Consumers Won More than Half of Arbitrations Studied

Cindy Schnackel
Mar 12, 2009 6:53 PM CST

To quote from the study’s “key findings,”

“The upfront cost of arbitration for consumer claimants in cases administered by the AAA appears to be quite low.
In cases with claims seeking less than $10,000, consumer claimants paid an average of $96 ($1 administrative fees + $95 arbitrator fees). This amount increases to $219 ($15 administrative fees + $204 arbitrator fees) for claims between $10,000 and $75,000. These amounts fall below levels specified in the AAA fee schedule for low-cost arbitrations, and are a result of arbitrators reallocating consumer costs to businesses.  AAA consumer arbitration seems to be an expeditious way to resolve disputes. The average time from filing to final award for the consumer arbitrations studied was 6.9 months.  Consumers won some relief in 53.3% of the cases they filed and recovered an average of $19,255; business claimants won some relief in 83.6% of their cases and recovered an average of $20,648.”

http://searlearbitration.org/report/key_findings.php

To refute just these few points:

The study neglects the thousands of dollars consumers pay after upfront costs.  It also neglects an often reported outcome; that the consumer was awarded a “win” but that they only were awarded a fraction of their actual damages.  This goes down as a win for the consumer but is really a loss. For the claims of $10,000 or less the consumer could take them to small claims court much cheaper and quicker than risk it in potentially biased private industry run arbitration.

Faster is not necessarily better, especially in cases of large damages where there are construction defects, medical issues, or other, where damages cannot be assessed quickly.  What if you arbitrate a leaky roof, and “win” $500 to fix what you thought was $1000 repair, then find out a month later that it will cost $10,000 to repair?  Was it good for the consumer to have been rushed through arbitration then?

The last part of the quote doesn’t even add up. 53.3% plus 83.6% is 136.9%, a statistical impossibility.  Seems this study was done in a hurry and not too carefully, or maybe they think we’re too stupid to do simple math.

I do not believe the study’s claim that there’s no bias.  Public Citizen has found from public records in CA, the only state that requires reporting of arbitration decisons, that companies win by far the majority of the time, something like 90%.  I volunteer for a consumer advocacy org and we hear many horror stories about arbitration in construction defect and home warranty cases.  Overwhelmingly homeowners report arbitrators ignored evidence, awarded little or nothing, disregarded laws and at times even the arbitration company’s own rules.  Arbitrators are reported as not explaining decisions, destroying evidence, and one arbitration co was run by a disbarred lawyer.  In credit card arbitration people have had arbitrators decide in their absence that they owe money on cards they never even had.  An error of a name or account number can result in that kind of nightmare for consumers where arbitration is involved.  In a court, a person must be properly served notice of the suit, and would have a defense that they were not that person.  Arbitrators decide cases for the industry without the consumer even being there, and apparently sometimes without notice. 

The Arbitration Fairness Act needs to pass.  The original intent of the Federal Arbitration Act all those decades ago was to have an alternative dispute reolution process for parties of equal power, like business-to-business.  It was never intended to be used in consumer contracts.  Many of the arbitration clauses in contracts now are industry wide, and should be unenforceable but the courts are enforcing them anyway.  I applaud the courts that have not upheld one-sided contracts but sadly, some have and now it’s become the norm.  So this new law needs to be passed.  Arbitration will not go away—businesses can still use it amongst themselves, and any party can still agree to it afgter a dispute arises if they choose to.  But the new law would make it unenforceable for a business to enforce it on consumers in purchase contracts…we can then again get a phone, house, car or whatever without having to sign away our legal rights.

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fed up
Mar 14, 2009 11:51 AM CST

For many disputes, arbitration can be a better alternative than paying a lawyer $250-$350 per hour, plus expenses.  Lawsuits often take years, and attorney’s fees often amount to more than the amount in controversy, so even if the consumer “wins” in court, he losses in the pocketbook.  Maybe the answer is to allow lawyers in China and India to represent consumers and appear telephonically in US courts?  Oh, that won’t work, where will the state court judges get their $500 campaign contributions, not to mention the arse kissing they expect?

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