Arbitration and Shots, or Why It Often Won’t Matter If Arbitration is Cheaper Than Litigation

by Jeff Sovern

I don't know anyone who likes getting a shot.  One of my daughters, as a small girl, would hide under chairs at the pediatrician's office to avoid them, which by the way, was not an effective strategy.  But most of us are willing to get stuck with needles if the payoff is large enough, like avoiding a serious illness.  Even so, millions of Americans apparently do not judge reducing the risk of getting the flu a sufficient tradeoff for getting a flu shot.

Arbitration is similar.  Few consumers wake up in the morning looking forward to arbitration (though I'm not aware of any who hide under chairs to avoid it),  but some will tolerate it in pursuit of a significant payoff.  How big does that payoff have to be?  One lesson from the CFPB Arbitration Report is that the payoff has to exceed $1,000 for just about all consumers, because consumers just don't file arbitration proceedings for less than that. 

One argument frequently made for arbitration is that, as Alan Kaplinsky recently put it in an essay, Even in the CFPB’s Numbers, Arbitration Benefits Consumers,  33 Alternatives to the High Cost of Litigation, No. 4 at  55, 56 (Apr 2015):

Arbitration is a great solution for both consumers and companies because everyone benefits from a process that is faster, cheaper and more efficient and congenial than court litigation.

Assuming for the sake of argument that that is an accurate description of arbitration, it doesn't actually matter unless the payoff from using arbitration is large enough. That's for the same reasons most of us wouldn't get a shot no matter how fast, cheap, or efficient it is, just to avoid a single sneeze. When consumers have small stakes at issue, it is irrelevant whether litigation or arbitration is faster or cheaper, more efficient or congenial, because consumers, by and large won't choose either. Some consumers, though, will bring class actions, and other consumers can benefit from those class actions. That's because the existence of class actions deters corporate misconduct, and because some consumers will obtain compensation by complying with the requirements for doing so, assuming the class action results in a settlement or judgment awarding compensation (often not so many as would obtain compensation in a perfect world, but in a perfect world, we wouldn't need class actions).  The point is, for disputes of less than a thousand dollars or so, talk about whether arbitration is "faster, cheaper and more efficient and congenial" than litigation is a red herring.