Most of us have signed a long contract riddled with fine print – whether for a credit card, a cell phone, a car lease or something else.

And, unfortunately, many of us still aren’t reading every item included in these contracts.

Between irritatingly small type, difficult legal language and time shortages, that’s no major surprise.

But there’s one section of any agreement you should understand – the “arbitration clause.”

What Are Arbitration Clauses?

In contracts (especially those for credit cards), arbitration clauses state that, should a dispute arise between the card issuer and you, the card user, that dispute must be resolved out of court – that is, it must be arbitrated.

How Do Arbitration Clauses Work?

If your credit card agreement includes an arbitration clause and you have a dispute with your card issuer, you can expect something like this:

1. Your creditor files paperwork with an arbitration firm: The National Arbitration Forum (NAF) is one of the country’s largest arbitration firms. Many credit card companies, retailers and banks work exclusively with the NAF.
2. You get mail that announces the beginning of your dispute’s arbitration: This may be the only notification you get that your case is being arbitrated. It may be easy to mistake this mail for junk or an ordinary bill, which is why some consumers never realize their cases have begun.
3. An arbitrator decides your case: This is the part of the process that upsets many consumers: without a court-style hearing, ostensibly impartial judges decide these cases and alert the concerned parties. Also unlike court cases, there is no way to appeal an arbitrated decision.

Are Arbitration Clauses Fair?

Some consumer advocates have raised concerns about how arbitration clauses work – or don’t work – for run of the mill credit card users.

An article that appeared in BusinessWeek stated that most states do not require arbitration firms to release their figures, but in California, where such figures are released, the numbers are scary.

It seems that 99.8 percent of cases decided by NAF favor creditors, not consumers.

And a startling 93.7 percent of arbitration cases begin and end without any consumer participation.

This suggests that consumers are not even aware of what’s going on.

An Arbitration Reform bill has reportedly been introduced into both houses of Congress, and, if passed, could change the way arbitration cases work.

But the bill will likely face hurdles, since eliminating the arbitration option could mean that disputes flood courts, causing backlogs and increased costs.

How to Protect Yourself

To make sure you aren’t victimized by questionable arbitration practices, take these precautions:

• Read everything before you sign it. If you need help deciphering tricky legalese, consider enlisting the help of a bankruptcy attorney for an afternoon – any fees may save you money and time in the long run.
• Open and read all mail from your bank and card issuer. If you don’t understand something you see, call the companies until you get a clear explanation.
• Participate in your own case. Whether or not you sign up for a card that requires arbitration, know that your input can make a difference in how much you end up paying.

Looking for filing bankruptcy information?