Legal Disclaimer: This article provides general information for educational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change frequently. For advice specific to your situation, consult a licensed attorney in your area.
Arbitration clauses are everywhere - credit cards, cell phones, employment contracts, online services. The Consumer Financial Protection Bureau has documented how these clauses affect consumer rights. If you have a dispute, you may find that you've already agreed to arbitrate instead of going to court. Understanding arbitration is essential for protecting your rights.
Check Your Contracts: Most consumer contracts now include mandatory arbitration clauses. Look for "dispute resolution" or "arbitration" sections in terms of service and agreements.
What Is Arbitration?
Arbitration is a private dispute resolution process:
- Neutral arbitrator(s) decide your case
- Less formal than court but still adversarial
- Decision (award) is usually binding and final
- Limited appeal rights
- Can be faster than litigation
- Private - no public record
Types of Arbitration
Binding vs. Non-Binding
- Binding: Final decision, very limited appeal rights
- Non-binding: Advisory only, can proceed to court
- Most consumer arbitration is binding
Voluntary vs. Mandatory
- Voluntary: Both parties agree after dispute arises
- Mandatory: Required by pre-dispute contract clause
- Many courts uphold mandatory arbitration clauses
How Arbitration Clauses Work
Common Provisions
- All disputes must be arbitrated
- Class action waivers (no group lawsuits)
- Designated arbitration organization (AAA, JAMS)
- Rules and procedures to follow
- Location of arbitration
- Who pays fees
What's Typically Covered
- Contract disputes
- Service complaints
- Billing disputes
- Employment claims
- Product defects
Small Claims Exception: Many arbitration clauses allow either party to pursue small claims court instead. Check your specific clause for this exception.
Major Arbitration Organizations
American Arbitration Association (AAA)
- Largest provider in the US
- Consumer arbitration rules
- Fees based on claim amount
- Online case filing
JAMS
- Another major provider
- Often used in employment disputes
- Consumer minimum standards
Better Business Bureau (BBB)
- Consumer dispute resolution
- Often free to consumers
- Mediation and arbitration
The Arbitration Process
Initiating Arbitration
- Review arbitration clause for requirements
- File demand for arbitration
- Pay filing fee (if required)
- Submit claim statement
- Notify other party
Arbitrator Selection
- Organizations provide list of arbitrators
- Parties can strike unacceptable names
- Rank remaining preferences
- Organization appoints based on rankings
Pre-Hearing Phase
- Preliminary conference call
- Exchange of documents
- Limited discovery (less than court)
- Scheduling of hearing
The Hearing
- Each side presents case
- Opening statements
- Witness testimony
- Document evidence
- Closing arguments
- May be in person, phone, or video
The Award
- Arbitrator issues written decision
- Usually within 30 days of hearing
- Binding on both parties
- Enforceable in court
Arbitration Costs
Consumer Arbitration Fees
- Filing fee: $200-$300 for consumers typically
- Company often pays: Most arbitration costs
- AAA Consumer Rules: Companies pay most fees
- Fees can be waived for hardship
Compare to Court Costs
- Small claims: $30-$75 to file
- Civil court: $200-$500+ to file
- Attorney fees: Potentially thousands
Fee Waivers: If arbitration fees create hardship, request a fee waiver from the arbitration organization. Many have provisions for consumers facing financial difficulty.
Pros and Cons of Arbitration
Advantages
- Often faster than court
- Less formal procedures
- Privacy (no public record)
- Can be less expensive than full litigation
- Expert arbitrators available
- Flexible scheduling
Disadvantages
- Limited discovery
- Very limited appeal rights
- No jury trial
- Class action waivers
- Potential arbitrator bias concerns
- Less precedential value
Challenging Arbitration Clauses
Possible Defenses
- Unconscionability: Terms so unfair they're unenforceable
- Lack of notice: Clause buried or unclear
- Fraud: Deception in contract formation
- Statutory claims: Some laws prohibit arbitration
Small Claims Exception
- Many clauses allow small claims court
- Check exact language of your clause
- May need to stay within small claims limits
Preparing for Arbitration
Gather Your Evidence
- All contracts and agreements
- Communications (emails, texts, letters)
- Photos and documentation
- Financial records
- Witness information
Know the Rules
- Read applicable arbitration rules
- Understand discovery limitations
- Know deadlines
- Prepare opening statement
Consider Representation
- Attorneys allowed but not required
- Larger claims may warrant attorney
- Weigh cost vs. benefit
Tips for Success
Present Your Best Case
- Be organized and prepared
- Focus on key facts and evidence
- Stay professional and calm
- Listen carefully to questions
- Don't argue with arbitrator
Document Everything
- Keep copies of all filings
- Note important dates and deadlines
- Record who said what (notes)
After the Award
If You Win
- Request payment per award terms
- If not paid, confirm award in court
- Enforce like any court judgment
If You Lose
- Very limited appeal options
- Can only challenge for fraud, bias, misconduct
- Cannot appeal because you disagree
Start with a Demand Letter
Try resolving your dispute before arbitration with a formal demand.
Create Your Letter