Research and Statistics

Study portrays credit card binding arbitration as fair

A study released March 11 comes to the defense of using arbitration to settle disputes between consumers and financial institutions.

The use of binding arbitration — required by most major credit card issuers — has been blasted in previous studies and by consumer advocates as one-sided in favor of businesses, and legislation has been introduced to regulate it.  But according to the study from the Northwestern University School of Law’s Searle Civil Justice Institute, arbitration — at least as practiced by the one group that was studied — is fair to credit card users.

The Searle study evaluated in depth 301 disputes that came before the United States’ largest provider of arbitration, the American Arbitration Association (AAA), and found they were reasonably priced and consumers had a decent shot at prevailing.

“The study shows that due process protocols to protect consumers’ procedural rights are routinely enforced in AAA consumer arbitrations,” says Geoff Lysaught, director of the Searle Civil Justice Institute in a press release. “Access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis.”

Searle’s study contrasts sharply to one by the public interest group Public Citizen, which analyzed the results of thousands of credit card disputes that came before another arbitration group, the National Arbitration Foundation. In its September 2007 report, “The Arbitration Trap: How Credit Card Companies Ensnare Consumers” Public Citizen painted arbitration as unfair with “stunning results that disfavor consumers,” with the arbitrator siding with creditors 94 percent of the time.

The Arbitration Fairness Act of 2009 was recently introduced to Congress to address these claims. The bill would prohibit mandatory arbitration in consumer, employment and franchise disputes and allow consumers to choose between arbitration or a jury trial at court. The Searle Center, which researches the economic impact of laws and regulations and communicates their results to academia and government leaders, said its study was conducted to provide evidence to make an informed decision on the bill.

Other findings include:

  • The cost for arbitration cases was “quite low,” with consumer claimants paying an average of $96 for claims under $10,000 and about $219 for claims between $10,000 and $75,000.
  • Arbitration was relatively speedy in settling debt disputes, taking an average of seven months from filing a claim to settlement.
  • Consumers had an even shot, finding “some relief” in 53.3 percent of the cases they filed and getting back an average of $19,255.

The Searle Center encouraged policymakers reviewing the arbitration bill to “consider the role that arbitration providers can play in promoting fairness on behalf of consumers.”

See related:Binding arbitration: What it is, how it works, 6 tips for dealing with binding arbitration

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