Forced arbitration clauses are included in nearly all automobile sales contracts and leases. Franchise laws in all 50 states give automobile dealers a special monopoly over new car sales, allowing them to decide what they want to include in their sales/lease contracts. Consequently, consumers are left with no choice but to accept the sales/lease contracts put before them if they want to purchase or lease a new vehicle.
Forced arbitration clauses are also included in many used car sales contracts. Car dealers who purposefully commit fraud against their customers can use forced arbitration as a way to shield themselves from liability.
In 2005, four individuals and two couples, all African American, filed suit in federal court against Jim Koons Automotive Companies, a major Washington, D.C., area dealership. They alleged that they had been victims of racial discrimination when they financed their purchases through the dealership because they were charged higher interest rates than similarly situated white customers. The court required them to take the case to arbitration because the “Buy Order” for their purchases (though not the financing agreement that was the focus of their complaints) contained a mandatory arbitration clause. To arbitrate the case, the six claimants would have had to pay a total of $85,800 in arbitration fees. After a lengthy dispute, Koons agreed to pay the fees. The dealer subsequently agreed to a settlement in which they make payments to the buyers, but admitted no wrongdoing.