Arbitration Clause in Consumer Contracts: Understanding Its Pros and Cons

Arbitration is a form of dispute resolution that involves the use of a neutral third party to settle a conflict between two or more parties. In the context of consumer contracts, many companies include an arbitration clause that requires any disputes to be resolved through arbitration rather than traditional litigation. While this approach has its advantages, it also has its downsides. In this article, we’ll take a look at arbitration clauses in consumer contracts, what they are, and the pros and cons of using them.

What is an Arbitration Clause?

An arbitration clause is a provision in a contract that requires any disputes arising from the agreement to be resolved through arbitration. This provision is often found in contracts between consumers and companies, such as credit card agreements, cell phone contracts, and other types of service agreements.

The purpose of an arbitration clause is to provide an alternative method of dispute resolution. Instead of going to court to resolve disputes, the parties agree to have a neutral third party (the arbitrator) hear their case and make a decision. Arbitration is typically quicker and less expensive than traditional litigation, and the outcome is usually binding.

Pros of Arbitration Clauses

1. Quicker resolution: Arbitration proceedings are often quicker than going through traditional litigation. This is because the parties do not have to deal with as many procedural hurdles, such as motions, discovery, and appeals.

2. Less expensive: The costs associated with arbitration are often lower than those associated with traditional litigation. This is because the parties do not have to pay for many of the fees and costs associated with court proceedings, such as filing fees, transcript fees, and expert witness fees.

3. Less formal: Arbitration proceedings are generally less formal than court proceedings. This can be an advantage for consumers who are intimidated by the formalities of the courtroom.

4. Privacy: Arbitration proceedings are generally private. This means that the parties can keep their dispute out of the public eye and avoid negative publicity.

Cons of Arbitration Clauses

1. Limited discovery: In arbitration proceedings, the parties do not have the same right to discovery that they do in traditional litigation. This means that they may not be able to obtain all of the evidence they need to make their case.

2. Limited judicial review: The decision of the arbitrator is usually final and binding. This means that there is limited judicial review if the parties are not satisfied with the outcome of the arbitration proceedings.

3. Limited choice of arbitrator: In some cases, the parties may not have a say in who their arbitrator will be. This can be a disadvantage if the arbitrator is biased or unqualified.

4. No class actions: Many arbitration clauses include a provision that prohibits class actions. This means that consumers cannot band together to bring a collective action against a company.


Arbitration clauses can be a useful tool for companies to resolve disputes with consumers. They often result in quicker and less expensive resolution of disputes, and are generally more private than traditional litigation. However, they also have their downsides, including limited discovery, limited judicial review, and the inability to bring class actions. Therefore, consumers should carefully consider the inclusion of an arbitration clause in any contracts they sign and weigh the pros and cons before agreeing to it.