Who Really Speaks for Consumers in the Arbitration Debate?

Lisa A. Rickard
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Posted: Aug 31, 2009 12:01 AM

Bank of America, the nation’s largest bank, made a watershed change this month in how its millions of customers resolve their disputes, when it eliminated arbitration clauses from their credit card contracts.

BofA’s announcement came on the heels of a legal settlement reached between the Minnesota attorney general and the National Arbitration Forum, one of the largest arbitration firms in the nation. The NAF agreed to cease all consumer arbitrations as a result of the lawsuit.

Just days later, the American Arbitration Association halted consumer debt collection arbitrations, pending a review of their practices and procedures.

These events will make arbitration less available for consumers. You would think trial lawyers and consumer groups who have long opposed arbitration would be joyful. But instead of popping champagne corks, the opponents are grousing. And this is more telling than the rhetoric employed in all the years of their so-called “principled” fight on behalf of the consumer.

A recent opinion piece by David Lazarus in the Los Angeles Times (“Got a Complaint against BofA? You’re on your own” August 23, 2009) sheds light upon, and calls into question whether the self-proclaimed advocates for consumers actually speak in their interest. Mr. Lazarus writes, “Most media outlets characterized BofA’s move as good for consumers and bad for the bank’s lawyers, who now face a deluge of lawsuits.”

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But far from proclaiming the consumers’ victory over arbitration clauses, Mr. Lazarus’ piece presents the recent events as a battle won but with the war still in the balance.

He quotes Gail Hillebrand of Consumers Union, a major opponent of consumer arbitration: “Dropping the arbitration requirement is a useful step, but it’s only half a step.”

For arbitration’s opponents, ensuring that consumers can go to court is not the end goal. It is actually the first of a two-step dance at the plaintiffs’ lawyer prom.

The second step is to allow these consumer cases to become large class actions—the kind that are famous for making a relatively few plaintiffs’ lawyers rich while giving the consumer masses pennies on the dollar, or even coupons, for their trouble.

To understand the plaintiffs’ lawyers’ true class-action-enabling motive, one need look no further than Representative Hank Johnson (D-Ga.), the primary sponsor of the House version of the Arbitration Fairness Act and a plaintiffs’ lawyer.

Last year, Mr. Johnson said that his 27 years as a trial lawyer taught him that “it behooves you to be very careful in your selection of cases.” He observed that “most lawyers are not going to take a case that is either so small that they won't be able to get a reasonable contingent fee or if the chances are that the case is . . . not going to prevail.”

But, he reasoned, while a small-dollar consumer case “would not present a[n] adequate claim to a lawyer looking to present that case into court,” that could change “if we have the ability to file a class action lawsuit, then a number of parties similarly situated can take that same issue to court.”

Perhaps inadvertently, Mr. Johnson, representing the view of most plaintiffs’ lawyers and the consumer advocates aligned with them, spoke the truth: consumers won’t be able to sue for most disputes because the dollars in question are so low.

So Mr. Johnson, with his plaintiffs’ bar and “consumer advocate” friends, want to bundle these small claims into large class action lawsuits.

But here’s the ultimate truth about consumer lawsuits – the vast majority of consumer disputes are inherently dissimilar and not eligible for class certification.

If you have a billing dispute with your credit card company for an errant charge for $800, for example, that charge is unlikely to be a “systematic” error affecting thousands of other customers. Therefore, a judge will not certify your dispute as a class action. Your amount in dispute is too low for a lawyer to take your case. And now, thanks to the consumer advocates (who are working with the plaintiffs’ lawyers), you may have lost your ability to go to arbitration to settle your dispute.

The goal was never to create more lawsuits for consumers – it was to create more large class action lawsuits for the trial bar.

This is why those who praise the Bank of America development in one breath continue to voice an urgency to pass the Arbitration Fairness Act in the next. This bill in effect will both eliminate consumer arbitration and will allow class actions to be created in these cases.

The American Association for Justice, the plaintiffs’ lawyer lobby group formerly known as the Association of Trial Lawyers of America, said in response to Bank of America’s announcement:

“While the decision by Bank of America to no longer rely on forced arbitration in consumer disputes is a positive step, it’s clear that Congress must intervene to protect consumers . . . That is why Congress must pass the Arbitration Fairness Act and prohibit this abusive practice.”

Arbitration has been helping consumers for more than 83 years. It has proven to be an invaluable resource for solving disputes, especially the vast majority of the small-dollar consumer suits that lawyers wouldn’t (and won’t) take.

Numerous studies have shown that arbitration gives the consumer a better chance at a favorable outcome than going to court, and it has been shown to be faster than going to court. But arbitration generally does not need to be done with the services of a trial lawyer.

So naturally, the plaintiffs’ lawyers want first to cripple consumer arbitration. And next, they want to skim those few lucrative class action lawsuits from the sea of consumer disputes.

If you are one of the sliver of “lucky” consumers who do qualify to be part of a class action, after a few years, you may be able to recover a few dollars (or maybe a coupon) while a plaintiffs’ lawyer whom you’ve never met walks away with millions of dollars. Otherwise, you’re on your own.

That may be “justice” for the plaintiffs’ lawyers, but hardly so for the consumer.