•  ()
  •  ()
  • Print this Story
  • Email this Story

Examination of Consumer Arbitrations as Policy Debate Heats Up

A study from the School of Law offers an empirical look at consumer arbitrations administered by the American Arbitration Association.

text size AAA
March 11, 2009 | by Pat Vaughan Tremmel
CHICAGO --- An in-depth study of consumer arbitrations was released today by the Searle Civil Justice Institute (SCJI) at Northwestern University School of Law.

As the policy debate over pending legislation to ban pre-dispute arbitration agreements in consumer and other contracts heats up, the study offers an empirical look at consumer arbitrations that were administered by the American Arbitration Association (AAA).

"The study shows that due process protocols to protect consumers' procedural rights are routinely enforced in AAA consumer arbitrations," said Geoff Lysaught, director of the Searle Civil Justice Institute. "Access to justice is provided in a relatively inexpensive and expeditious manner, and outcomes are not biased in favor of businesses that arbitrate on a repeat basis."

The SCJI report, "Consumer Arbitration Before the American Arbitration Association," offers timely research for policymakers to consider as the debate over arbitration legislation escalates.

The Arbitration Fairness Act, reintroduced in the U.S. House of Representatives last month, would ban pre-dispute arbitration clauses from consumer, employment and franchise contracts. Advocates argue that such arbitration favors business and is unfair to consumers.

"The study of AAA case files and other data involving consumer arbitrations is the most comprehensive empirical research to date on the use of consumer arbitration," according to Chris Drahozal, chair of the SCJI Consumer Arbitration Task Force and John M. Rounds Professor at the University of Kansas School of Law.

The AAA, a not-for-profit organization that administers arbitrations, is cited in many contracts. More than 10 years ago, the AAA convened a group of officials from government, nonprofits, the bar and consumer organizations to develop due process protocols. AAA claims to follow these voluntary protocols in consumer cases.

"The next step will be to examine how consumer cases are resolved in traditional court proceedings," Drahozal said, "to provide a basis for comparison with AAA consumer arbitrations."

Highlights of the study's findings on the costs, speed and outcomes of AAA arbitrations:

• Consumer claimants seeking less than $10,000 paid an average of $96 ($1 administrative fees + $95 arbitrator fees) in AAA arbitration. For claims between $10,000 and $75,000, consumers paid $219 ($15 administrative fees + $204 arbitrator fees). The amounts fall below levels specified in the AAA fee schedule for low-cost arbitrations because arbitrators reallocated some consumer fees to businesses.

• The average time from filing to final award for the consumer arbitrations studied was 6.9 months. Cases with business claimants were resolved on average in 6.6 months, and cases with consumer claimants were resolved on average in 7 months.

• Consumers, who filed the great majority of arbitrations studied, won some relief in 53.3 percent of the cases they filed and recovered an average of $19,255; business claimants won some relief in 83.6 percent of the cases they filed and recovered an average of $20,648.

• The average award was 52.1 percent of the amount claimed for consumers and 93 percent for businesses. The difference appears to be due to differences in the types of claims brought by businesses and consumers. Business claims are almost exclusively for payment of goods and services, while consumers often seek recovery for non-delivery, breach of warranty and consumer protection violations.

• Consumer claimants fared as well, statistically speaking, against non-repeat businesses (businesses that appear only once in the AAA dataset) -- winning some relief in 55.3 percent of cases -- as they did against repeat businesses (businesses that participated in more than one arbitration) -- winning some relief in 51.8 percent of cases.

• Using an alternative definition of "repeat player," consumers won some relief less often in arbitrations with repeat businesses (43.4 percent) than in arbitrations with non-repeat businesses (56.1 percent). The data suggest that the result may be due to better case screening by repeat businesses rather than arbitrator (or other) bias in favor of repeat players.

Highlights of the study's findings on AAA enforcement of the Consumer Due Process Protocol:

• A substantial majority of consumer arbitration clauses in the sample (76.6 percent) fully complied with AAA's Consumer Due Process Protocol (which sets out fairness standards for consumer arbitrations) when the case was filed.

• In the 98.2 percent of cases reviewed by the AAA, the arbitration clause either complied with the Consumer Due Process Protocol or the non-compliance was identified and responded to by the AAA.

• The AAA refused to administer a number of consumer cases in 2007 (likely 9.4 percent of AAA's total consumer caseload) because of protocol violations by businesses.

• AAA's protocol compliance review resulted in a number of businesses modifying arbitration clauses to make them consistent with the Protocol.

"The report is in keeping with the Searle Civil Justice Institute's mission to produce timely research that is useful to policymakers, judges and practitioners," said Henry Butler, executive director of the Searle Center on Law, Regulation, and Economic Growth.

The primary dataset examined for the study consists of 301 AAA consumer arbitrations that were closed by an award between April and December 2007. This sample of cases was then coded for approximately 200 variables describing various aspects of the arbitration process, including characteristics of the arbitration clause. In addition, when possible a broader AAA dataset comprising all consumer cases closed between 2005 and 2007 was utilized. The data were analyzed using standard statistical methods in order to describe and evaluate consumer arbitrations as administered by the AAA.

View the full report: www.SearleArbitration.org.

Founded in early 2008 as a division of the Searle Center on Law, Regulation, and Economic Growth, the Searle Civil Justice Institute (SCJI) aims to become the preeminent national source of large scale, empirical studies on public policy issues related to our nation's civil justice system. The Searle Center was founded in 2006 as a unit of Northwestern University School of Law with a generous grant from the late Daniel C. Searle, longtime philanthropist and Northwestern University trustee.