Feb. 22, 2005 — -- When American consumers sign contracts -- for credit cards, bank loans, mortgages or telephone service -- language in the fine print often waives their right to employ the full extent of the law should the company violate the contract.
"I feel completely violated, and that's the only term that I can use to explain it," said one woman who bought a car and says she got a lemon. "Had I known that arbitration clause existed in the contract, I would not have signed it."
"If you did a public survey, you would find that 99 percent of consumers are totally surprised that there's small print in there that doesn't allow them to go to court," said Joan Claybrook, president of Public Citizen, a consumer advocacy organization.
The fine print of many contracts says consumers "waive the right to go to court" to resolve any disputes about a product or service. They are instead committed to binding arbitration.
The process started with the Federal Arbitration Act of 1925, which gave companies a quicker way to resolve disputes. Instead of a judge or jury handing down a decision, the companies agree to go before arbitrators, who are typically practicing attorneys. They decide the amount of the arbitration award, if any.
During the 1980s and '90s, several courts ruled that arbitration should apply to individuals, as well.
Many consumer advocates say mandatory arbitration means the consumer loses a fundamental right.
"It's a take-it-or-leave-it contract," said Claybrook. "You either sign it or you don't get the job or the credit card or the bank account."
Binding arbitration is just that. Except in very rare cases, there is no appeal, and arbitrators don't have to explain their decisions.
The American Arbitration Association, the oldest group that conducts arbitrations, says the law is a practical one.
"An average consumer arbitration through our organization takes about four, 4 ½ months. Typically in court, if you're not going through small claims court, you're talking about years," said Richard Naimark, senior vice president at the arbitration association.
The association also says there are guidelines to ensure fair play.
"If the process is properly balanced so it's really a level playing field, neither side has an advantage," Naimark said. "There will be times when either the business or the consumer or employee will feel uncomfortable because they are on the losing end."
But Claybrook says the system is flawed.
"The process completely favors the corporation," she said. "The corporation does repeat business with the arbitration company and if the company routinely finds in favor of consumers or gives large awards to consumers, they don't get used again."
Peter Jennings filed this report for "World News Tonight."