Fallout: The Financial Crisis

Arbitration giants shift cases to court

Jeremy Hobson Jul 22, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

Arbitration giants shift cases to court

Jeremy Hobson Jul 22, 2009
HTML EMBED:
COPY

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.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.