The Searle Civil Justice Institute at the Northwestern University School of Law has issued a Preliminary Report on "Consumer Arbitration Before the American Arbitration Association".  The basic finding?  That consumer arbitration works reasonably well — at least in cases that manage to complete the process.

Blawgletter hasn't studied the 139-pager in detail but do note a grave shortcoming, which (to its credit) the report admits.  The study analyzes only arbitrations "that were closed by an award" — meaning it didn't look at cases that consumers didn't file or, having filed, withdrew or abandoned.  "We have no data on how frequently consumers fail to bring claims, so we cannot test for this possibility," the report concedes.

For our money, any sensible assessment of arbitration must consider the deterrence effect of mandatory arbitration clauses in consumer contracts.  A great many clauses purport to impose severe restrictions.  These include things like:

  • Imposing high fees and costs on consumer claimants;
  • Capping recoverable damages (including consequential, punitive, and treble damages) and costs;

  • Permitting businesses to select arbitrators and to change terms at will;
  • Mandating venue far from a consumer's residence;

  • Prohibiting group or class arbitration; and

  • Excluding claims by businesses from mandatory arbitration.

Nor does the study capture the collateral costs of litigation relating to arbitrations, usually to compel consumers to submit to arbitration.

The Arbitration Fairness Act would give consumers a choice between arbitration and going to court regardless of contracts that purport to mandate arbitration.

What do you think?  Should consumers (and businesses) have the right to pick the forum for resolving their disputes?  Or should mandatory arbitration continue to be the price of buying consumer goods and services?