Rejecting Arbitration Agreements in Car Loans

The American Arbitration Association (“AAA”) was created in 1926 as a form of informal dispute resolution between parties to a lawsuit.  The AAA is an alternative to our standard court procedure.  In the standard court procedure, when we sue a car dealerships, there is a pleading stage, discovery stage, and trial.  This procedure could last 6 months to years.  The AAA is designed to streamline this process by limiting discovery and scheduling certain deadlines at different stages of the process.

In theory, this type of arbitration sounds like a great idea.  However, there are many disadvantages to using an organization like the AAA to resolve auto fraud cases.  For example, the limits on discovery, the binding decision, and the corporate/financial influences on the AAA.

First, the AAA process limits discovery.  Discovery is where we question the dealership, and its employees, to determine how much the dealership really knew about the car before selling it.  Many of the Pennsylvania Auto Fraud Laws require us to prove that the dealership knew, or should have known, about a condition or defect at the time of sale.  Sometimes this means we have to perform extensive discovery to get to the bottom of everything the dealership knew.  In AAA proceedings, this can be difficult.

Second, the decisions of the AAA are “binding.”  That means we cannot appeal the result if we lose and think we should have won.  In the standard court proceedings, you have a right to appeal a bad result at trial.  If you think the judge or jury made a wrong decision, you can ask another court to review that decision.  However, in the AAA, you cannot appeal it.  If you lose, you lose.

Finally, since its creation, the AAA has fallen victim to a lot of corporate influence.  It is generally understood that the AAA favors corporations and not the individual.  That is why corporations want to bind you to arbitration clauses in your contract.  That way, you have to enter a streamlined legal process favoring the dealership from the beginning, with limited discovery, and no ability to appeal a bad result.

In order to force you into the AAA, car dealerships will place “Arbitration Clauses” into their sales contracts.  You sign the contract knowing nothing about the arbitration clause, try to sue in regular court, and end up having to refile in the AAA.  However, there are ways around these arbitration clauses.

In 2013, the Superior Court of Pennsylvania handed down a decision making it impossible for a car dealerships to enforce an arbitration clause if it was not included in the Retail Installment Sales Contract (RISC).  This is the car loan agreement document.  If the arbitration agreement is not in the RISC, then you did not legally agree to bring a case in the AAA.  Therefore, you can file in regular civil court and have all of your legal rights available to you.

Most car dealerships are now including the arbitration clauses in the RISC, so you have to make sure you review the entire agreement before signing.  Some Retail Installment Sales Contracts give you the option to reject the arbitration agreement.  If your RISC gives you the option to reject the arbitration agreement, do it.  Your choice to reject the agreement cannot be held against you and will not change your loan.

If you have think you have a case against a car dealership, give us a call at 412-823-8003.  We will look over your sales contract and see if there is a valid Arbitration Clause.  That doesn’t mean you can’t sue.  It simply means we have to take a slightly different path to protect your rights.

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