Arbitration and How It Hurts Consumers

The Seventh Amendment to the United States Constitution (and also Article 23 of the Maryland Declaration of Rights) guarantees consumers the right to a jury of their peers in civil cases.  Corporations have found a way to circumvent this constitutional right by placing arbitration requirements in consumer contracts.  Without knowing it, consumers regularly waive their right to a jury trial when they sign cell phone contracts, car lease agreements, mortgage documents, and other consumer contracts.  So, why should consumers care?

Arbitration is the opposite of jury proceedings.  In normal court proceedings set for trial by jury, the consumer only pays a one-time filing fee to the court, typically less than $300.  Additionally, in normal proceedings, the consumer can use interrogatories, document requests, and other legal tools to make the corporation provide the evidence needed for the consumer to prove his or her case.  Lastly, the decision in a jury trial is made by a group of average citizens, who have not heard hundreds of cases, and are therefore willing to approach a case with an open mind and without bias.

In contrast, arbitration is expensive.  Rather than a one-time $300 or less filing fee, the consumer must pay an arbitrator $350 or more per hour, for every hour the arbitrator devotes to the case, from the date of the first filing until the date of the hearing.

Moreover, unlike a normal proceeding, in arbitration the consumer does not automatically have a right to make the corporate defendant provide necessary evidence.  Instead, the consumer must file papers asking the arbitrator to allow this necessary evidence production.  The arbitrator has complete discretion to deny the request entirely or severely limit the request.  And the arbitrator bills by the hour while reviewing and considering the request.

If the consumer is lucky enough to obtain the evidence needed to prove his or her case, and if the consumer still has money to pay the arbitrator and his or her lawyer, then the case is set for a hearing before the arbitrator.  The hearing may take a few hours, days or weeks.  The arbitrator bills during all this time.

To make matters worse, even Bloomberg Businessweek reports that arbitrators are often biased against the consumer.  Arbitrators know that corporations, and not consumers, pursue arbitration.  This means that, no matter how badly the corporation may have defrauded the consumer, the arbitrator has a financial incentive to unfairly rule against the consumer in order to secure repeat business from the corporate defendant.

Increased costs, lack of access to evidence, and a biased decision maker.  Clearly, by violating constitutional jury rights, arbitration hurts consumers.

Unfortunately, the courts will not help a consumer protect their constitutional rights when faced with arbitration.  For example, in the recent case of CompuCredit Corp. v. Greenwood, the U.S. Supreme Court decided that corporations can force the consumer to go through arbitration, even if the lawsuit is based solely on an established consumer protection law.

As in the CompuCredit case, courts will often say their hands are tied by the law, and they are required to compel arbitration.  However, this reasoning is simply not accurate.  A court’s first and foremost duty is to protect the Constitution.  The Constitution requires that a case be tried by a jury of average citizens, not a biased arbitrator.  For these reasons, courts should hold contractual arbitration provisions unconstitutional.

Our founding fathers, particularly Thomas Jefferson, made this point crystal clear by stating, “We all know that permanent judges … are liable to be tempted by bribery; … that it is better to leave a cause to the decision of cross and pile than to that of a judge biased to one side[.]”  (Thomas Jefferson, Letter (to L’Abbe Arnoux), Jul. 19, 1789 at 2.)

Unfortunately, arbitration is not a “hot-button issue” in the news media, and the average citizen does not regularly talk about arbitration.  As a result, lawmakers have no motivation to pass laws preventing arbitration.

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