Some time ago I wrote an article about alternative dispute resolution, including arbitration and how many corporations put mandatory arbitration in their contracts. One of their arguments for doing that has been that it saves them money, with the implication being they then pass those savings along to consumers in the form of lower prices.
In 2010 Congress mandated a study of arbitration as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That 768-page report was recently released and contained some interesting findings.
- Millions of consumers are affected by these mandatory arbitration provisions in everything from cell phone contracts to credit card contracts. (“The CFPB estimates that 80 million credit card holders are subject to mandatory arbitration.”)
- Very rarely do consumers individually take legal against a company. This makes sense; how many of us are going to take on Verizon alone?
- Most consumer actions are through class actions.
- Companies tend not to like class actions and have complained the only people who get money from them are the lawyers. The study found otherwise. “Over a five-year period 420 class action settlements in federal court netted $2.7 billion in cash, fees, and other relief. Contrary to the familiar protests of industry advocates, only 18% of this money went to plaintiffs’ lawyers, meaning $2.2 billion accrued to the benefit of affected consumers, with approximately half paid directly to consumers in cash payouts. These settlements benefitted at least 34 million consumers across America, not to mention all those protected by the settlements’ deterrent value.” http://publicjustice.net/content/cfpb-hearing-data-one-side-empty-rhetoric-other
- It’s when companies face class actions that they pull out the mandatory arbitration provisions in their contracts. Almost all arbitration clauses prohibit class treatment in arbitration, which means consumers must each go it alone against the company.
- The study found no evidence that arbitration clauses save companies money which is passed on to consumers.
Hopefully the findings of this study will finally put to rest some of the misinformation that has allowed these mandatory arbitration clauses to flourish for many years.