Mandatory Binding Arbitration Agreements (Car Buying Tips)

Honestly, when you're buying a car, do you actually read all the paperwork before signing your name? Almost nobody ever does and in some cases that turns out to be an expensive mistake.

When I sold cars, I remember reading over some contracts that consumers routinely sign. One phrase caught my attention and is worth mentioning. It said that the consumer can only present any grievance against the dealer to an arbitrator and not to a court of law. While the customer could not use the courts, the dealer can. This is just another example of how the dealer stacks everything in its favor.

I did some digging and found some information at www.autoissues.org/arbitration_faq.htm. This is on the website for The Consumer Task Force For Automotive Issues, a consumer advocacy group founded by Remar Sutton -- who is closely affiliated with Ralph Nader and the Public Citizen.

In case you don't have time to check it out the FAQ, here is what I already know.

Unfortunately, the term "mandatory binding arbitration agreement" gets buried in the wording or in the fine print and consumers don't get the full impact of what this means. The bottom line is that if something goes wrong, even if the dealer is clearly at fault, the consumer has waived the right to take the case to court. An arbitration company will hear the case.

The Problem with Mandatory Binding Arbitration Agreements

1. The arbitrator's decision is final. The consumer has no recourse for making an appeal;
2. In a court of law, rules are governed by existing law. With arbitration, the rules of governance are not as clearly defined;
3. The arbitration company is chosen by the dealer, so the arbitrator might be biased. In fact, bias may be likely because the arbitrator could lose the dealer's business if it favors against the dealer.

The Consumer's Solution

1. Tell the F & I officer that you must read every word in every contract before you sign anything at all. He will look at you like you're crazy. The reading can take an hour or two. You may read it there or insist on taking it home with you to complete the transaction the next day.
   
2. Tell him upfront that you will not consent to a mandatory binding arbitration agreement. If the dealership insists on this, then you will continue your shopping elsewhere. Everything is negotiable and the dealer does have the choice to abide by your terms. If it does not, then you should have serious questions about buying a car there. Stick to your words. If any contract requires mandatory arbitration, do not sign it.

Written by a former car salesman, college math instructor, health insurance analyst and the author of The Car Buying Bible. This 162-page car buying guide is full of great car buying tips and offers the best car loan calculator around.