The Fine Print: Consumer Arbitration — an unfamiliar weapon for battling corporate mischief

Editor’s Intro: In the points & miles game there are huge potential rewards (Free travel!  Big savings!  Free upgrades!).  Those rewards are real, but unfortunately things sometimes go awry.  You can have your bank or credit accounts shut down without explanation; or a business may freeze your account and refuse to release your money (I’m looking at you PayPal); or you may be denied points, miles, or rebates that you should have earned based on published promotion rules; etc.  What can you do when things like these happen to you?  This is the first of a series of guest posts intended to answer that question…

Consumer Arbitration

By Alexander, New York attorney and author of The Points of Life:

Consumer: I was told that I would be receiving a full refund for these charges.

Customer Service Representative: I have no notes on your account indicating a refund was authorized. Please hold while I transfer you…

From Verizon to eBay, Comcast to Citi, consumers have experienced an increase in frustration and a decrease in customer service. Outraged from overbilling, phantom charges, accounts that are inexplicably closed, and offers that are not honored, consumers nevertheless find themselves with little to no recourse against corporate giants. Bewildered, some consumers turn to ‎bloggers for answers, Twitter to shame corporations into compliance, or forums for alternative remedies. These communities offer anecdotal insight on what can be done to rectify the situation. Without fail, one of the first responses whether it be from lawyer or layman is, “Take them to court!” ‎

Sadly, in today’s pro big business climate, such a reaction may be the only option to effectuate a solution. Unfortunately for many prospective plaintiffs, one of the most powerful options to combat corporate mischief, the class-action lawsuit, has been eliminated by one-sided contracts that limit a consumer’s remedy to either small claims court or the unfamiliar mechanism known as arbitration.

Small Claims

On its face, small claims is a viable avenue for consumers who do not wish to pay legal fees to resolve a minor dispute. In reality, the hassle of this undertaking dissuades many consumers from having their day in court. In the event that a savvy pro se plaintiff (one who is not represented by legal counsel) maneuvers through the process, the award paid by the corporation to the consumer is negligible as ‎there is a limit on ‎the damages that a party can claim. ‎As a result, the wrongdoing corporation comes away unscathed.

Arbitration

A creature of contract, arbitration was adopted by corporations to ‎level the playing field between consumers and corporations. Powerful companies argued that the only winners from class-action suits were attorneys who received tremendous fees for litigating such big cases. In consumer arbitration, the consumer would, once again, be the focal point of the proceeding. Indeed, in order to assure the skeptical policymakers that arbitration was consumer-focused, many companies offer generous awards for consumers who prevail.

In theory, arbitration is an excellent solution for wronged consumers. The cost of arbitration is in line with a small court claim, lawyers do not stand to gain disproportionate fees in comparison to a single consumer, and, unlike litigation, the process is efficient and final.

In practice, arbitration has its drawbacks. First, by contractually being mandated to use arbitration, consumers relinquish their right to go to court. Next, consumers are unaware of how arbitration works. The former is de minimis, and the latter can be said of many attorneys who do not practice in this arena. Adding to the confusion are corporations that contaminate the process by inserting in absurd obstacles. Some require consumers to file a notice to the company of their intent to file for arbitration, wait a random amount of days, and if the issue is still unresolved, then the consumers are permitted to move forward with the process. Some consumer contracts even state that consumers are not entitled to representation by counsel should they go the arbitration route, a provision that is unconscionable. To the shock of none, overwhelmed consumers forsake this effective process while the corporations remain unaccountable.

The Way Forward

Agent: Can you please describe the nature of the issue that you are having?

Customer Service Representative: I just finished explaining this to the last agent who transferred me to you!

It is not a surprise that a consumer who is overcharged $50 would rather pay the bill then deal with customer service for hours. It stands to reason that thousands if not tens of thousands of consumers who have similar problems would do the same. This plays right into the calculating hands of big companies that derive a substantial windfall as a result. With no right to join in a class-action suit, insignificant awards in small claims, and an arbitration process that has been convoluted by questionable contract terms, it appears that the consumer’s claims have been squashed the very moment that (s)he entered into the agreement with the corporation.

