In a recent post, we commented on Hyundai’s decision to abandon the arbitration clause in its new vehicle limited warranty. A reader pointed out that, generally, in consumer-dispute arbitration only the warrantor is bound by the award. The reader is correct that where a consumer protection statute or lemon law includes a state-run mandatory arbitration procedure, it generally permits a consumer dissatisfied with an award to reject it and proceed to litigation.
Contractual arbitration clauses, however, are reviewed under the Federal Arbitration Act (“FAA”) and generally enforced by the courts. Congress adopted the FAA to promote and encourage the use of arbitration to resolve disputes traditionally brought to court.
In the Federal Magnuson-Moss Warranty Act, Congress “declares … its policy to encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms.” 15 U.S.C. § 2310(a)(1). The IDS programs developed and utilized by consumer-product warrantors generally emphasize mediation over arbitration. And both the Fifth and Eleventh Circuit Courts of Appeals enforce binding aribtration clauses in consumer-product warranties, holding that arbitration is a “formal” dispute resolution procedure that falls outside the FTC rules governing IDS programs.
Bottom line: Strong public policy supports arbitration over litigation in the context of civil disputes in general, and consumer disputes in particular.