by Jeff Sovern
BloombergBusiness columnist Carter Dougherty has a story, Bank Customers May Get Their Day in Court, about the CFPB arbitration report. Dougherty writes:
In its report, the CFPB noted that there were just 52 arbitration claims under $1,000 in 2010 and 2011, and consumers won relief in just four of them. Says [Deepak] Gupta: “What this report shows is not that claims go to arbitration but that they simply go away.”
Alan Kaplinsky, an attorney with Ballard Spahr who helped pioneer the use of arbitration clauses in financial contracts, counters that consumers resolve claims in other ways. They call the company to complain. They go to the Better Business Bureau. “That’s why you don’t see a heck of a lot of arbitration or litigation when there’s a clause,” he says.
I'm skeptical about Kaplinsky's claim, because a lot of research, beginning with Best and Andreason's seminal article, Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress, 11 Law & Soc.Rev. 701, 728–29 (1977), shows that dissatisfied consumers mostly do not complain to either the offending business or external agencies like the BBB. Mostly, they don't do anything. If Alan has evidence to substantiate his claim, I hope he will make it public.
But even if his claim is true, it's hard to see how it helps to defend arbitration. If consumers benefit so much from arbitration, as Kaplinsky claims, why do consumers with arbitration clauses in their contracts prefer the Better Business Bureau? Why don't they just use arbitration? Does the benefit of arbitration derive from the fact that it drives consumers to use something else to resolve disputes?
Our experience is that many consumers seem to prefer an advocate who will agree with their position in a dispute over an arbitrator who will judge it on merits. Arbitration implies risk of your claim being judged and your possibly losing the case, whereas an advocate is viewed as someone who will agree and defend your side regardless of its merits. In simple terms, many consumers may want someone to beat up the bully rather than sit down with you and the bully to see who is actually at fault. Surprisingly, we’ve seen this even in cases where the a consumer appears to have an extremely strong case against a vendor. This has been our experience at PeopleClaim with some, but certainly not all or most claims. We’ve also seen cases where consumers give up and drop seeming strong cases at the first sign of resistance from the opposing party. While uncertainty of outcome likely plays a big part in consumer reticence to arbitrate (I’m using arbitrate in general terms that include systems like PeopleClaim or the BBB as well as formal arbitration), lack of clearity or confidence about a claimant’s rights or standing probably plays an even bigger role. We find many consumers simply feel that if a business, especially a large, well known brand name business, has done something unfair, that business must have the law on their side, and as a result it would be futile for the consumer to try and contest it through any arbitration process. Our recently launched wiki-rights program is designed to help overcome this problem by providing consumers and businesses with a set of plain english, fairness based rules that will act as a reference to consumer rights in any industry. Viewers can contribute to that discussion and suggest or debate rights by industry on the PeopleClaim website.