Arbitration is an alternative dispute resolution mechanism where an independent third party reviews the arguments and evidence from the disputing parties and issues a final decision to resolve the dispute. Arbitration is often faster and less expensive than settling disputes through the court system. However, the arbitration process is also often private and less formal than traditional litigation.

Many consumer contracts today include mandatory arbitration clauses which require that any dispute must be resolved through binding arbitration instead of in court. Supporters argue that arbitration streamlines dispute resolution and reduces costs for both companies and consumers. Critics counter that arbitration favors companies that draft the contracts and disproportionately disadvantages consumers.

There are many examples of dedicated consumer arbitration tribunals, like the American Arbitration Association which handles over 300,000 consumer disputes each year. Arbitration clauses are commonly found in contracts for telecommunications services, credit cards, retail banking, investment accounts, employment, nursing homes, and e-commerce sites. Fees in consumer arbitration are often capped and provisions are included to ensure fundamental fairness.

However, some concerns persist over the use of mandatory pre-dispute arbitration clauses in consumer contracts. Critics argue they deprive consumers of legal rights like appealing a decision or participating in class action lawsuits. The fairness of the arbitration process has also been questioned when companies have influence over the choice of arbitrator or location of arbitration. Several bills have been introduced seeking to limit pre-dispute mandatory arbitration but none have become law yet.

Arbitration remains controversial but is an important part of the U.S. civil justice system. Consumers should understand how arbitration works and know their rights before entering into contracts with binding arbitration clauses. For some, arbitration offers a quick and low-cost means for dispute resolution but for others it is seen as inherently unfair when imposed through form contracts and needs reform. There are good arguments on both sides of this issue with many trade-offs to consider regarding arbitration in consumer contracts.