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Arbitration giants shift cases to court
Credit cards
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TEXT OF STORY
Kai Ryssdal: Here's something you're probably aware of but just figure is the cost of having a credit card. When you sign up for an account, you usually have to sign away your right to sue if there's a dispute. Instead, you agree to arbitration. The credit-card companies demand it, so consumers knuckle under. Now, though, two of the biggest firms in the arbitration business are getting out. Marketplace's Jeremy Hobson reports from New York.
JEREMY HOBSON: If you believe that going before a judge will give you a better chance of winning your case than being judged by an arbitration firm hired by the company you're fighting, then you'll agree with Taylor Lincoln of Public Citizen.
TAYLOR LINCOLN: It's kind of a good day; it's not just kind of, it is a very good day for consumers.
Lincoln worked on a study about credit-card arbitrators and found that in 94 percent of the cases, the credit-card companies won in arbitration.
LINCOLN: It's the sort of thing that any fifth grader could look at it and see that all the incentives are lined up on one side and that the arbitrator and the arbitration company have no real common-sense reason that they would be completely impartial.
The two arbitration firms getting out of the business are doing so because they were sued by the Minnesota Attorney General for hiding their financial ties to the credit-card companies.
You'd think that's good news for consumers. But it goes deeper than that, according to David Robertson of the trade journal The Nilson Report.
DAVID ROBERTSON: Over time it could be that the credit-card companies are fighting, you know, thousands and thousands of lawsuits. It would be like having little spot fires in the forest that you're trying to fight.
And the cost of that firefighting, he says, will inevitably fall on consumers.
ROBERTSON: There is going to be a rise in the cost of credit. Litigation is going to be extremely expensive.
And arbitration firms that testified today on Capitol Hill say moving the disputes into the courtroom probably won't change the outcomes. The majority of consumers, they say, don't even participate in their own cases.
In New York, I'm Jeremy Hobson for Marketplace.
About the author
Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead. Follow Jeremy on Twitter @jeremyhobson
Well, the complaint is right here, if you want to read it.
http://www.ag.state.mn.us/PDF/PressReleases/SignedFiledComplaintArbitrat...
I was left wondering "who?" after hearing this piece on the radio last night, because you didn't say who the 2 big arbitration A big journalistic goof. Also, anyone can tell you that arbitration is very expensive for the plaintiff who is the little guy against a big company. Being heard in court is cheaper for the consumer, and besides, in arbitration you are deprived of your right to a trial before a jury. You should not have allowed Mr. Robertson to have the last word, unchallenged.
Your story reports that "The two arbitration firms getting out of the business are doing so because they were sued by the Minnesota Attorney General for hiding their financial ties to the credit-card companies." Yet shortly before your report, I heard a piece on All Things Considered that clearly differentiated between the two big arbitration companies, stating that NAF was sued by the MN Attorney General, while AAA was not. I don't know beans about the subject but I would like to be clear about the facts, and trust that ATC and Marketplace are fairly reporting on the businesses they cover. Was AAA a target of the MN lawsuit or any lawsuit at all?
I was surprised by your failure to challenge the lobbyist's generalized statement that sending credit card collection cases to courts rather than arbitration would swamp courts and drive up the cost of credit. Wrong. most credit card agreements these days provide for attorney's fees and court/arbitration costs to be awarded to the prevailing party. Furthermore, in most states, such as here in Texas, there are so-called small claims courts that are fast track courts -- where, like arbitration, the procedures are less formal,lawyer participation is not required and court costs are low. These courts are specifically designed to rapidly and efficiently handle small collection cases (i.e., up to $10,000.00)-- such as credit card cases. Like arbitration, appeals from small claims court decisions are limited. Finally, the parties do not have to pay the judge's salary. In arbitration, the parties must pay the arbitrator's fees.
What firms did this? Did they quit because of lawsuits from state atty's general? Because of pending legislation in US congress? this story is a totally inadequate treatment of the issues. I am an arbitrator who has handled some consumer cases. The process can be handled fairly and efficiently! I would find in favor of consumers more often if they actually tried to participate in the process. Are most of the 95% of cases lost by consumers default collection cases???
