Arbitration Study Shows Consumer Class Actions Deliver Cash Relief to More Consumers Than Individual Arbitration

Anecdotally, it has long been believed that pre-dispute, mandatory arbitration clauses have not serviced the consumer well. These are clauses in which the consumer (1) gives up the right to sue in court; and, (2) gives up the right to participate in a class action. That said, there has also been a dearth of data related to these types of clauses. In 2012, however, under Federal law, the Consumer Financial Protection Bureau set out to collect the missing data. In fact, Congress asked the Bureau to determine the precise impact on consumers resulting from the relatively standard arbitration clauses that are now buried in the fine print of our credit card agreements, cell service agreements and bank account agreements. None of us negotiate them – the companies just put them in.

What the Consumer Financial Protection Bureau Found Out

After two years of crunching the numbers, the CFPB was ready to present its findings to Congress. The Bureau found that class action suits deliver significantly more cash to consumers, particularly those consumers who have relatively small claims, than arbitration. It also found out that few people actually arbitrate because they do not know they can and, when they do, they lose more often than not because the companies select the arbitrators. The system is rigged. Thankfully, with this new research, it is almost a certainty that a rule will be enacted which will restrict companies from hiding mandatory arbitration clauses in the fine print of paperwork signed by consumers. It is almost equally certain that the financial service industry will contest such a proposed rule.

Arbitration vs. Class Action

Those from corporations who believe arbitration is the better choice, defend their use by its “quicker, less expensive” means of litigation, both for businesses as well as for “ordinary” people. However, between 2010 and 2012, only 410 consumers per year participated in arbitration, which says consumers find arbitration daunting and hardly worth the effort. In the 341 arbitration cases where a consumer was claiming damages from a financial institution, the consumer was victorious in only 32 cases. After all, the companies get to select the arbitrator.

Only four claims of $1,000 or less received any type of relief through arbitration during these years. In all, consumers were awarded less than $173,000 total cash, although the large companies fared considerably better, being awarded about $2 million in arbitration against consumers. These companies won awards in 227 out of the 244 cases which were determined by an arbitrator.

In stark contrast, class action suits resulted in financial benefits to literally millions of consumers, and changed the illegal conduct of the companies. The Consumer Financial Protection Bureau looked at more than 400 settlements in class action cases between 2008 and 2012.

When all of those participating in a class action lawsuit who received a payment were tallied, the figure was astonishing. Thirty-four million people had either already received a cash settlement or would in the future. The total amounts to consumers as a result of class action lawsuit settlements was a minimum of $200 million each year. This amounted to more than $1.1 billion between 2008 and 2012. To put it succinctly, four consumers received cash compensation through arbitration during a two-year span, while thirty-four million consumers received compensation through class actions suits during a five-year span.

Class Action Attorneys in Philadelphia

As you can see, class action litigation is a vital tool for uncovering corporate misconduct and holding the negligent companies and manufacturers accountable for their actions. If you feel that, you or someone you love has been a victim of unethical or unlawful business practices, please consult with a Philadelphia class action lawyer at Golomb Legalimmediately. We can help advise you on your legal options as an individual or as part of a class action lawsuit.

To request a free no-obligation consultation, call our office at (215) 278-4449, or click here to fill out an online form.