In fact just the opposite is true. Companies have woefully underestimated the power arbitration has given the consumer as a means for dispute resolution. Claims like the one mentioned above can produce a meaningful result as the arbitrator can award money damages, including legal fees. While one award may not be enough to trigger drastic change, the aggregate most certainly will if a company’s bottom line is impacted.

As more consumers prevail through arbitration, it will not be shocking when companies cry foul again and lobby to have disputes exclusively decided by its own customer service team, a notion that is not far-fetched given the monopolization of consumer services. In the mean time, consumers should consider seeking satisfaction by prosecuting their legal rights through arbitration.

Alexander is a New York attorney and BoardingArea blogger at thepointsoflife.com. He can be contacted at alex@bachuwalaw.com

About Alex Bachuwa

Alexander Bachuwa is a New York attorney who focuses on consumer protection. He is also a BoardingArea blogger. Contact Alex at through his website at bachuwalaw.com and visit thepointsoflife.com

More articles by Alex Bachuwa »

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  1. […] Why do claims have to be escalated to this level before they are handled by a sympathetic human? The optimist will answer that companies are massive and imperfect. As such, mistakes happen but they are corrected when they receive the proper attention. The pessimist will argue that companies stand to make millions if not billions of dollars by short-changing consumers on nominal sums of money, knowing that consumers are unaware or overwhelmed by dispute resolution processes. […]

Comments

  1. Is there going to be a part 2? Or is that it?
    I’ve read that the companies are the ones who choose the arbitrators, and are less likely to return to arbitrators who find in favor of the consumers.
    I think it’s amazing that a contract can include arbitration clauses, and/or clauses that prohibit people from being able to be involved in a class action lawsuit.

  2. There will be more. This is just an overview. If you have specific questions let me know.

    Arbitrators have to disclose if they have worked on previous consumer cases and potential conflicts. A consumer attorney has the ability to reject an arbitrator which keeps the process fair and transparent.

    Although I agree that companies shouldn’t be able to contract out remedies, arbitration, if understood and utilized, can help consumers with claims with awards more significant than the $2 class action award or free can of RedBull that I received for making a purchase.

  3. Just one data point but I’m currently in arbitration with Barclays. I had to pay $200 filing fee and Barclays is responsible for $1800 (and if it goes to a hearing they have to pay again).

    If your dispute is less than the filing fee I would guess the bank has a strong incentive to settle right away.

    That said, I wish a class action was possible because the way I was taken advantage of probably applies to thousands of other cardholders. One judgement in my favor won’t impact the bank’s behavior but a large class action judgement (even if a large portion goes to lawyers) would.

    • They have an incentive to settle if they are in the wrong because they are paying for attorneys throughout the process. This is especially true if the claimant (you) hire an attorney. Then they finally start to take things seriously.

  4. I have been through arbitration twice and each time it costs hundreds or thousands of dollars in arbitration fees. Most contracts with consumers say that these are to be split between the parties. How is arbitration an effective remedy for several hundred dollars when the fees are higher than the rewards. In most cases that I have seen, arbitrators rarely award fees and even with a win, you lose or break even.

    • This is not true in the consumer arbitration cases that I have handled, especially regarding the fees. If you would like to provide examples of arbitration clauses and company names where the fees are split, I would love to see them.

  5. General comment: THANK YOU Greg & Alexander for this superb essay and primer. Will read re-read this and those to follow.

    Greg, I am heartened that you’re standing against the herd, snarling mentality in this miles & points space that so often seems drunk on the corporate soma, that presumes that the corporation is always right, that consumers ought never seek recourse (most esp. not from the “guv’mnt,” that we need (in the words of a certain candidate) to go even easier on the almighty, God-blessed, ‘merikin as apple pie corporations, to give them more ma$$ive breaks, more immunity, so that “America can be great again.” (and increase his profits….. and to blazes with the little folks, the “losers.”)

