The courts and the public in recent years have become impatient with the costs and delays associated with litigation of civil disputes. As a result, Congress enacted the Federal Arbitration Act ("FAA"), encouraging arbitration rather than litigation of disputes.

    Mediation and arbitration is less time consuming and often cheaper than courts, where claims may take more than a year to be heard. In mediation, parties to a dispute have a third party (hopefully a disinterested third party) to analyze the parties' claims and decide how the dispute should be resolved.

    People who have filed complaints with the Department of Consumer Affairs are familiar with mediation. Arbitration is similar in that a third party or a panel of arbiters determine how a dispute should be decided. Unlike mediation, where a party is free to take an unfavorable ruling to court, in arbitration the parties have generally agreed that the arbiter's decision is final.

    Federal Courts construing the FAA have stated that it pre-empts State laws that conflict with it. That means that under the Supremacy Clause of the Constitution, any State law requiring a practice that conflicts with the FAA is invalidated.

    Does this affect how you resolve a dispute? You bet! In the wake of the court rulings, many businesses, ranging from sellers of goods, to credit grantors to security brokers, put clauses in their contracts whereby their customers agree in advance to resolve any dispute through binding arbitration. Even if a state securities law or credit code says that a certain practice violates the law and the customer can sue under that act for damages, the contract controls.

    In many cases, businesses adopt these terms for the admirable purpose of reducing costs and burdens of litigation. Some, however, are using the clauses to "stack the deck" in their favor. Many have altered their contracts to require that arbitration is the exclusive remedy for any dispute with them, even if it concerns a violation of state law. Others specify that while arbitration is mandatory, the consumer must travel to a remote state to resolve the dispute. Some require that arbitration is mandatory for claims up to $500.00, knowing that most consumers will simply not bother to arbitrate. Some businesses retain the right to sue consumer if the debt is not paid, but limit the consumer's remedy to arbitration. Some charge arbitration fees to dissuade customers from making claims. Still other terms seek to prevent the consumer from contacting state authorities to report violations of law related to the claims. Even without one sided terms, the consumer may be at a disadvantage. The businesses often do business nationwide and are skillful at selecting arbiters likely to see the dispute from their point of view. Consumers only arbitrate once in a while, and are less likely to know how to select arbiters.

    What can the consumer do? Unfortunately, businesses that use such clauses often do so on a "take it or leave it" basis. It is more important than ever for consumers to carefully read and understand contracts before signing. And nothing requires any consumer to patronize a business that insists on one sided arbitration terms. Consumers are free to negotiate to have the clauses stricken. If the business insists, the wise consumer can always take his or her business elsewhere.