Don’t be Fooled Arbitration is an Inexpensive Option

Consumer
lending contracts often contain arbitration agreements which provide that
disputes arising under the contract can be taken to arbitration rather than
court. Arbitration is a private process
where claims are decided by arbitrators who are legal experts. One advantage of arbitration over court
litigation is that parties receive the same legally binding outcome that they
would have received in court, but they get to that outcome more quickly and less
expensively than in court. Once the prevailing party obtains an arbitration
award, the award can be “confirmed” into an enforceable judgment by trial courts
in all states. 

Arbitration
has received increased media attention lately, as a national association of
trial lawyers has named eliminating consumer arbitration as their top agenda
item for 2008. As a part of this push,
legislators have introduced federal and state bills that would curb or kill
consumer arbitration. The most visible
bill is the “Arbitration Fairness Act” (H.R. 3010, S. 1782) that was heard in
Senate and House subcommittees in late 2007. 

Unfortunately, much of the lobbying,
public relations and advocacy that has driven these bills has contained
fundamental inaccuracies about how consumer arbitration actually works. From my experience, arbitration is a much
quicker and less expensive method of resolving collections disputes. Of course, these savings benefit not just
lenders, collectors, and debt buyers, but they also benefit consumer borrowers
in the form of better and less expensive consumer lending
products. 

Because of
the trial lawyers’ push to ban consumer arbitration, it is especially important
to recognize arbitration’s benefits and to educate others about it. I want to take the opportunity here to
address a few of the most important points that have been subject to
misinformation. 

First,
arbitration does not stack the deck against consumers. No one wants a system that is unfairly tilted
in favor of one type of party over another, and courts reviewing arbitration
awards would never allow it. The
available data about arbitration outcomes clearly establishes that business and
consumer parties win in arbitration at the same rate that they win in court.
Even consumer advocacy groups seeking to
ban arbitration have now conceded this point. 

Second,
arbitration is clearly less expensive than court, particularly in default
cases. According to the National
Arbitration Forum website
, the arbitration filing fee for a $4,999 claim is
only $70 where the opposing party does not file a response. For a $7,499 claim the arbitration filing fee
is also only $70, and for a $25,000 claim the fees is only $120. All of these filing fees are lower than the
corresponding fees to file a lawsuit in

Texas

and in

California

, for example (see chart
below). 

Debt

N.A.F.

Texas

California

$4,999

$70

$72

$95

$7,499

$70

$72

$120

$25,000

$120

$287

$280

 
Third,
arbitration procedures are more efficient than court procedures in several
important areas that magnify arbitration’s cost savings. For example, instead of hiring local counsel
in each jurisdiction where litigation must be filed, arbitration claims can be
filed from a central location against respondents in any

U.S.

jurisdiction. Also, arbitration proceedings can be
conducted as “document hearings” that do not require in-person appearances. Finally, arbitration’s procedural rules apply
nationwide, eliminating the need to comply with varying state and local
procedures in each jurisdiction where a claim is filed. 

Lastly,
there are many advantages to be found in integrating arbitration into an
organization’s collections procedures. The filing of an arbitration claim opens up “work with” opportunities
that could potentially lead to settlement before the arbitration proceeds to its
conclusion. 

From my
experience, arbitration’s lower fees and procedural conveniences combine to make
arbitration a much less expensive option than court to resolve collections
disputes. It is important to understand
these facts so that we are not swayed by the anti-arbitration pundits who are
presenting inaccurate information. Keep
your eyes open for any anti-arbitration bills in your state, and stand ready to
educate decision makers and others about arbitration. 

MichiganStateUniversityAbout the Author: Mark Hutchins is the Managing Owner
for Catalina Consulting, a company he started to provide consulting services to
the credit and collection industry upon leaving his position as Vice President
of Business Development for Asset Acquisitions Group LLC. Prior to consulting,
Mr. Hutchins worked for Asset Acceptance LLC from December 2001 through March
2007. He held several management positions in the Legal Department including
Outsourcing, Arbitration, Collections, and Pre-Legal until he was promoted to
Assistant Vice President – Legal in December 2003. In April, he was transferred
to the Marketing Department as an Assistant Vice President – Marketing and
Acquisitions. Prior to joining Asset Acceptance, Mr. Hutchins held varying
positions of responsibility in the Credit and Collection area for Ford Motor
Credit Company.

2 Replies to “Don’t be Fooled Arbitration is an Inexpensive Option”

  1. I do not agree. The fee schedule that came with the arbitration paperwork for a home warranty company indicated the fees could be quite high in a construction defect case. I’ve talked with consumers and attorneys about arbitration in many industries and situations and cost always comes up as being higher than disclosed. I was lucky–I didn’t have to arbitrate. And because I didn’t, I was able to pursue and settle my case with a builder and recover my actual damages. Had I been forced to dispute the warranty co’s inadequate “offer” in arbitration, I’d have had to let an arbitrator who did repeat business for them decide. Very likely I’d have gotten half my damages or nothing at all, instead of recovering enough to pay for essentially all the damage the builder caused us.

  2. Big dollars don’t always have to be involved. Consumers can and do win in arbitration here is the case of Sharon Kruse, a 63 year old consumer from Michigan who had a issue with Sears over a boiler maintenance contract at arbitration-forum.blogspot.com

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