Recs

4

Mandatory Arbitration Stinks

I recently wrote about one of the many dangers credit card holders face: mandatory arbitration. Most cardholders don't realize it, but they've agreed to have all disputes settled by arbitration firms that tend to favor the card-issuing banks.

It turns out this problem is more far-reaching than I'd realized. It crops up in cell-phone contracts and even employment contracts. But then I heard more.

For example, the housing industry. If you buy a home from a builder, chances are you sign a lengthy contract with lots of fine print. There's also a good chance that you're agreeing to mandatory arbitration in case of disputes. On the Milwaukee Journal Sentinel's website, Ellen Gabler recently wrote about the Metropolitan Builders Association:

The group arbitrates disputes between its members and consumers who build a new home or have work done on their existing home. If there is a problem, the builder and homeowner go before an arbitration board run by the builders association. The interesting thing is that the people deciding the case are all members of the association.

Imagine that -- you'd be taking up your beef about a builder to a group of people who are builders or associated with builders. It's not exactly a jury of your peers, is it? That's worth thinking about, because many people who support arbitration explain that it's faster and cheaper than going to court. That may be true, but it sure seems less fair than the court system.

Making matters worse is that most people don't realize they're agreeing to it, as the provision is typically buried deep in a contract. Companies that use arbitration clauses include national homebuilders like Toll Brothers (NYSE: TOL  ) , Beazer Homes (NYSE: BZH  ) , and Lennar (NYSE: LEN  ) .

So what's the good news in all this? There has been agitation in Washington to ban mandatory arbitration clauses. The best outcome would be for Congress to improve the current situation. You may want to let your representatives know your thoughts on the matter.

But until then, be aware of what you sign -- and think twice if you see mandatory arbitration clauses in contracts.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 539046, ~/Articles/ArticleHandler.aspx, 7/29/2014 4:04:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,982.59 22.02 0.13%
S&P 500 1,978.91 0.57 0.03%
NASD 4,444.91 -4.66 -0.10%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

7/28/2014 4:02 PM
BZH $17.79 Down -0.52 -2.84%
Beazer Homes USA,… CAPS Rating: *
LEN $37.64 Down -0.79 -2.06%
Lennar Corp CAPS Rating: **
TOL $33.68 Down -0.52 -1.52%
Toll Brothers, Inc… CAPS Rating: ***

Advertisement