South-Western Legal Studies in Business

Arbitrator Will Decide if Each Party Must Bear Costs of Arbitration
Description Appeals court held that a mandatory arbitration clause in a consumer form contract was enforceable. If the provision that each party must bear their own costs of arbitration is contrary to the federal law that applies to the case, the arbitrator will resolve the matter.
Topic Alternate Dispute Resolution
Key Words Arbitration; Costs; Form Contract
C A S E   S U M M A R Y
Facts Carbajal had his tax return prepared by H&R Block. Block estimated that Carbajal would receive a refund of $5,001. He applied for a "rapid refund," which is a loan from Block in advance of receipt of the refund. The loan agreement required that any previous loan balances must be paid first and that any disagreements would be subject to arbitration, with both parties to bear their own costs. After Block repaid an earlier loan balance, Carbajal received $1,800. He sued Block, contending violation of the Fair Debt Collection Practices Act. His suit also contended that the arbitration clause was unenforceable as it was unconscionable to be included as part of a consumer loan form contract. The district court issued an order to compel arbitration. Carbajal appealed.
Decision

Affirmed. The arbitration clause in the income-tax refund loan agreement was enforceable even though the agreement was a form contract offered on a take-it-or-leave-it basis. Consumer contracts may take such forms. The arbitration clause was not unconscionable because of its provision requiring parties to bear their own costs of arbitration. It was for the arbitrator, not the court, to decide the validity of the costs clause and whether the terms of the Fair Debt Collection Practices Act provide otherwise.

Citation Carbajal v. H&R Block Tax Services, 372 F.3d 903 (7th Cir., 2004)

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