When you buy a product or service and something goes terribly wrong, you may think, "I can always sue." But Consumer Reports warns that people often unwittingly give up their right to sue by agreeing in advance to submit any dispute to binding arbitration. And that can be a raw deal.
Jon Perz knows that all too well. He bought used car seven years ago, but it has hardly ever left the garage. There was an engine problem the dealer first failed and then refused to fix, and that made the car unsafe. The dealer also refused to return Perz's original $10,000 payment. Then Perz found to his dismay that he had agreed to binding arbitration and couldn't sue.
Instead of being heard by a judge or jury, the dispute was sent to an arbitration firm selected by the car dealership. Consumer Reports says that having the company select the arbitrator can be a serious conflict of interest. And unfortunately, such arrangements can be typical in binding arbitration agreements.
Binding arbitration clauses are becoming a more common requirement, including for some big companies such as Microsoft, Amazon, AT&T, and even for services such as Match.com. You agree by signing a contract, clicking "I agree," or just by using the product or service.
Companies say that binding arbitration can make it easier and less costly for both sides to settle disputes. But there are concerns that giving up the right to sue can deprive consumers of an important legal protection. Consumer Reports advises, if you don't want to agree to binding arbitration, try crossing it out and requesting a new agreement. Or if you have already signed, there might be an opt-out period.
Jon Perz regrets the day he ever signed that contract. Still, just a few weeks ago, after a seven-year ordeal, the dealership was ordered by another arbitration firm to pay him $20,000 in damages.
Complete Ratings and recommendations on all kinds of products, including appliances, cars & trucks, and electronic gear, are available on Consumer Reports' website.