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What is Mandatory Arbitration?
Last Updated: June 23, 2011
We've written about Mandatory Arbitration a few times in our Blog. Recently, we've gotten a few questions about the process, which seems (and we agree) cloaked in secrecy. So what is Mandatory Arbitration? And what are the differences between arbitration and regular court?
Source: The Arbitration Trap: How Credit Card Companies Ensnare Consumers.
| Court Trial | Mandatory Arbitration |
|---|---|
| Service of process required: Due process requires actual notice through an official process server to initiate a claim. | Certified mail with signed receipt or by private carrier with receipt signed by “person of suitable age and discretion” deemed sufficient notice for arbitration even though many consumers remain unaware of cases pending against them. |
| Neutral decision-maker: Jury of peers or impartial, publicly employed judge with public record of decisions. | Biased decision-maker: Arbitrator chosen from a limited panel and paid by an arbitration provider selected and compensated by the company; no public record of prior decisions generally available to consumers. |
| Open, public process that sets precedent. | Closed, secretive process without public record or precedential value. |
| Due process rights to fair and reasonable discovery of information; hearings and motions filed at little or no cost. | Little discovery, at discretion of arbitrator. Other due process rights must be paid for on an à la carte basis. |
| Contingency fee system, generally in negligence cases or product liability cases, means plaintiffs’ attorneys, not consumer-plaintiffs, take on financial risks for duration of case. | Pay-to-play payment system means individual must shell out costs up-front at every twist and turn in case; Loser pays rule may further financially burden consumers when imposed. |
| Right to appeal a loss on the merits of the case or other grounds. | Very limited grounds for appeal, typically limited to fraud or corruption of arbitrator, unconscionable clause or contract, or failure of company to prove that consumer agreed to BMA. |
Some Numbers to Illustrate the Unfairness of Arbitration
Arbitration Done in Bulk
In addtion, the report by Public Citizen noted that Joseph Nardulli, NAF’s busiest arbitrator in California, does bulk arbitration. Nardulli’s busiest day was Jan. 12, 2007, when he signed 68 arbitration decisions, awarding debt holders and debt buyers every penny – nearly $1 million – that they demanded. The same was true for his second-busiest day as well.
Consumers Win Less than .2% of the time in Arbitration Cases
In June, we documented a Business Week article which found that the rate of consumer wins in arbitration was shockingly low. Many of the the consumers lost in arbitration were not even aware they were being put into arbitration due to poor process serving. In addition, both Business Week and Public Citizen noted that arbitrators have a financial interest in ruling against a consumer. Unlike a judge who gets the same salary no matter how he or she rules on a case, an arbitrator is paid by the winning case.
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