    About time we had some serious push back against the likes of Amazon, E-bay, Paypal, and especially….. (oh, but I’m not giving him any more advertising)

    Oh, and thanks for the intro to Alexander….. enjoying skimming back through his blog already. 🙂 (the deadpan is superb — esp. the “Goodbye Southwest, Hello Jetblue” (and “I just can fight this feeling anymore; I forgotten what I started fightin’ for)

    • (Yikes — bizarre auto spell-correct) For those who remember the song, that of course would be “can’t” (or Kant) fight this feeling anymore. 😉

      • Thanks for the comment. The time has come to hold all these companies accountable by using the instrumentality that they have chosen to obtain a result.

        These corporations try to make the consumer feel petty for filing a claim for $10 and asking for $8500 in wasted time, emotional distress, and the value of the credit/points on his or her account. It never had to get this far if there was such a thing as customer service so I do not feel bad or frivolous for helping consumers stand up for themselves.

  6. Concerning Alexander Bachuwa’s July 15, 2016 at 9:58 am comment:
    “A consumer attorney has the ability to reject an arbitrator which keeps the process fair and transparent.”

    The above statement is not accurate in AAA or JAMS.

    A consumer, or their attorney, have the right to object to an arbitrator pursuant to AAA or JAMS rules. However, AAA and JAMS are free to ignore or deny that objection. In my experience, they do ignore the objections.

    I, as a consumer, have participated in fourteen arbitrations. Six of those have gone to a hearing of the claims. All but one settled before an award was issued.

    As a consumer, you have a slim chance of winning an arbitration case award in your favor. That should not be your goal. A consumer’s goal in arbitration should be to make the costs of the arbitration so great that the business settles your claims to avoid those costs.

    Before you use arbitration, get to know the forum rules. AAA and JAMS both apply a set of consumer rules to arbitrations between consumers and businesses. Use those rules to your advantage to make the costs increase.

    In AAA and JAMS, you will not pay more than $200 or $250 to file a case. The consumer rules limit your costs to $200 or $250. The business must pay all other costs. Some business contracts require the business to pay some or all of that $250. If that’s the case, tell AAA that when you file, and tell AAA to bill the business.

    • Thanks for the comment. I agree with a lot of what you said here. I believe (and obviously I’m biased) that having an attorney in this process can be very helpful. I had one claim where I was overseeing a client’s action against a cell phone provider. They immediately tried to settle the case for a nominal amount of money.

      I asked if I could step in and help and was not surprised that they took the claim much more seriously and came back with an appropriate settlement. As an attorney, I have to disclose that all cases are different and results may vary but this has been my experience.

      I would like to talk to you about your experience if you are available. Feel free to drop me an email. Alex [at] bachuwalaw [dot]com

  7. SOLUTION: In many contracts you have a 30 day period to Opt Out of arbitration.
    How do you know this? Read the T&C’s when you sign up for something or there is a program change.

    Example, Comcast and T-Mobile, Slack and even Starbucks Card Rewards have a clause giving you 30 days to give notice to Opt Out of the mandatory arbitration when you sign up for service or register as a member. Starbucks added this clause when they changed their rewards program.

    You usually will need to write a letter stating your objection to the arbitration clause and mail it in the old fashioned way.

    • I know I’m in the minority but I would not recommend opting out. As I wrote, claims that go through the arbitration process can result in significant awards or settlements for the consumer. Every case is different but as a consumer protection attorney, I have had great success using this mechanism.

      • But doesn’t the Opt-Out provision merely maintain your option for class action and if you really wanted to do arbitration you could? That is how I’ve read these clauses. Opt-out looks like it made it not mandatory.

  8. Awesome post. Just added some comments to the 1800flowers post from May 12 and this is highly relevant. Feels almost silly to take the company to court for < 9,000 SW miles, but this is a case where a lot of us are screwed over for a rule that they totally invented after the fact or failed to disclose. Would appreciate any thoughts on the possibilities (and worthwhileness) of taking legal action on that topic.

    • Hi Peter, you can always email me and I would be happy to discuss this. I’ve had claims as low as $100 filed. As I wrote in the article, the amount of the claim should not be a reason not to file. If it’s your money, your points, they showed be given to you.

