The Lemon Law Blog

Car dealers in California increasingly have arbitration clauses buried in their sales contracts that preclude buyers from going to court. Under these clauses, any disputes are channeled to arbitration forums, principally the National Arbitration Forum (NAF) and the arbitrator's findings are binding. If the consumer loses, he or she cannot reject the award and go to court. This system is not to be confused with such organizations as the Better Business Bureau that provides arbitration in lemon law cases. Under the BBB rules, if the consumer does not like the results, he or she may still file a lawsuit. In that way, the consumer does not give up the right to hire a lawyer and have the case heard by a jury.

That consumers who sign the contracts with binding arbitration clauses unwittingly are foregoing their right to a jury trial is bad enough, but the NAF and similar arbitration forums are, to put it mildly, unfair to consumers. A California law requires these forums to information on who wins these proceedings. The nonprofit group Public Citizen analyzed the NAF data and found that California consumers lost 94% of some 19,000 cases! One arbitrator handled 68 cases in a single day. There is no in-person hearing. Arbitrators who rule for consumers are soon dropped by NAF.

Consumer horror stories involving NAF are common. Mother Jones magazine covered this story in some depth in an article in November 2007.

Other arbitration forums such as the American Arbitration Association are almost as bad for consumers as NAF. Taking a dispute to AAA is quite expensive (especially when it comes to paying the arbitrator). The arbitrators favor the big corporations knowing they won't be chosen for future arbitrations (more fees) if they rule for the consumers.

The car dealers want no part of arbitration when it comes to fighting with the manufacturers over their franchise rights. In 2002, the dealers succeeded in getting Congress to enact a law banning binding arbitration clauses in the dealers' sales and service contracts with the auto manufacturers!