Arbitration fairness: “Party at Ralph’s” vs. “Party at Joan’s”

Noam Chomsky used to recommend the Wall Street Journal because, he said, business readers couldn’t afford biased news and commentary. No more, it seems. The recent WSJ editorial “Party at Ralph’s” (PDF link) contains little but inaccurate, biased garbage.

I was there, “standing up for the little guy by sipping cabernet at a Dupont Circle manse . . . .” Only I don’t remember seeing any cabernet, just lowly merlot and shiraz. I drank a beer and swapped stories with other consumer lawyers who, like me, represent consumers screwed and often impoverished by the credit card, subprime mortgage, and debt collection industries.

Screwed by, among other things, the mandatory binding arbitration clauses the WSJ pretends consumers agree to voluntarily. So we discussed the Arbitration Fairness Act, which just might return meaningful choice over arbitration to the consumer and the employee rather than just debt collectors looking for a cheap, rubber-stamp judgment.

We also discussed Rep. Barney Frank’s (D, Mass.) anemic mortgage bill, which contains virtually no remedies when the lending industry inevitably continues its shenanigans, and would preempt more effective state laws. A right without a remedy is no right at all. But, as Deepak Gupta pointed out, it isn’t like the bill’s “uncertain future” has anything to do with consumer groups. Indeed, Congress is having trouble finding the motivation to introduce any meaningful regulation at all. Instead, the House of Representatives enthusiastically passed what amounts to codified platitudes and high sentiment.

Unfortunately, without a few consumer lawyers sipping merlot and beer, swapping stories, and threatening to enforce laws enacted to protect consumers, consumers have virtually no rights at all.

Current Public Citizen president Joan Claybrook wrote an excellent response to “Party at Ralph’s,” which I have included after the jump.

Party at Joan’s
November 17, 2007; Page A9

Your Nov. 7, broadside (”Party at Ralph’s”) on arbitration was baseless. We oppose mandatory not voluntary arbitration requirements buried in the
fine print of consumer contracts because they shred consumers’ legal rights in favor of a secret, expensive, business-dominated system.

The consumer attorneys attending a reception at Public Citizen’s office are legal aid and private attorneys who toil in some of the least glamorous corners of the law. They see firsthand the unfairness of this industry-created system to avoid accountability. They work for consumers harmed by home foreclosures, truth-in-lending violations, unfair debt collection practices, predatory lending, auto dealer fraud and other marketplace abuses.

To acquire a credit card, buy a home or car, open a bank account, use a cell phone or get cable television, consumers usually must sign a
contract mandating arbitration to settle disputes. A mere signature effectively eliminates their constitutional right to the public courts, extinguishes the right to appeal, favors corporate repeat offenders whom arbitrators want to please and imposes substantial upfront costs.

“Studies” to justify mandatory arbitration, often cited by industry, misleadingly lump together people who voluntarily enter arbitration with
those given no choice. In contrast, Public Citizen’s recent report evaluated 34,000 consumer mandatory arbitration cases in California. The results:

Consumers lost 94% of the time.

No wonder the Journal editorial page and the paper’s business advertisers love this stacked deck. Your justification for it rests on the deeply flawed Tillinghast Tower Perrin report on the cost of litigation. Yet Tillinghast admits its numbers are not actual costs: Almost a quarter are for insurance industry administrative costs, and most are associated with auto insurance. Conservative jurist Richard Posner challenges Tillinghast estimates as “fictitious.”

Amazingly, the Journal, which lauds a free market, opposes the Arbitration Fairness Act, even though it would allow consumers to freely choose or reject arbitration and not be coerced into it. Congress should move quickly to enact the bill.

Finally, please note that Ralph Nader left Public Citizen more than 25 years ago, during which time I have led the organization, which has grown into a potent force for consumer good. Thus, in the future, please reference our events as a “Party at Joan’s.”

Joan Claybrook
President
Public Citizen
Washington

Link to article.

[photo: Chance Agrella]