Arbitration and Legal Reform

Arbitration is an out-of-court process for settling a dispute that allows consumers and dealers to reach a resolution through an appointed, unbiased arbitrator. Intended to offer prompt resolution of the disputed matter, arbitration is typically faster and less expensive than ordinary court proceedings. Arbitration is most often governed by an agreement entered into by both parties, which mandates that if a dispute arises the parties must forego the court system. Automobile dealers can include a binding mandatory arbitration clause within their contracts for vehicle purchases or leases. If an individual consumer chooses to reject a dealer's arbitration provision, that dealer may choose to use a different method of agreement or to refuse to sell or lease the vehicle to that consumer. Of course, the consumer always has the option to lease or purchase a vehicle through a dealer that does not require an arbitration agreement.

Similar to a judge in court, an arbitrator reads briefs and documentary evidence, hears testimony, examines evidence, and renders an opinion on liability and damages after the hearing. The award is then confirmed by a court of appropriate jurisdiction and entered as a judgment. The majority of auto dealer arbitration provisions prefer the arbitrator's decision then to be subjected to a second arbitrator's appellate review of the record. Once the arbitration, and any appellate arbitration review, is complete the decision is final and binding.

In years past, legislation such as the Automobile Arbitration Fairness Act has been introduced in Congress but never signed into law. Such legislation would have negatively impacted the quick and cost effective resolution of customer disputes with dealers by effectively banning all pre-dispute arbitration agreements in the sale or lease of a motor vehicle. AIADA knows the importance of this issue to the dealers and continues to monitor for similar legislation.

Read more on AIADA's position.

Fast Facts on Arbitration

  • 79 percent of all arbitrations are resolved in the consumer's favor
  • 69 percent of consumers are satisfied with their arbitration experience
  • 75 percent of consumers found the arbitration process fair and just
  • 71 percent of individuals won claims against corporate entities through arbitration where less than 55 percent won similar claims through federal court process
  • The arbitration process is typically 75 percent less expensive than a lawsuit
  • 82 percent of adults said they would opt for arbitration knowing its cost-effectiveness
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