Lenders don’t set out to lend money to people or businesses who don’t pay it back, but default rates tell a different story. Loans in every category have high default rates: one in six SBA loans from 2006 to 2015 went into default. One out of every 10 Americans has a defaulted student loan. In 2018, the mortgage delinquency rate was 4.4%.

The story these numbers tell us is that the lending industry is once again facing a large number of delinquencies, and with so much unpaid debt, a financial institution can either attempt to recover the debt, sell the debt at a significant loss, or simply write it off.

Litigation is usually an expensive option for recovering that debt, but arbitration can be more cost- and time-effective and may have better results. Especially online arbitration services that utilize technology to streamline and accelerate the process.   

The question is: do you have the correct arbitration provision in your financial contracts?

The Benefit to an Arbitration Clause

The fact that over 50% of lending institutions include mandatory arbitration in their loan contracts is evidence of its importance. An arbitration clause can clearly communicate the consequences of not paying the loan in full to the borrower which, one would hope, would deter default. And if it doesn’t, it paves the path to a streamlined process for resolving the matter quickly and at a lower cost than going to court would entail. 

The key is making that provision for mandatory and binding arbitration, leaving no gray area about an institution’s debt recovery process.  

Resources for Arbitration Clauses

You likely have a team of lawyers chomping at the bit to throw some legalese into your loan contracts, but if not, you can use the American Arbitration Association’s® ClauseBuilder tool to create one. It’s free to use, and you can customize the language to suit your needs. You can also visit websites for online arbitration platforms like Ejudicate.com that provide you with arbitration language that you can edit and insert into your agreements. 

Including an arbitration clause or provision in your contracts ensures that you are serious about collecting unpaid debt and leaves no room for confusion.