  9. Perhaps you should research arbitration statistics. How many consumers actually prevail? I’m guessing somewhere between 1 and 10%. That means 90% of cases result in no satisfaction for the consumer, and that decision is binding.

    Without looking at the actual statistics, this article and series is complete BS.

    • So making up numbers is credible? I base my article on my real experiences as an attorney and the results that I have seen. I do not guarantee success but I do believe in the process.

  10. Great article. Thanks also for giving us the opportunity to reach out to you with questions. What’s the best way to get in touch?

  11. This has to be a joke. Mandatory arbitration, overall, is TERRIBLE for consumers. The companies usually specify which arbitration company will be used. So you’ve got them begging the companies to be put in the contract. And do you know how they try to get written into those contracts? By bragging about how many times they rule for the company! By bragging about how hard it is for the consumer to get evidence from them! By bragging how difficult they make it for the little guy to win!

    Beyond that, when Chase/Citi/other “too-big-too-fail” company does horrible things, like Chase did in the middle of the 2008 crisis by doubling minimum payments for people who had already gotten balance transfers with an interest rate “for life”-Chase was punished with a class action which costs them millions. A drop in the bucket, to be sure, but far worse for it than having a bunch of small arbitration-and vast vast majority of consumers would not even go to arbitration or even begin to know how to go to arbitration in the first place.

    Arbitration, when it pits the huge corporation against the little guy, when the powerful gets to select the judges-is a horrible, horrible thing. Arbitration certainly has its place but it *not* something the average person should think is a good thing is contracts they get into with multibillion dollar companies.

    • You are flat out wrong. Your comment only perpetuates the fallacy that consumers are without recourse. I agree that the corporations try their hardest to make recovery difficult for the consumer. I get that this is David versus Goliath but David did triumph and he didn’t even have someone like me in his corner.

      Whether you like it or not, arbitration is the only means of dispute resolution available to the consumer today. It is much more useful for consumers to master the ins and outs of arbitration or retain the services of a competent lawyer than give up completely.

      The aggregate effect of filing hundreds of valid claims against a corporate giant could yield a similar result as a class-action suit. The organization of such a movement is possible thanks to blogs like this that bring people of our ilk together to fight for a common cause, consumer protection.

  12. Hundreds of claims? Please. Here’s a true story. A phone company-it might’ve been AT&T- charged the residents of two counties in GA some local tax for who knows how long. (The rest of the counties in the state had this tax but two counties didn’t.) The phone company kept the “tax” from these two counties. No, that’s must’ve been a small amount for each of those consumers, but it was likely a sizable sum for the company. Are people going to go to arbitration over $5? Over $10? No. But companies can take that amount from individuals wrongly and many cases with impunity.

    Enter class actions. Now all those people who were wrong, who were essentially stolen from-now they have a recourse. They don’t need to waste a ton of time chasing down ten or twenty bucks-the class action lawyers do that. And the companies pay attention because now it’s not $10, it’s $2 million. And so they avoid doing bad things.

    I mean, you might get lucky and live in a state where the attorney general’s office will go after bad companies, but you might not. They’ve got a lot of things on their plate already, but messing with a huge company, possibly one that pays substantial taxes or employs people in their state and is constantly threatening to move 80 miles across the border neighboring state? That can get messy. The financial crisis was caused, in part, by reckless acts by wealthy companies and the government did pretty much nothing except give them money for the problems they caused.

    Class action lawyers actually have some skin in the game and they are probably the strongest deterrent against bad acts by huge, “too big to fail” companies. And binding arbitration is handing over the individual’s best weapon against these guys.

    • You just used a specific example to validate the general example that I used in the article. The only difference between what you are saying and what I wrote is that you are basing your argument under the false assumption that there isn’t someone out there who will prosecute claims for $5, 5 cents, 5 ThankYou Points, 5 Ebay Bucks, 5 whatever. So long as a consumer has been wronged, I will take the case to arbitration and I will do it on the client’s behalf whether it be 1, 100, or 1000 clients.

      And unlike in a class-action, the results that are possible and that I have actually seen can be much greater than a refund of the $5 overcharge. AT&T will award 10k to prevailing claims and double attorney fees. That language is spelled out in their contract. They are daring consumers to initiate the process and I accept their dare and encourage consumers to do the same.

