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Tuesday, July 14, 2009

The Mandatory Arbitration Clause Scam

I liked this article on MSN about "Things your bank won't tell you." It fell short of "The financial industry is one big scam!", but had some interesting bits.

It had an interesting bit on how the interest on a checking account is low compared to what's available elsewhere. It neglected to mention that true inflation is 20%-30% or more.

I really liked this bit about "mandatory arbitration clauses":

A recent suit against an arbitration firm brought by the San Francisco city attorney noted that arbitrators ruled in favor of banks in 100% of the 18,045 California cases brought against consumers from January 2003 through March 2007.

These "mandatory arbitration clauses" usually involve a dispute between a corporation and an individual. You might say "If you don't like it, don't sign it!" However, when the corporation has a State-backed monopoly/oligopoly, "Go to a competitor!" may not be an option. Further, most people won't bother noticing the arbitration clause until they get ****ed over.

The problem is that the arbitrators are chosen by the corporation. The arbitrators know who's paying their fees, and so they tend to rule in favor of the corporation. Of course, monopolistic State courts also tend to be biased in favor of corporations. The problem is that the government courts, the corporation, and the arbitrators all have a State-backed monopoly.

In an arbitration hearing, you still are expected to hire a lawyer. That eliminates a lot of the benefit.

Contrast this with contract enforcement in a true free market. In that case, arbitration clauses are desirable. The arbitrator has an incentive to be impartial. If an arbitrator makes an obviously unfair decision, then private police agencies may not enforce it.

When both parties to a contract have an unequal bargaining position, clauses that hurt the person with less bargaining power should not be enforceable. According to natural law, these "mandatory arbitration clauses" aren't valid.

1 comment:

fritz said...

Its my understanding that if a person under a contract like this receives a benefit of the contracted agreement. any single benefit no matter how small. The contract thus becomes binding.

In order to reserve your common law rights under these types of contracts. One must write " With out prejudice U.C.C. 1-207" above or below your signature.

This remedy will reserve your right under common law to have mutually fulfilled obligations of contracted parties.

This is uniform commercial code article 1, section 207, reserving common law rights for persons entering into contracts.


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