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.

Comments

[lmclark]

I applaud these comments, and fully support their sentiment.

Consider our system of private justice in the consumer arena: the "judges" are, in effect, always picked by one side (the side with the money, no less); they are generally picked and paid based on the results they deliver; their deliberations are conducted in secret; and their determinations neither have to be justified nor are they ever subject to independent review. Now imagine you heard that description, and were told that that is the system of justice used in some foreign country somewhere on the planet. Wouldn't your gut reaction be that that system is flawed at its core and needs overhauling? Wouldn't you think such a system was probably riddled with corruption? Perhaps you might even want to send in some experts from the U.S. to help them install a fair, just, and transparent rule of law. Yet, this, in essence, is the very system we've sanctioned as the only choice available for consumers who have disputes with creditors in this country, where we claim to value due process and the rule of law.

I am glad that Congress is considering this. It's long overdue.

[Regina Mullen]

I wholeheartedly agree. The reality is that if there is no defense in arbitration, it's highly likely that there's no defense in court either. Arbitration isn't the culprit, the process in and of itself is fair,--fairer than court in many ways.

I just read this legislation, and truly believe that consumers will NOT benefit from doing away with mandatory arbitration. If they know that it's coming, they can prepare. Far better than getting dragged into court.

Contrary to what the preamble to the legislation says, hearings are usually documentary, meaning that a consumer can prepare and mail in his or her response on the weekend, losing no time from work. Further, consumers can ask for extensions, demand a written arbitration opinion, --but few people eer do, even though the rules clearly allow it.

I can't say this enough: the problem is NOT arbitration. The problem id that consumers don't know anything about it, don't take the time to learn about it and continue to vote against their interests.

Let's just take one aspect: attorney fees. In arbitration, consumers with REAL issues to defend can do it themselves. They don't NEED a lawyer and the other side isn't going to get to play as many games as they do in court. Most arbitration rules are nowhere near as hard to understand as court rules of procedure.

So, please, please don't jump on the anti-arbitration bandwagon. There's so much good that EMPOWERS people in it, that the remedy is not less arbitration, it's more education and disclosure.

I do think that written arbitration opinions are a wonderful idea, --but that's already possible. Just ask for one!

[chere]

I totally agree that AFA should be passed THIS YEAR but the committe & sub committe.
They are allowing thieft own paycheck.
People under arbitration cannot pay these fees & then pay our politicians.
If the committees & senators dont pass a fairness act we need to start voting them out of office.
There are now millions of citizens who will suffer unfair lawless arbitration from the sub-prime housing crash.
Maybe they will be broke but they can still vote.
Many Citizens are willing to vote these committee people & senators out of office because they no longer work for the PEOPLE who vote them in office & pay their salaries. I am one of many who will.