Just about everyone who has a credit card, a cell phone or a job has likely agreed to take grievances to binding mandatory arbitration.
But how often do consumers win when they go up against credit card and finance firms? Not very often, according to a study released Thursday by a consumer advocacy group.
In a review of 34,000 arbitration cases, Public Citizen said that companies initiated nearly all of the cases and used arbitration firms that they know will rarely rule in favor of consumers.
The report focused specifically on cases handled in California by Minneapolis-based National Arbitration Forum. California is the only state that requires arbitration companies to publicly disclose details of arbitration cases.
"This is a system that is unfair to consumers, many of whom are struggling financially, and a huge gift to big business," Public Citizen President Joan Claybrook said Wednesday.
In a sample of 19,300 cases, arbitrators ruled in favor of consumers 5 percent of the time. Meanwhile, arbitration firms used by companies such as MasterCard, Visa, Discover Financial Services and American Express Co. won 95 percent of the disputes, the study showed.
In 15,000 other cases that were analyzed, there was a settlement outside arbitration; the customer or the card issuer dropped the dispute; or a customer filed for bankruptcy protection.
The report said arbitrators have a financial incentive to rule for the company because it's the company that hires them.
But Arbitration Forum managing director Roger Haydock disagreed.
"Consumer outcomes in arbitration are the same as in court," he said. "Every published study and all empirical data indicate consumers prevail at a rate that is greater than or equal to litigation, where similar subject matter is at issue. Evaluating arbitration outcomes is only meaningful in comparison with court outcomes of similar cases."
The group says arbitration is an affordable and efficient way to resolve legal disputes without going to court.
U.S. Sen. Russ Feingold, D-Wis., and U.S. Rep Hank Johnson, D-Ga., have introduced legislation to let credit card customers choose between arbitration or civil court in a dispute.
Binding mandatory arbitration clauses are found in numerous consumer contracts for things such as credit cards, cell phones, auto insurance, mortgages and car loans. Customers who sign such contracts are often unaware that they agree to give up their rights to sue in court when they have a dispute with the company, Public Citizen said.