Ken Rojc, a Chicago lawyer representing auto funders, says banks and financial companies are increasingly incorporating arbitration clauses into credit and leasing contracts. In recent years, class action lawyers have questioned auto financing practices. Consumers are often unaware that they have agreed to a binding conciliation. Whether the mandatory arbitration agreement is hidden in a fine print paragraph or is intended as a separate form, dealers often do not mention it until you are ready to bring your new vehicle home. You know that`s where you sign. “Oh, if you don`t cut it, we can`t sell you the car,” they probably say. Some traders may “forget” to mention the arbitration request ever. This tactic deprives you of your right to make an informed decision. Unfair rules can make arbitration clauses vulnerable, Bland adds.
For example, mandatory arbitration procedures often cost more than going to court. One of the generally claimed advantages for mandatory conciliation is that it costs less than litigation. Often this is not true. In many cases, for example, a consumer may have to pay a high fee just to initiate arbitration. This can prevent a consumer from filing a complaint. Or on a small total claim arbitration fees can easily exceed the amount you could get if you win the dispute. There have recently been numerous disputes over mandatory arbitration procedures for consumer warranty claims. Manufacturers, traders and financial firms continue to use binding arbitration clauses in their contracts. These clauses are particularly shocking because they impose an arbitration fee on the consumer and are rarely reported to the consumer before the contract is signed. Several courts, particularly Alabama (Southern Energy), have repealed these clauses in violation of the Magnuson Moss Warranty Law. More merchants are demanding that customers accept third-party litigation as an alternative to consumer actions.
“If there is no built-in benefit for either party, conciliation is a benefit to both parties,” says Naimark. “It provides effective access to justice.” Inflating the selling price of a vehicle to “cover” a customer who has been the subject of a credit application is a clear violation of TILA and an example of bad practice that cannot deny an arbitration agreement. Gilaxia Photo via Getty Images Although voluntary conciliation can be a good tool for some litigation, mandatory pre-litigation arbitration presents several real risks for consumers. Indeed, dealers must agree that there are dangers – after all, they fought for a federal law prohibiting automakers from requiring dealers to accept binding arbitration procedures in contracts between manufacturers and dealers! Forced arbitration clauses are also included in many used car sales contracts.