Readers of this blog are likely to know that those arbitration agreements that customers have to sign when opening a brokerage account are a scam. As the Wall Street Journal noted, clients must go to industry-operated arbitration forums, and doubts about the fairness of the system to investors have led three senators to urge the SEC to make arbitration voluntary.
It turns out that even in arbitration settings that appear more consumer-friendly, big repeat customers (meaning big companies) can and do load the dice in their favor. You may not realize it, but your credit card agreement in its teeny print almost certainly has an arbitration agreement, and guess what? Your chances of winning in a dispute are close to nil, as Elizabeth Warren tells us at Credit Slips in “Stacking the Deck:”
Senator Russ Feingold and Representative Hank Johnson have introduced legislation to stop the fine-print, mandatory arbitration clauses that show up in millions of credit card agreements….
Why is this such a big deal? Arbitration sounds like a cheap, fair way to settle disputes. But a study from the Christian Science Monitor shows another reason: the arbitrators are beholden to the repeat players (credit card companies) that pay their fees. The top ten arbitrators ruled for the customers just 1.6% of the time, while arbitrators who weren’t depending on arbitration fees (those who decided 3 or fewer cases a year) ruled for the customers 38% of the time.
How did this happen? The credit card companies keep track of how arbitrators rule, and they can strike those they don’t like. Customers don’t have a big information base about how the arbitrators ruled in the past, and they end up with whatever arbitrator the companies pick. It is just one more way the deck is stacked against ordinary consumers.
Consider the story of Harvard Law Professor Betsy Bartholet. In her first few cases, she ruled for the credit card companies, and she was asked to do more arbitrations. But once she ruled for a customer, her career as an arbitrator was over. As the CSM reports, sometimes the credit card company didn’t even bother to strike her–they just reported that she had a scheduling conflict. As a result, someone who might have listened to a customer’s story was always unavailable. Guess who was left to decide the disputes?
Feingold and Johnson think this isn’t fair. They can’t prove a particular arbitrator was biased, but they know a stacked deck when they see it.
A good article in the Los Angeles Times also discusses, using only anecdotal evidence but covering a broader range of situations, that former judges who become arbitrators quickly learn that it behooves them to take a pro-company stance if they want steady business.