To highlight the difficulty of untangling sets of numbers, Mark Twain famously wrote in his autobiography, "There are three kinds of lies: lies, damned lies and statistics." The debate over the fairness of binding mandatory arbitration has resulted in confusion that would make Twain proud, with both sides using a limited data pool and drawing very different conclusions about the practice. The following summarizes the dueling studies of consumer advocacy group Public Citizen and the U.S. Chamber of Commerce's Institute of Legal Reform.
The first Public Citizen report
Consumer advocacy group Public Citizen released a report in September 2007 entitled "The Arbitration Trap: How Credit Card Companies Ensnare Consumers." The report focused on data culled from arbitration in California, the only state that requires arbitration providers to disclose any information on cases that occurred within the state. It primarily relied on debt collection cases brought by credit card giant MBNA before the arbitration provider National Arbitration Forum (NAF), "the credit card industry's go-to dispenser of swift decisions against its customers."
Public Citizen concedes the data is extremely limited and difficult to understand because NAF posts it in a manner that "makes it difficult to put the picture together." However after crunching the numbers, the report made these conclusions:
- NAF handled nearly 34,000 consumer arbitrations between Jan. 1, 2003, and March 31, 2007. Of those 34,000 cases, consumers were the ones to choose arbitration 118 times. Corporations chose the forum the other 99.6 percent of the time.
- In 19,000 MBNA cases in which an NAF-appointed arbitrator was involved, 94 percent of decisions were in favor of business.
- One NAF arbitrator in particular ruled in 1,332 arbitrations, sometimes signing dozens in a single day. He ruled for businesses 97 percent of the time and for the consumer 1.6 percent of the time--the remaining cases were settled without an award to either side.
- Another NAF arbitrator, a Harvard Law professor, awarded $48,000 to a consumer in response to a claim from a credit card company. The company then had her removed from other pending cases. She resigned, citing NAF's "apparent systemic bias in favor of the financial services industry."
The U.S. Chamber of Commerce's response
The Chamber's Institute for Legal Reform responded in April 2008 with its own report compiled by University of Georgia Law Professor Peter B. Rutledge, which charged the Public Citizen Report was "wrong, both on the facts and in its ultimate conclusions" (that arbitration is an unfair system) and outlined why arbitration is fair. The report, entitled "Arbitration -- A Good Deal for Consumers," claims:
- Public Citizen ignored the fact that some studies find that nearly 90 percent of debt collection arbitrations end in default judgments against the consumer because the debtor does not appear to contest the debt.
- The Public Citizen report's win rates should have taken into consideration comparable data on debt collection actions in small claims court--in major cities, the lender "typically wins between 96 percent and 99 percent of the time."
- Litigating the tens of thousands of cases Public Citizen analyzed would be a disservice to the court system and thus to consumers, who would have to wait longer for a judge to hear their case.
- Public Citizen ignores three studies that suggest, based on the limited data available, arbitration puts consumers on equal or better ground than businesses. (One of those studies was released by the National Arbitration Forum.)
- Anecdotes in the Public Citizen report are dubious because it shows no evidence that they have been independently verified.
Public Citizen's second report
Public Citizen hit back in July with a study entitled "The Arbitration Debate Trap: How Opponents of Corporate Accountability Distort the Debate on Arbitration." It takes on not only the Chamber report but another of Rutledge's pro-arbitration pieces, this one a law review article, "Whither Arbitration?" for which Rutledge received financial backing from the Chamber's Institute of Legal Reform.
The study takes into consideration the research that Rutledge cited as well as other available data that he did not. Among the second study's findings:
- One of the studies Rutledge cites as showing that binding mandatory arbitration is fair for consumers in fact includes "a three-paragraph litany of criticisms of binding mandatory arbitration" from the authors.
- Every study the "Chamber papers" cites shows that individuals win at a higher rate in court than in arbitration and also receive larger median payments.
- The Chamber cites five surveys that show consumers and lawyers are satisfied with the arbitration process, but in fact these surveys made it clear to the participants that they were dealing with voluntary arbitration.
- One of the studies Rutledge cites is "of limited value because it compares arbitration recoveries of highly paid securities industry employees with court recoveries of employees from a cross-section of society."
Much more information is included in the full reports. Compare the two organizations' conclusions for yourself: All three reports are available online:
- "The Arbitration Trap: How the Credit Card Companies Ensnare Consumers": http://www.citizen.org/documents/ArbitrationTrap.pdf
- "Arbitration -- A Good Deal for Consumers: A Response to Public Citizen": http://www.instituteforlegalreform.com/issues/docload.cfm?docId=1091
- "The Arbitration Debate Trap: How Opponents of Corporate Accountability Distort the Debate on Arbitration": http://www.citizen.org/documents/ArbitrationDebateTrap(Final).pdf