Binding arbitration game is rigged against customers, New analysis of almost 9000 arbitration cases confirms biased against consumers, Incentives to slant toward the business
“pre-dispute mandatory arbitration provisions are inappropriate in insurance policies and incompatible with the legal duties insurers owe policyholders when handling their claims.”…NAIC, National Association of Insurance Commissioners, August 15, 2016
“Companies don’t want to go to court because it puts them on a level playing field. Courts are ruled by law, legal precedent, and legal discovery, which allows litigants to obtain information and evidence from their opponents or from third parties. Discovery is a privilege in arbitration, but not a right. Arbitrators can’t enforce subpoenas, meaning you have to file a lawsuit just to get a third party or a piece of information into the hearing. In open court, you don’t have to jump through nearly as many hoops. Further, judgments in court are often more favorable to the consumer, both in the rate of success and the dollar amount of judgments.”…North Carolina Consumers Council
“Thrivent contends that its commitment to individual arbitration is ‘”important to the membership because it reflects Thrivent’s Christian Common Bond, helps preserve members’ fraternal relationships, and avoids protracted and adversarial litigation that could undermine Thrivent’s core mission.’”…Thrivent v. Acosta Nov. 3, 2017
From Stanford Business March 8, 2019.
“Why the Binding Arbitration Game Is Rigged against Customers
A new study documents how companies shop for sympathetic arbitrators, and how the arbitrators compete for their business.”
“It’s the “mandatory arbitration” clause, and it’s in contracts that cover trillions of dollars of business. In the event you have a dispute with the company, it says, you agree in advance to surrender your right to sue and to submit your grievance to a supposedly neutral private arbitrator.
Almost every financial firm insists on mandatory arbitration, but so do legions of businesses in other realms: AT&T and Verizon, Amazon and Apple, Blue Cross and Blue Shield, even Spotify and Shazam.
Now, a new analysis of almost 9,000 arbitration cases from the securities industry confirms what many have long suspected: The system is biased against consumers — and not just because big companies have more money to spend on lawyers.
When it comes to arbitration, the study finds, companies have a big information advantage in fishing for arbitrators who are likely to rule in their favor.
Making matters worse, the arbitrators themselves know that being pro-company in one case greatly increases their chances of being picked for future cases.
An Incentive to Slant
“This is not like having judges, who get paid the same no matter what happens,” says Stanford Graduate School of Business finance professor Amit Seru, who collaborated on the study with Mark Egan at Harvard Business School and Gregor Matvos at the University of Texas at Austin. “Here, you only get paid if you’re selected as an arbitrator. They have incentives to slant toward the business side, because they know that those who don’t do so won’t get picked. Everyone knows what’s happening.”
In their study, the researchers scrutinized thousands of customer disputes with stockbrokers and investment advisors. The data came from the Financial Industry Regulatory Authority, which oversees the industry’s arbitration process.
The researchers began by confirming that some arbitrators are measurably more business-friendly than others. Comparing cases on an apples-to-apples basis, the researchers estimated that business-friendly arbitrators awarded customers about 12% less money than their more pro-consumer counterparts. On an average case, that equates to about $90,000.
That was just the start, however. Even though the list from which arbitrators are picked is random, pro-business arbitrators were about 40% more likely to be chosen, so their bias had a disproportionate impact. If the arbitrators had been picked purely at random, the researchers estimated, the average award to each customer would have been $50,000 higher.”