Arbitration has been defined as an informal procedure used by disputants to resolve their differences in a forum other than a court of law. By agreeing to arbitration, the parties submit their disputes to selected arbitrators, whose reasoning and final decisions or awards supplant the judgment of the established judicial tribunals. Further, the decisions of arbitrators are usually binding and enforceable in courts. Although arbitration has been lauded for being less expensive and time-consuming than litigation, consumers arbitrating disputes with large companies may not be playing on a level field. It is important, however, to distinguish arbitration from mediation. Arbitrators, unlike mediators, are given the power to resolve the dispute before them and to force, if necessary, settlement upon the parties. Alternative dispute resolution (ADR), meanwhile, is a term that subsumes both arbitration and mediation, as well as neutral evaluation, settlement conferences, and the use of special masters, minitrials, and summary jury trials. Discussions and criticisms in this Comment focus only upon arbitration, emphasizing the use by financial institutions of that form of ADR to resolve disputes arising subsequent to their customers' execution of an arbitration agreement. In the early part of this century, courts, eager to preserve their jurisdiction, often refused to enforce arbitration agreements. At the same time, fair resolution of commercial disputes may have required expertise in analyzing the underlying transactions. Arguably, the need for experts familiar with commercial practices increased in proportion to the complexity of commercial transactions. Even the most qualified of judges recognized the need for experts to assist the courts in resolving disputes among merchants. Nonetheless, the courts remained suspicious of arbitration in general and continued to invalidate agreements. To counter the courts' tendency to invalidate predispute arbitration agreements, Congress passed the Federal Arbitration Act (FAA) in 1925. Apparently, the narrow purpose of this Act was “to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it.” Thus, arbitration originally served the limited purpose of providing expert adjudication of disputes among consenting merchants of presumed equal bargaining power, and Congress enacted the FAA to counteract judicial hostility toward that form of arbitration. At the time of its passage, the FAA was viewed as a simple declaration of the new federal policy recognizing and enforcing agreements to arbitrate disputes among merchants. Further, the FAA was not to “encroach upon the province of the individual States.” By 1996, however, the FAA was held to preempt state disclosure laws enacted to ensure that arbitration clauses contained in contracts be brought to the attention of all signatories. This Comment assumes that consumers, overall, benefit from these disclosure laws, whereas lenders and merchants find them cumbersome, due to the significant paperwork they must generate to remain in compliance. The Author argues that lenders have as many reasons to favor arbitration as consumers have to fear this method of resolving post-closing, consumer-lender disputes. Preemption of laws requiring heightened disclosure of arbitration clauses is good news for lenders but detrimental to the interests of consumers for reasons that are enumerated later in this Comment.

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