      If a consumer does not want to do it on his or her own then I will do it for them. I do it on a contingency fee agreement where I only receive compensation if the case settles or if the arbitrator rules in the consumer’s favor.

      Point by point I have shown you that there is recourse. You just need a ‘lunatic’, as the NY Times put its, to get after that $5. I am that lunatic.

  13. Alexander,

    Thanks again for this post. I’ll definitely try and keep this in mind for the future.

    I have seen class actions against Chase like this one:

    http://www.stollberne.com/case/chase-bank-settles-credit-card-class-action-lawsuit

    When might a class action still be possible?

    I was hoping a class action lawsuit might be possible against Chase (others) for charging Cash Advance fees. I always lower my cash advance line to the lowest possible level – I never want a cash advance transaction to be processed only purchase transactions. But I’ve found despite this effort Chase will still process cash advance transactions and hit the consumer with big fees.

    It seems they are blocking your ability to prevent cash advance transactions, when you can’t be certain when a transaction will be coded as a cash advance.

    • Why do you need a class-action when you can take matters into your own hands and file an arbitration claim?

      The article does not disclose what the consumers received in the class-action but I’m guessing 100 million divided by thousands of people in the class was not that much. I could be wrong as I don’t know the details.

      By filing an arbitration claim, you may be awarded a larger amount depending on the facts. Every case is different which and every result is different. If you would like to discuss the particulars of your claim, I would be more than happy to give you my feedback. My email is at the end of the post.

      • It’s a good point, I’ll definitely remember this post for future issues.

        But my loss on the cash advance transaction was really just too small to pursue.

        I’m less interested in being personally compensated, then modifying the behavior of banks in general when it comes to cash advance transactions.

        We could gain a lot as a hobby if the power of the class action could be used to block banks from approving unwanted cash advance transactions. We could really test the bounds of MS.

    • I agree with the interview when she says that “it wasn’t just about the money they got back. It was about changing the practices.” Now, if you’ll allow me to do my best Bernie Sanders by saying we could start a consumer revolution by filing hundreds of these by congregating in a forum like this. I think it could have the same effect.

      The interviewee also says “no one is going”. This is true because consumers are unaware of the process and they have been told that it doesn’t work. The number is also skewed because many of the cases get settled and the consumer signs a confidentiality agreement. As an attorney, I have refused to sign such an agreement so I can actually report my findings. Indeed, I reached out to the NYT and told them about my website, FightMyPhoneBill.co (not com) because I wanted to show them that there are lawyers out there cleverly battling these corporations on behalf of the consumer.

      At the same time, the story about the students losing in arbitration is a possibility. What makes this arbitrator’s decision so outrageous is that the arbitrator forced the students to pay the attorney fees of the respondent. Bullying consumers with counter-claims and exposing them to legal fees when they were the wronged party is unconscionable. I can understand the argument of buyer beware but this goes way too far.

      I believe there’s less of a risk of getting bullied if the client.is represented by counsel. When I handle a consumer’s claim, I collect nothing unless the consumer prevails. Absent a contingency-fee agreement, a consumer could find himself consumed with legal fees making the whole process impractical.

      Overall, great interview but I refuse to cower to big corporations and will find a way to send a message to the companies, even if I have to file one claim at a time. The alternative is doing nothing or waiting for legislature to make a change. I’d rather take my chances in arbitration than wait for that.

  14. Hello and a great article that I enjoyed reading along with the comments.

    Well, I am actually just starting consumer Arbitration with a giant cc company that yes intimidates me. I felt the only way that I could have a fair resolution was with arbitration and not the courts. I am using JAMS because it was in my cc agreement and would give me equal ground with the rules that apply to arbitration along with civil procedure.

    What I do not understand is how these or this cc company will follow into arbitration at costs that will far exceed the complaint and even more so if it goes to an appeals panel of three arbitrators. I’m just a Pro se and I get to go up against four attorney’s at the cost of this big company which would give anyone a little IBS. Thankyou

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