Megan McArdle writes at Bloomberg on the downfall of the CFPB’s anti-arbitration rule, and why the results of most class actions, though expensive to provide, are not greatly valued by consumers. She also quotes me on one reason why surveys find (paradoxically or otherwise) higher consumer satisfaction with the experience of arbitration that you’d think from the campaign against it:
The alternative to lawsuits, arbitration, is supposed to follow the same laws as courts, and to do so more quickly and without a lot of the costly procedure. As a result, says Walter Olson of the Cato Institute, consumers are in general surprisingly satisfied with the arbitration experience, because it provides the kind of justice we imagine courts will: You sit down and tell your story in your own words. In court, by contrast, everything has to proceed according to complicated rules of evidence, with opposing counsel interrupting to tell the court that you can’t say certain things.:
More on the recent Congressional rejection of the CFPB’s regulation: Thaya Brook Knight. And in a new paper, David Noll (Rutgers) finds the new administration’s rollback of anti-arbitration rules to be piecemeal in nature and of only middling success so far. Earlier here.
8 Comments
If consumers find arbitration to be so satisfactory, why not allow them to opt into it at dispute time, rather than forcing them into it through the fine print in a contract of adhesion?
Because I’ll tell you what kind of experience I don’t find satisfactory. If my bank calculates overdraft fees or interest improperly for years or charges me improperly for insurance on my mortgage, is caught, and I’m told my only recourse, the only recourse for the thousands or millions wronged, is to individually arbitrate my low-dollar claim.
You’d likely get even less satisfaction out of the results of a typical class action lawsuit.
Few class actions actually go to trial and the vast majority of settlements result in a windfall for the class lawyers and pennies on the dollar of recovery vs loss for the class members.
And why would I be more dissatisfied with that result than the whopping $0 I’d get otherwise, because nobody sensible takes a claim worth less than $100 to individual arbitration?
It’s also unclear to me why the problem of “a windfall for the class lawyers and pennies on the dollar of recovery vs loss for the class members” must be solved by allowing financial institutions to simply opt themselves out of being subject to the nation’s justice system as opposed to improving class actions so that they work better for all parties.
“And why would I be more dissatisfied with that result than the whopping $0 I’d get otherwise, because nobody sensible takes a claim worth less than $100 to individual arbitration?”
I’m not sure I agree with that, since the companies pay nearly all the costs of arbitration and several studies have shown the on average, complaining customers get a higher award from arbitration than they would from a class action.
How about a compromise. Allow class actions where there are mandatory arbitration clauses to do class arbitration.
If I am so injured by a company that I feel the need to take them to court, why would anyone, either layer or judge, think that I would want one of their coupons? Maybe a pound of flesh and all the bodily fluids that attempt to leave with it… but a coupon? You would think that pretty much anyone would realize that if i’m mad about my foot long only being 11.999999999″, that giving me a coupon for another foot long that is only 11.999998 isn’t going to make me whole… And to be honest, what sort of person measures their sandwich? And if coupons are so great, why don’t the lawyers take them? After all, if they can’t eat that much with them and their staff, maybe they can sell them on ebay? 😀 Okay, if I paid for my foot long using a coupon, then a coupon as settlement makes sense…
“If I am so injured by a company that I feel the need to take them to court, why would anyone, either layer or judge, think that I would want one of their coupons?”
The judge doesn’t care one way or the other, and the class lawyers don’t care about the class members as long as the class lawyers get their windfall.
That’s why I suggest that the lawyers get payment in kind. If your settlement for the class is coupons, then your percentage is also coupons. Actual expenses can be paid, but compensation should be the same sort of compensation that the class receives. 😀