MOTION: Private arbitration is a more efficient, consumer-friendly dispute resolution mechanism than class actions.
The plaintiffs’ bar has long claimed that contractual obligations to resolve consumer complaints through private arbitration are essentially the byproduct of a corporate-driven conspiracy to deny consumers their day in court, and, by extension, the redress to which they are entitled. In their view, the type of small-dollar disputes often covered by private arbitration clauses in consumer contracts are best resolved through the aggregation of such claims in class litigation.
Consumers are not likely to recover in a financial service class action settlement. 87% of class action lawsuits resulted in zero benefits to the plaintiffs. In successful class actions the average individual payment is only about $32.(CFPB Recent rule shows everything that’s wrong with Washington)
The assumption is that most consumers are interested in small dollar disputes however, on average, only 4% of plaintiffs entitled to claims class settlement funds actually do so. (Treasury)
Class action litigation is reserved for claims that are identical and arise out of the same conduct. However, most consumer complaints are idiosyncratic, which would render a class action beyond the scope of available dispute resolution. (Civil Procedure Rule 23).
A firm in a dispute does not choose the individual arbitrator. Instead the arbitration association with whom the company contracts provides the arbitrator.
Customers of financial institutions are also repeat customers. Companies are therefore incentivized against wrongfully imposing fees and dragging customers through unwarranted arbitration for which the companies pay the cost. Studies show 70%–90% of the time, a bank will refund fees in response to consumer complaints. AT&T refunded over $1.3 billion in response to customer complaints during the February 2007–January 2008 period alone. (Class Actions and the Economics of Internal Dispute Resolution and Financial Fee Forgiveness)
*Private arbitration is a method of alternative (out-of-court) dispute resolution wherein consumer claims are heard by trained arbiters who hear arguments and evidence to make a ruling according to substantive legal rules similar to those that apply in court. Private arbitration is often preferred on the grounds that the arbitration process is cheaper and faster than traditional litigation. A close look at the data also indicates that consumers fare much better than they would as part of a class action.
*Class action is a single lawsuit in which a “class” of many plaintiffs claim to have suffered similar damages as a result of the same bad behavior on the part of the defendant(s) in question.
