Credit Card Holders Not Disadvantaged in Arbitration, Study Says

Dispute Resolution Journal, May-Jul 2005

A study by a large independent accounting firm has found that consumers are prevailing in the majority of credit-card disputes that go to arbitration. Moreover, a majority of credit-card customers who participated in a small telephone survey said they believe that the process is fair and less expensive than litigation. The study was designed to fill a void in the research studying the outcomes of consumer arbitration and the degree of party satisfaction. Meanwhile, consumer arbitration continues to be a contentious issue with consumer advocacy groups seeking to curb the use of mandatory arbitration in consumer and employment disputes.

Wilmer Cutler Pickering Hale & Dorr in Washington, D.C., engaged Ernst & Young LLP (E&Y) to survey arbitration outcomes of credit-card disputes initiated by consumers. The study was financed by the American Bankers Association.

E&Y studied 226 cases administered from Jan. 1, 2000-Jan. 1, 2004 by the Minneapolis-based National Arbitration Forum (NAF). It also reviewed NAF's electronic files and paper documentation and collected data on the nature of the claim, award dates, claim and award amounts, and who prevailed.

The study found that:

* consumers in NAF arbitrations prevailed more often than businesses in cases that went to an arbitration hearing (55% of the cases were resolved in the consumers' favor).

* consumers obtained favorable results in close to 80% of the reviewed cases.

In addition, E&Y conducted a small telephone survey to determine whether the claimants were satisfied with the outcome, the arbitration process, the cost and timeliness of arbitration, whether they used an attorney and incurred legal fees. E&Y made two attempts to contact 175 claimants but was unable to reach most of them. Ultimately, the firm contacted 40 claimants and interviewed only 29. Of those interviewed, 86% (25) prevailed at the hearing or through a settlement or dismissal. In general, their responses indicated that they were satisfied with the outcome, the process, the cost and the timeliness of arbitration. Twenty out of 29 claimants (69%) said they were "satisfied" or "very satisfied" with the process.

E&Y says its findings appear to refute claims that arbitration is biased toward business. However, the Executive Summary cautions that the "results must be viewed in the context of the high percentage of survey respondents who prevailed, as well as the small size of the survey sample."

According to ADRworld.com, consumer advocates have downplayed the results. The Internet news organization quotes Ira Rheingold, executive director for the National Association of Consumer Advocates, as saying that the study was "meaningless" because it was structured to show that arbitration before NAF is fair for consumers. Businesses are "desperately looking to justify that arbitration is good for consumers," he said. He contended that the study left out "tens of thousands of company-initiated arbitrations" and presumed that any recovery by a consumer was a win, without analyzing how much was sought versus the amount awarded.

The study can be downloaded from www.arbforum.com/media/EY_2005.pdf.