In my practice, I see a good number of arbitration clauses between car dealers and consumers cross my desk. Until recently, most dealers went out of their way in their arbitration clauses to limit the arbitration costs for the consumer in order to sure that their arbitration clause could stand up in court. On March 1, 2013, the American Arbitration Association (“AAA”) took a step to make sure that arbitrator was affordable to consumers, and changed the Consumer Rules fee schedule to limit a consumer's AAA out of pocket arbitration costs and fees to $200, with the remainder to be paid by the car dealer.
Well, car dealers must have realized that arbitration can be expensive, too. Because, in response, I am seeing more an more arbitration clauses where the car dealer attempts to:
(1) apply the AAA commercial rules to avoid application of the AAA Consumer Rules and the $200 limit;
(2) require multiple arbitrators to avoid application of the AAA Consumer Rules, make arbitration even more expensive, and avoid the $200 limit; and/or
(3) require the consumer to pay the AAA fees and costs and the dealer’s own fees and costs if they do not win the arbitration.
If an arbitration clause is clearly worded, and the consumer is limited to $200 out of pocket with the AAA, I have no problem advising my clients to proceed with arbitration. While there are disadvantages to arbitration, there are many advantages, too. And, I have had a lot of success arbitrating car dealer cases. The serious problem I have with arbitration clauses, however, is when they make arbitration cost prohibitive to a consumer. This is because when arbitration is cost prohibitive to a consumer, they effectively have no remedy at all.
Car dealers may think that they are saving money by changing the arbitration costs provisions in their arbitration clauses. But, I suspect the net result will be just the opposite. Because, I suspect that more and more consumers will be fighting these arbitration clauses in court, instead of agreeing to arbitrate at the onset.
With even the best case, nothing is ever a 100% guarantee, and when there is a risk that a consumer will be liable for tens of thousands of dollars in arbitration fees and costs and attorneys fees, the doors to both arbitration and court are effectively closed.
So, if you are in the market for a motor vehicle, watch out for an arbitration clause hidden within the sales paperwork. And, if you see one, tell them you want them to cross it out. A car dealer isn't going to risk losing a car sale, and 9 times out of 10 the dealer will agree to cross it out. And, if they won't, consider if the car dealer is one that you really want to be doing business with.
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