Fine Print Binds Car Buyers

Feb. 23, 2005 — -- Kelly Lloyd, of Spotsylvania, Va., thought she and her husband were asking all the right questions when buying a used car. They test-drove the 2000 Honda Accord they had their eye on, asked about the car's history and, she says, were assured by the dealership that it was like new. Only later, she says, did she learn that the car had been totaled in an accident by a previous owner.

But there was another surprise. Contained in the tiny print on the back of the sales contract she signed was a binding arbitration clause, which meant she had given up her right to ever sue the dealer in court if anything went wrong with the car.

And she says nearly everything did: The car doors locked on their own, the horn went off without warning, the sun roof didn't work, the air bag malfunctioned and the vehicle often shook uncontrollably when she backed out of the driveway.

"I thought I'd run over the dog," Lloyd said. "The whole car was vibrating, it was just jumping up and down, and I did not have a clue what was going on."

Consumers Left Behind?

Lloyd is one of thousands of consumers whose disputes with car dealers or manufacturers will not be settled in a court of law, but instead by a growing number of private arbitration companies, to the dismay of consumer activists and plaintiffs' lawyers.

"It is just simply unfair that people who have legitimate grievances are not able to go to court because of an arbitration clause they unknowingly have signed," said John Gayle, Lloyd's attorney.

Lloyd's case will be handled by the National Arbitration Forum of suburban Minneapolis. The NAF hires its own judges and advertises to companies, including car dealers, that the arbitration proceedings will be "kept private," will be "predictable" and will "put a stop to million-dollar lawsuits."

Ed Anderson, managing director of NAF, said there was an increasing need for its services.

"Arbitration provides customers, employees, all of us, an opportunity to have their day in court," he said. "To have access to justice."

But consumer watchdog groups say companies like the NAF favor businesses and corporations, and often leave consumer interests behind.

Anderson, however, denied that arbitration favored big business.

"Nope, not at all," he said. "Everybody benefits from saving litigation costs."

Still, when shown the auto contract Lloyd signed, Anderson also had a hard time reading the small print about arbitration.

"Let me get my glasses," he said. "It's pretty small print."

An Arbitrating Trend

Requiring car buyers to sign into binding arbitration is a practice that has become more and more common in the auto business. The Big Three automakers all use arbitration at the consumer level, to varying extents.

Chrysler requires arbitration for all financing contracts and buy-back vehicles, according to spokesman Kevin McCormack. General Motors has mandatory arbitration clauses for Mississippi and Alabama only, due to the historic level of litigation in those two states, said GM spokesman Tony Simonetti. And Ford leasing and financing contracts operate under elective arbitration, said spokeswoman Brenda Hines, which means that if either the dealer or consumer chooses arbitration, the other side is forced into the process.

A growing number of independent car dealerships, including Fred Martin of Akron, Ohio, have also embraced the arbitration clauses.

"It's a quick, fast way for us and a consumer to settle the conflict," said dealership owner Adam Huff.

While most courts have upheld the arbitration clauses, one of Fred Martin's customers, Lisa Eagle, has now successfully fought back in a dispute over a new car she says stalled at highway speeds.

"The first time it happened, it was absolutely scary," Eagle said. "I was on the freeway getting off and the car stalled. Lost all power, no brakes, no power steering."

Buy a Car, Bring a Lawyer

An Ohio state court initially found the arbitration clause legal, but in a landmark decision, an appeals court called the clause buried in the fine print unconscionable, internally inconsistent and ambiguous.

"We went into a room and I was basically handed a stack of papers, sign here and here and here," Eagle said of the car-buying process. "Nothing about mandatory arbitration was explained to me."

Anderson said that concerned consumers should consider having an attorney on standby the next time they shop for a car.

"They should read [all contracts] carefully, and if they have any doubts, review it with counsel," he said. "Making a purchase of that size, one really ought to consider having legal counsel."

For now, Lloyd and her family are stuck with the "lemon" they have, being unable to afford the costs of renting another vehicle while continuing to pay off the car loans they already have. Lloyd said she will continue the struggle to bring her case to the court system.

"It should be allowed to be heard before a jury, before a judge, we shouldn't have to pay someone to hear our case," Lloyd said. "And the way I feel, I'm the victim and I'm being forced to give up, or that that's what they want you to do is give up. But I haven't. And I'm gonna fight them till the very end because what they've done is wrong and I feel that other people should be aware of this."