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Read the Small Print – Beware of Arbitration Agreements in Business and Consumer Contracts

By: Matthew H. Fry, Esquire

[email protected]

Applying for a credit card; leasing a car; getting your loved one admitted into a nursing home; or getting a checking or savings account with a local bank. What do they all have in common? The agreements you are required to sign for each most likely contain arbitration clauses that limit your rights to bring a lawsuit or join a class action.

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With the recent Wells Fargo bank scandal, it has come to light that even fraudulently created accounts made by bank employees to increase fees are now subject to these arbitration agreements. While consumer groups and the government agencies have raised concerns over these agreements, the fact is that they are now routinely enforced by the courts, who dismiss lawsuits and remand the case to arbitration.

While each arbitration clause is different, typically such a clause requires the parties to take any disputes to private arbitration. Because private arbitration is expensive, limits a party’s right to a jury, and is typically not subject to an appeal, it effectively limits or prevents claims from being brought altogether, particularly when the amount of damages is small.

So what can you do about it? Unless or until laws placing limits on such arbitration clauses are imposed, these clauses will continue to be enforced, so the only sure way to avoid such a clause is to have it removed before you sign the contract or agreement. While this may not be practical or possible for contracts with credit card companies, there is room for negotiation with agreements for other goods and services. For example, if that car dealer wants to lease you a car, or the bank wants your business, they may be willing to remove the clause. This is especially true for businesses, since even small businesses typically have bargaining power with banks and vendors. Your best option in these situations is to read the agreement carefully and if you see such a clause that requires arbitration, ask that it be removed. Even if the other side refuses, you at least have the option to take your business elsewhere.

However, negotiating contracts, and in particular arbitration clauses, can be difficult without someone with knowledge and experience in handling such matters. If you need a contract reviewed or drafted, or need an attorney to negotiate an agreement, the attorneys at the Law Firm of DiOrio & Sereni, LLP can help. Please contact Matthew Fry at the Law Firm of DiOrio & Sereni, LLP at 610-565-5700 or email me at [email protected]

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