand-picked arbitrator.

Do Companies Use Binding Mandatory Arbitration in Their Own Disputes With Other Companies?

No, most refuse to use binding mandatory arbitration in their own business dealings. As a matter of fact, car dealers were so afraid of mandatory arbitration for their own disagreements that they spent millions lobbying Congressmen and Senators to pass a federal law that prohibits automobile manufacturers from requiring binding mandatory arbitration in disputes related to dealership franchise clauses. The law passed in 2002.

Do Companies Require Mandatory Binding Arbitration Even With Cash Purchases?


Are There Companies That Don't Require Mandatory Arbitration Clauses?

Yes. There are plenty of good businesses that refuse to require mandatory binding arbitration. These are usually the companies with the fewest consumer complaints.

What Can I Do About the Problem?

Don't deal with any companies that require a mandatory binding arbitration clause. Before spending time with the seller—whether in person or online—ask the seller if they require a mandatory binding arbitration. If the seller does require a clause, tell the seller you won't buy from them and why. If a seller requires that you sign a mandatory binding arbitration clause, refuse to sign it. Stick with your decision. Be prepared to leave without completing the purchase.