Why You Shouldn't Buy a Vehicle From Any Seller That Requires a "Mandatory Binding Arbitration Agreement"
By Remar Sutton, President
The Consumer Task Force For Automotive Issues
Mandatory Binding Arbitration Agreements are the newest scam in the arsenal of unethical dealership weapons used to protect dealerships from accountability when they defraud consumers.
More and more automobile dealerships across the country are adding mandatory binding arbitration agreements, also called "dispute resolution mechanisms," to contracts for new and used vehicles as well as to financing contracts. By signing the contract, the consumer is agreeing to binding arbitration to settle any future dispute and also waiving the right to sue or appeal—even if the dealership committed fraud.
Such Dealership Mandatory Arbitration Agreements are almost always designed to protect the seller and to make it nearly impossible for the consumer to receive a fair hearing—even when the fraud committed against the consumer is clear and highly destructive.
But dealers themselves don't think that mandatory binding arbitration is fair. Dealers lobbied for a federal law (passed in November 2002) to prevent automobile and truck manufacturers from requiring the use of mandatory binding arbitration to resolve franchise disputes with dealers.
What frauds do binding mandatory arbitration agreements allow dealerships to get away with?
Consider these instances:
- A dealership buys wrecked vehicles, repairs them, and then sells them to unsuspecting consumers without disclosing the damage. When the vehicles become repair nightmares for the consumer, the dealer refuses to accept any responsibility.
- A dealership employee forges your credit statement and forces you into an auto loan you can never afford. When the forgery is discovered, you are sued by the finance company. Your credit is ruined.
- A dealership trades in your old car, but never pays off the loan on the old car. You are sued by the finance company, and forced to pay thousands in damages.
- A dealership buys lemon vehicles from the manufacturer, destroys the paper which shows the vehicles' histories, and sells the cars to consumers.
How and why do mandatory binding arbitration agreements allow this to happen?
- The arbitration agreement may be mentioned briefly or at the last minute (if mentioned at all) with no explanation of what rights the consumer is giving up.
- The consumer's only choice to resolve a dispute is the mandatory binding arbitration.
- Consumers can't sue the dealer but usually the dealer can sue the consumer.
- Consumers have no or limited right to "discovery"—the ability to obtain necessary evidence from the dealer or third parties to support their claim. If available, the consumer must pay for obtaining the evidence.
- The arbitration company is specified in the contract by the dealership which can lead to the company favoring the dealer.
- Initiating arbitration typically costs the consumer more than initiating a lawsuit.
- Review or appeal of the arbitrator's decision by the consumer is limited or not allowed.
What do you do when scams like these happen to you?
If you have bought from a dealership with a Mandatory Binding Arbitration Agreement, you can't do much.
To prevent these scams from happening to you, don't deal with sellers requiring mandatory binding arbitration agreements.
There are plenty of good dealerships that refuse to require mandatory binding arbitration. Deal with these good dealerships—don't deal with dealerships that require mandatory binding arbitration. Follow these steps to find a good dealership:
- Before you waste any time with an auto seller—whether in person or online—ask the seller if they require a mandatory binding arbitration agreement.
- If the seller requires such an agreement, don't buy from them. Don't even visit them. And tell the seller why you won't deal with them.
- Tell your friends to always ask about mandatory binding arbitration agreements before shopping or buying a vehicle.
For more information on mandatory binding arbitration see our FAQ on Mandatory Binding Arbitration.