A parallel universe of justice for hire has existed in the world of consumer
finance for some years now, fueled by the fine print of credit-card
applications and other financial-service agreements.
The practice known as "mandatory binding arbitration" was created by a
lawsuit-weary corporate America to bypass the costly courtroom. It diverts
unhappy customers into a process in which they settle their disputes through
an arbitrator paid for, and often chosen by, the company they're at odds
with.
But mandatory arbitration is now under fire, as evidence mounts that it
favors corporate interests and leaves many consumers out in the cold.
Critics argue that it's wrong to force people to give up their right to sue
as a pre-condition for buying a product or service - before they even know
what the dispute might involve. Consumers must agree to the company's terms
or forget about getting that credit card, cell phone, car loan, bank
account, brokerage fund, insurance policy or - in some cases - even medical
care.
Companies argue that it's quicker, cheaper and fairer than having businesses
and customers suing each other in court.
Among the reasons the practice is a hot-button issue this year:
.The Arbitration Fairness Act of 2009, which would bar companies from
forcing prospective customers to waive their legal rights and submit to
arbitration first, is gaining momentum in Congress. Companion bills are
moving forward in both the House of Representatives and Senate.
.A big industry player, the National Arbitration Forum, stopped doing
consumer debt-collection arbitration in July after Minnesota authorities
accused it of deceptive business practices and serving as a pawn for
debt-collection companies. The NAF ruled for companies in 94 percent of its
cases during a four-year period, according to a 2007 study by Public
Citizen, a Washington, D.C.-based consumer-advocacy group.
. Bank of America and JPMorgan Chase say they will eliminate mandatory
arbitration from their credit-card agreements. And the American Arbitration
Association has dropped its debt-collection-resolution practice, citing the
issues raised in the Minnesota case.
"For the most part, it's a kangaroo court," said Steven Fahlgren, a former
Orlando consumer lawyer who now practices in the Jacksonville area. "In any
case where we have had no say in choosing the arbitrator, the decisions have
been totally unfair and biased. It's just been a lot of rubber-stamping for
the companies."
Not everyone agrees. Stephen Ware, a University of Kansas law professor,
testified before a congressional subcommittee last month that arbitration is
an important means of redress for consumers who can't afford lawsuits.
Citing several studies based on cases heard earlier this decade, Ware said
consumers received at least some relief from arbitration more than half the
time. And on many occasions, courts have subsequently thrown out
"unconscionable" arbitration awards against consumers, he said.
"Current law is generally very good at ensuring that binding arbitration is
fair and voluntary," he said. "Therefore, I am very concerned about bills in
Congress that would, in my view, worsen arbitration law and harm the very
people they are designed to help."
But there are legitimate concerns about whether the current system is giving
people a fair shake, said George Dawson, a law professor at the University
of Florida. Even though business-vs.-business arbitration has worked well
through the years, the process is different when it comes to
business-vs.-customer disputes, he said.
"Some of the research does suggest there may be bias against consumers,"
Dawson said. "And though the courts have been favorable to arbitration, even
when it is imposed, I think you're seeing some pushback against that now.
People feel that since the courts have backed it, then you're just going to
have to change the law."
Critics of arbitration acknowledge that it can work well if it is truly
voluntary and conducted by an arbitrator chosen by both sides. But they say
one-sided, forced arbitration is so pervasive that consumers have no real
say in the matter. More than 75 percent of the companies in eight major
industries require customers to agree to use arbitration, according to a
survey by Public Citizen.
Clay Singleton had always thought arbitration sounded like a good way to
settle financial disputes, rather than resort to potentially costly
litigation.
But then the Rollins College professor went through the process, and it was
a big eye-opener. The arbitrator dismissed Singleton's case outright,
without much explanation, he said. Singleton wound up suing, anyway, to
challenge the arbitrator's decision.
"We won, finally," he said, "but it took a couple of years and a lot of
headaches."
Consumer advocates have long fought for a ban on mandatory arbitration,
which became pervasive in the late '90s and was seen as a way to defuse a
boom in class-action lawsuits. So far, their efforts have been unsuccessful.
"I would say this is the best chance we've had yet to get it passed," said
David Arkus, director of Congress Watch, a unit of Public Citizen. "Support
for it is growing. It is a fairly arcane issue, but the more the word gets
out, the more people understand it affects everybody. This issue appeals
across all demographics and party lines."
Richard Burnett can be reached at rburnett@orlandosentinel.com
or 407-420-5256.
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