Consumers fare better under class actions than arbitration

[Yo_Mama_Been_Loggin]

The new arbitration rule from Consumer Financial Protection Bureau (CFPB) restores consumers’ ability to join together in class action lawsuits against financial institutions. Based on five years of careful study, the July 2017 final rule stems from a congressional directive instructing the agency to study forced arbitration and restrict or ban the practice if it harms consumers. Many financial institutions use forced arbitration clauses in their contracts to block consumers with disputes from banding together in court, instead requiring each consumer to argue their case separately in private arbitration proceedings.

In recent weeks, members of Congress have introduced legislation to repeal the CFPB rule and take away consumers’ newly restored right to band together in court. Opponents of the rule have suggested that the bureau’s own findings show consumers on average receive greater relief in arbitration ($5,389) than class action lawsuits ($32). This is enormously misleading.

While the average consumer who wins a claim in arbitration recovers $5,389, this is not even close to a typical consumer outcome. Why? Consumers obtain relief regarding their claims in only 9 percent of disputes. On the other hand, when companies make claims or counterclaims, arbitrators grant them relief 93 percent of the time—meaning they order the consumer to pay. If you consider both sides of this equation, in arbitration, the average consumer is ordered to pay $7,725 to the bank or lender. That’s right: the average consumer ends up paying financial institutions in arbitration.

But let’s consider the consumers who do win in arbitration. How do those numbers stack up against class action lawsuits? In an average year:

At least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data.

Consumers recover at least $440,000,000 in class actions, after deducting all attorneys’ fees and court costs—compared with a total of $86,216 in arbitration.

http://www.epi.org/publication/correcting-the-record-consumers-fare-better-under-class-actions-than-arbitration/?utm_source=Economic+Policy+Institute&utm_campaign=83da62ec51-EMAIL_CAMPAIGN_2017_08_04&utm_medium=email&utm_term=0_e7c5826c50-83da62ec51-59078569&mc_cid=83da62ec51&mc_eid=56485f06ea

[Igel]

1. Okay.

But the conclusion is what guides the data collection, which then looks to be complete.

1. The payout is before lawyer fees. So it's inflated.

2. The payout is before appeal and reduction of the award. So it's inflated.

3. Class action suits for a few people is unheard of, by definition. This immediately omits all small suits. The lawyers screen for cases they think they can win. It filters out small awards and inflates the average payout.

4. It omits the zero payout for those who don't get included in the class action suit and don't qualify for any compensation. It also ignores the zero payout for those who don't apply for it or for whom the payout ("$50 dollars to your next air fare if purchased by ...." is meaningless. Again, it has the effect of making the "justice" meted out by the system and by juries seem greater than it really is.

5. Legal action against individuals by many companies is rare. The debt gets sold to collection agencies instead. This immediately means class action suits and arbitration aren't randomly selected. Class action suits are likely to be for claims over a long period of time that are systemic, not one-off.

6. Arbitration is going to be first for companies going after larger amounts from consumers. And people going against companies by themselves will be taken to arbitration. Neither does this if they think they'll pay, but at least here we capture claims by the company. However, most individuals will avoid it, even if they think there's a good chance they'd win because it takes time and effort for a process that's unfamiliar.

Basically, the organization's picked all the data to make their case as strong as possible and overlooked all the weaknesses in it. Good speech, crappy research. Never confuse political rhetoric and the research done for that kind of speech with research that's designed to increase understanding and awareness of reality. One's designed for "my cause, right or wrong" and the other tries to find understanding that can withstand critiquing from all sides.


Moreover, I grew up in a class action lawsuit. My mother helped take on Bethlehem Steel. I had no mother for years, since she was involved in interviews and setting them up, getting women not to accept the government office, transcribing interviews and handwritten statements to keep down lawyer's fees. She got thousands of dollars (in 2017 dollars), but each dollar was expensive. And most of the money awarded went to the lawyers. She'd have been better taking the settlement and not putting in the additional work at 10 cents/hr.

[Yo_Mama_Been_Loggin]

2. The last paragraph in my post contradicts your first bullet point