Arbitration: Why You Need to Read the Fine Print

There is a popular saying in the legal world: Caveat emptor! In plain English, it means “let the buyer beware!” As the consumer, you’re responsible for protecting yourself from deals gone wrong, and this includes being aware of forgoing your day in court during arbitration proceedings.

Why should you read the fine print?

One of the most important things you can do as a borrower is educate yourself so that you fully understand the contract terms and subsequent financial obligations of all loans. Yes, you’ve got to read all of that tricky fine print to ensure that when you’re entering into a loan agreement, you’re not inadvertently signing away your rights to sue if mistreated by a lender.

Arbitration in the News

Unethical lending practices have been in the news as of late, including a recent New York Times article, “Arbitration Everywhere, Stacking the Deck of Justice.” The article discusses the issue of how large companies are inserting arbitration clauses into contracts as a way to prevent consumers from filing class action lawsuits. Without the protection of class action suits, consumers are losing their right to take a corporation to court when they are subjected to shady or illegal business practices.

How do class action lawsuits protect consumers?

Historically, class action lawsuits have been recognized as a way for the common man to fight against the behemoth corporations and to prevent illegal business practices. Without the protection of class action rights, powerful companies have opened the door for bending the rules when it comes to dealing with consumers, with little repercussion for the companies. Moreover, the strict set of formal rules governing arbitration skews in favor of corporations.

While arbitration clauses were originally viewed by some as a way for the consumer to challenge deceitful practices without the enormous costs of litigation, consumer advocates have a different opinion. The purpose of a class action is to allow large numbers of people to ask for relief without any financial output for attorney fees, since plaintiff’s attorneys generally work on contingency and take a percentage of the class action award at the end. Forced arbitration would lead to fewer consumers seeking redress in court. Per the article:

“The change has been swift and virtually unnoticed, even though it has meant that tens of millions of Americans have lost a fundamental right: their day in court.”

How do you protect yourself?

When searching for a loan, it is imperative to read the fine print before signing a loan agreement. Each and every step of borrowing process should be transparent and ethical. Your lender should always act in accordance with the Borrower’s Bill of Rights throughout the borrowing process, from the loan offer to the last day of payment collection.

If there is a clause you don’t understand in your loan documents, do your research. Do not sign any contracts until you fully comprehend each and every page.

As a borrower, it might to you seem as though the lender is in complete control, but that’s a myth; you have legal rights, and a trustworthy lender will follow the Borrower’s Bill of Rights. Accion, and other members of the Responsible Business Lending Coalition, strive to provide borrowers with these six fundamental rights:

1. The Right to Transparent Pricing and Terms
2. The Right to Non-Abusive Products
3. The Rights to Responsible Underwriting
4. The Right to Fair Treatment from Brokers
5. The Right to Inclusive Credit Access
6. The Right to Fair Collection Practices

If any of the above fundamental rights are violated by your lender, you should consult with a small business attorney to enforce your rights as a borrower. Know your rights, read the fine print, and be prepared to enforce your rights if they’re violated. Remember: An informed consumer is a smart consumer.