Disinfecting Consumer Arbitration
Elizabeth Warren already posted on the Consumer Arbitration Fairness Act (H.R. 3010 in the U.S. House and S. 1782 in the U.S. Senate). In addition to the Christian Science Monitor story about the abuses that helped to motivate this bill, see here for a Credit Slips story from one former arbitrator about his experiences. This new bill would do nothing less than end mandatory arbitration in consumer transactions. Warren's post explains why consumers should care about this legislation, and I won't add to that. Rather, I wanted to add some different thoughts.
I wholeheartedly support the Consumer Arbitration Fairness Act and hope it passes. Whatever benefits mandatory consumer arbitration gives us, I believe its costs outweigh these benefits. Because it is so much easier for legislative initiatives to die a silent death than get passed, the Consumer Arbitration Fairness Act already faces an uphill slog. Moreover, corporate interests likely will line up against this legislation. The best hope for the legislation is if members of the U.S. Congress realize that it is something their constituents want. That is why the pleas for letter-writing campaigns are so vital on this issue.
If we can't get this piece of legislation, a second-best alternative might be more disclosure. Sunlight purports to have disinfecting properties that are second-to-none. (That last sentence shows why no one ever quotes me.)
Let's disinfect arbitration. For every consumer arbitration, Congress should mandate that arbitral organizations disclose the names of the parties, the nature of the dispute, the amount in controversy, the amount awarded, the amount of any fees or costs awarded, and the name of the arbitrator. Moreover, the arbitral organizations should have to publicly disclose basic biographical information about their arbitrators to determine if any conflicts of interest exist. This biographical information could be modeled on current corporate disclosures for boards of directors--current and past employers, professional affiliations, sources of compensation.
California has a state law that mandates disclosure of some information in consumer arbitration, but it applies only in that state. Also, the California information is very difficult to assemble. Therefore, if Congress were to mandate disclosure, it should require disclosure on standard forms and collection by an appropriate federal agency such as the Federal Trade Commission.
If mandatory consumer arbitration is as fair as its supporters claim, they should rush to embrace this proposal. Maybe there is nothing to disinfect. Data would tell us if arbitrators are truly neutral and decide disputes for less than their courtroom counterparts. Data might also confirm the story that arbitration opponents paint--a system stacked against consumers that is no cheaper than the courtroom. If that proved to be the case, then it would be difficult for anyone but naked special interest to fight against a ban on mandatory consumer arbitration.