by Alan S. Kaplinsky
An article on consumer arbitration in this week’s Sunday New York Times concludes that “[b]y inserting individual arbitration clauses into a soaring number of consumer and employment contracts, companies … devised a way to circumvent the courts and bar people from joining together in class-action.” Unfortunately, the Times article (in which I’m quoted extensively and in which my photo appears) fails to acknowledge many critical facts concerning consumer arbitration and class actions that are inconsistent with that conclusion. The March 2015 empirical study of consumer arbitration issued by the CFPB is bursting with data showing that consumer arbitration is faster, less expensive and far more beneficial for consumers than class action litigation.
Among the important points that I conveyed to the Times when it interviewed me at length for the article, but which were omitted in the article, are the following:
The Times article further disregards that arbitration helps companies save substantial legal fees and costs in resolving disputes. As a matter of basic economics, consumers ultimately pay for the increased litigation costs of litigation. Even marginal or frivolous court cases require the company to incur substantial defense costs up to the point of settlement, withdrawal, or dismissal. All customers pay for the cost of defending and managing such suits in the form of higher prices or impact on services as such expenses have to be funded. By contrast, arbitration helps reduce a company’s litigation costs and those savings are passed along in the form of lower costs or increased services to consumers.
I am not alone in pointing out the shortcomings of the Times article. Daniel Fisher of Forbes concurs that “[a]bitration clauses prohibiting class actions provide a less costly alternative” to class action litigation, and criticizes the Times article for disregarding the many negative aspects of class action litigation. Mr. Fisher notes that the Federal Arbitration Act serves an “important purpose” by allowing consumers to opt out of a costly class action litigation system “that is lucrative for lawyers but does little for them other than raise the price of the goods they buy.”
Read additional articles at Ballard Spahr’s CFPB Monitor
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