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Monday, January 20, 2014

Comments

 Rob

Reply to Ted,

Wow. No offense, but that is some weak logic.

You said: "Unless the reason that people file fewer arbitration claims is that credit-card companies with arbitration clauses have a better incentive to avoid formal dispute resolution." But the uniform claim of the companies including arbitration clauses in their form contracts is that they believe that arbitration is quicker, easier and cheaper than litigation. Thus, if anything, companies would have LESS "incentive" to avoid a dispute when that dispute has to be brought in arbitration.

You said: "Though again, we don't know for sure which one is lower cost, though the absence of wasteful class actions suggests it would be arbitration." Two points: (1) If "we" includes the companies that insert the arbitration clauses, and they don't know whether arbitration is cheaper or not, then why would they include them in their contracts? Oh yeah - claims suppression. (2) Are you really claiming that one class action on behalf of 100,000 class members (attorneys' fees and all) is more "wasteful" than 100,000 (or even 1,000) individual arbitration proceedings (including the requisite payments to the arbitrators)?? Of course not. Instead, arbitration saves companies money by drastically limiting whose claims will ever be adjudicated. The real impact of the arbitration provisions is to insure that the claims of the other 99,999 won't be heard on the merits. So the savings to the company is in claims avoidance/deterrence, not adjudication efficiency.

Ted

Unless the reason that people file fewer arbitration claims is that credit-card companies with arbitration clauses have a better incentive to avoid formal dispute resolution. Fewer complaints sometimes means fewer complaints.

Even if one type of dispute resolution over another deters legitimate claims (and without knowing the quality of the claims asserted, we don't know which is which), one has to offset that with the benefits of the lower-cost method -- which, in a competitive industry like credit card issuers, will be passed on to the consumer in the form of rewards, lower annual fees, or lower interest rates. Though again, we don't know for sure which one is lower cost, though the absence of wasteful class actions suggests it would be arbitration.

Of interest: I can't find a single consumer website that tells us which credit card is in which bucket. Which suggest that consumers care much more about other terms and conditions. After all, at the end of the day, less than 1% of credit card users will end up litigating against their provider.

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