What is Mandatory Arbitration Clause? (Answer provided by Public Justice)

www.citizen.org/congress/civjus/arbitration

A mandatory, pre-dispute arbitration clause requires you to waive your right of access to the courts, and submit any claims to a costly private legal system selected by the defendant. These clauses are found in many types of contracts: employment, credit, telecommunication services, insurance, and franchise agreements, to name a few.

Individuals seldom know that they are subject to these clauses. They may be contained in the fine print of a contract a consumer signs, e.g. a car lease or HMO enrollment form. A consumer may become subject to the clause after being sent a "bill stuffer" with a credit card or cell phone statement—by using the credit card or phone, the consumer is deemed bound. A clause may take affect when a worker is given an "employee handbook" after accepting a new job, or even an interoffice memo at a current job.

Mandatory, pre-dispute arbitration clauses are distinct from voluntary, post-dispute agreements to arbitrate. Post-dispute agreements are made after a party understands the nature of his claim, has consulted with legal counsel, and can weigh the costs and benefits of both arbitration and court litigation. Under these circumstances, consumers and employees can choose the most economically viable alternative.

Buyers of consumer products such as automobiles may be subject to non-binding, "first resort" arbitration. Under the Magnuson-Moss Warranty Act, consumers may be required to first submit a claim to arbitration, but may reject an award they disagree with and then take their claim to court. This type of arbitration is offered for free by the Better Business Bureau.

WHAT TO DO IF ARBITRATION LOOMS
If you find yourself in a credit-card dispute, here are some steps you might consider:

Read your mail and respond to it quickly. If you get a certified letter from an arbitration group, read it carefully. The charge may be wrong, or the creditor may have bought the debt from someone else. Even if you don't recognize the creditor, respond right away. Arbitration deadlines are strict.

Get your credit report. Credit reports can be requested free online once a year at www.annualcreditreport.com. If your report contains errors, deal with them promptly before your arbitration case is heard. But don't worry about your credit score, says Paul Bland, staff attorney at Public Justice. Lenders often have their own ways to determine creditworthiness based on your report, he says, so your score may be of limited value.

Consider hiring a lawyer. An attorney for either a court or an arbitration case may cost more than it's worth if the debt is only a few thousand dollars. But "people who don't have a lawyer won't know some of the basic things to contest," such as whether or not a debt has passed its statute of limitations, says Mr. Bland.

Learn about the arbitrator. Depending on who makes the claim against you, you may have the right to object to the arbitrator assigned. Consider striking any arbitrator who's a "creditors' rights" attorney.

Try to settle. Neither arbitration nor litigation is cheap. A debtor may have to pay thousands of dollars in attorney's fees tacked on by the creditor. So if you owe the money and the debt isn't old, negotiate with the collection agency or debt buyer. They probably bought your debt at a greatly reduced rate and may agree to a reduced payment.