Your Legal Rights

Arbitration Works Better Than Lawsuits

 
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Congress is taking up legislation this week that will wipe out arbitration provisions in hundreds of millions of consumer contracts -- for everything from credit-card agreements to cell phones to health-insurance policies, even a contract for the purchase of a kitchen sink. The bill is so sweeping that it wouldn't apply just to contracts consumers may sign in the future. It will cancel arbitration agreements agreed to in the past.

The Arbitration Fairness Act of 2007, sponsored in the Senate by Russ Feingold (D., Wis.) and in the House by Hank Johnson (D., Ga.), is scheduled to be marked up by a subcommittee of the House Judiciary Committee tomorrow and could be taken up by the full committee on Wednesday.

This legislation is a top priority of plaintiffs' lawyers, since arbitration keeps big-dollar disputes out of the courtroom. But it's a bad deal for consumers. The law will not make arbitration "fairer"; it will make it go away, because it is very difficult to get two sides of a dispute to agree to much of anything once a dispute has started. That inconvenient reality is one that some of our lawmakers are simply ignoring.

After years at the Federal Trade Commission, I understand the importance of ensuring that consumers can seek redress for their complaints. The Arbitration Fairness Act makes this harder. Arbitration foes say that it puts consumers at a disadvantage, because they are forced to waive the right to proceed in court and to obtain a jury trial. This ignores reality: The average consumer with a small claim is unlikely to sue at all. Studies confirm what common sense suggests: Few, if any, lawyers will even take cases involving small potential recoveries. And without a lawyer, navigating the court system is nearly impossible.

By contrast, arbitration is much less expensive for consumers than courts; many businesses have agreed to pay virtually all of the costs of arbitration. It is also more flexible. Decisions can be rendered after hearings by telephone or on documents alone, rather than requiring a consumer to spend time on an in-person hearing. And arbitration is far quicker. Claims are frequently resolved in a matter of months, compared with an average two-year wait in, say, federal court. Our courts are not designed to afford individual consumers realistic access to redress for commercial disputes with large companies.

In short, arbitration is used in a wide variety of ways in this country, and it generally works for consumers and businesses alike. Congress should think long and hard before discarding it in favor of more lawsuits -- which may benefit lawyers but will leave most consumers out in the cold.

Opinion written by Ms. Christine Varney. She was a commissioner on the Federal Trade Commission from 1994 to 1997, and was also an assistant to President Clinton and Secretary to the Cabinet.

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