Virtually all investors who open accounts with Wall Street brokers must sign an agreement to remedy any disputes through binding arbitration. The National Association of Securities Dealers (NASD), the primary self-regulator in the U.S. securities industry and funded directly by industry members, is usually the entity that operates the arbitration forum. When bringing a dispute, not surprisingly, investors seldom win. In a newly released study of 14,000 cases brought against brokers and submitted to arbitration panels during a recent 10 year period, investigators found that investors recovered only about 34% of their claims. "The vast majority of cases are getting a tiny fraction of what they are entitled to," said Daniel Solin, a lawyer who represents investors against brokers. "In my view, the NASD is largely in the business of protecting the rights of industry members."
A study released by Public Citizen just last month examined the use of mandatory binding arbitration as required by the credit card industry. According to the report, The National Arbitration Forum (NAF), often the industry's arbiter of choice, is the "go-to dispenser of swift decisions" against customers of credit card companies. The study revealed that NAF arbitrators routinely ignored repeated consumer protests that identity theft was the source of the debts in controversy. And, out of more than 19,000 cases in which an NAF-appointed arbitrator was involved, an astonishing 94 percent of decisions were for business!
Because the companies often retain the right to hire the entity that administers the arbitration, arbitrators have a strong financial incentive to rule in their favor. Companies are the source of their business and top arbitrators can charge up to $10,000 per day. Some make as much as $1 million dollars a year. Companies track how arbitrators rule and reject arbitrators who do not rule in their favor. According to Public Citizen, "One NAF arbitrator, a Harvard law professor, was blackballed after she awarded $48,000 to a consumer in a case in which a credit card company filed a claim against the consumer." The professor later resigned from service with NAF, citing the company's "apparent systematic bias in favor of the financial services industry." Public Citizen understandably concluded that mandatory binding arbitration is a "rigged game in which justice is dealt from a deck stacked against consumers."
Let's be honest. The Chamber of Commerce doesn't want its members to be held financially accountable for negligent or abusive conduct or for faulty products that injure consumers. They know that one way to avoid full accountability is to substitute mandatory, industry-friendly arbitration panels for the right of citizens to have disputes resolved by a jury of their peers.
Plaintiff attorneys support voluntary arbitration. It is in no one's interest to see the court system overloaded with cases that can be fairly and easily resolved through honest arbitration. But let's not kid ourselves that mandatory binding arbitration is a means to justice. It is anything but.
The Bill of Rights guarantees that every citizen should have access to the court system. Every constitutional right is precious, and should be zealously protected. That's what the lawyers who were lobbying Congress last week were doing.