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Stacking the Deck

posted by Elizabeth Warren

Senator Russ Feingold and Representative Hank Johnson have introduced legislation to stop the fine-print, mandatory arbitration clauses that show up in millions of credit card agreements.  Once a dispute arises, if both parties want to go to arbitration, that's fine. But the company cannot hide an arbitration clause deep in the fine print of the credit card agreement, then require arbitration when they want to squeeze a customer for money the customer says she doesn't owe.

Why is this such a big deal? Arbitration sounds like a cheap, fair way to settle disputes. But a study from the Christian Science Monitor shows another reason: the arbitrators are beholden to the repeat players (credit card companies) that pay their fees. The top ten arbitrators ruled for the customers just 1.6% of the time, while arbitrators who weren't depending on arbitration fees (those who decided 3 or fewer cases a year) ruled for the customers 38% of the time.

How did this happen? The credit card companies keep track of how arbitrators rule, and they can strike those they don't like. Customers don't have a big information base about how the arbitrators ruled in the past, and they end up with whatever arbitrator the companies pick. It is just one more way the deck is stacked against ordinary consumers.

Consider the story of Harvard Law Professor Betsy Bartholet. In her first few cases, she ruled for the credit card companies, and she was asked to do more arbitrations. But once she ruled for a customer, her career as an arbitrator was over. As the CSM reports, sometimes the credit card company didn't even bother to strike her--they just reported that she had a scheduling conflict. As a result, someone who might have listened to a customer's story was always unavailable. Guess who was left to decide the disputes?

Feingold and Johnson think this isn't fair. They can't prove a particular arbitrator was biased, but they know a stacked deck when they see it. 


Burying compulsory arbitration in the fine print of any agreement is an unconscionable act, and should be outlawed.

Aren't the credit card issuers 18%-35% interest rates enough without piling this indignity on top?

--Jack Payne

It still amazes me that judges are comfortable with the assumption that arbitration is fair, inexpensive and efficient. I have seen arbitrators completely ignore the law to find in favor of the lender. It is one of the biggest miscarriages of justice in America.

I applaud the effort to take a new look at arbitration. The Supreme Court is still under the impression that the FAA is good policy. It may no longer be, as arbitration in practice (not only consumer but business as well) is proving to be as expensive and time-consuming as ordinary litigation. Some even complain that, in the business context, it is living up to its name: arbitrary. And with no right of review, no effective independent scrutiny to prevent abuses, and no way to count on the rule of law being applied (either in the discovery phase or in the ultimate outcome), arbitration is proving to be a supremely bad idea. One close friend of mine recently commented pithily, "Who is the idiot who came up with the idea of using 'judges' who are paid by the hour, and thought that would make things faster and cheaper?"

The problem, in short, is hardly limited to the consumer area, though it is certainly exacerbated there because of the problems highlighted in the Christian Science article. I thus commend efforts to re-think the value of arbitration as the tool of choice for resolving disputes. And I agree with Professor Warren that arbitration, as practiced in the consumer arena, stacks the deck against the consumer. In fact, it borders on the corrupt. Certainly, if judges were thought to be selected based on whether they deliver the desired result for one particular constituency, the outcry would be deafening.

I'm on your side, but come on, most of the time the defendant doesn't have a defense and really does owe the money. Maybe the credit card company shouldn't wine 98% of the time, but the number would probably be pretty close. Now other things involving consumers certainly would prove your point better.

In response to Florida Attorney, that is a fair point, but what about the discrepancy between the high-volume (98.4% for the credit card companies) and low-volume arbitrators (62.0% for the credit card companies)? Why should we expect a difference between their award rates? Is not the most likely explanation that arbitrators who tended to rule for credit card companies were rewarded with more cases?

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