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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…
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 |
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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
Happy to help. Email me with questions.
I have to say, I’m intrigued. My previous knowledge of arbitration came from this episode of Fresh Air :
http://www.npr.org/2015/11/12/455749456/have-we-lost-a-constitutional-right-in-the-fine-print
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.
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.
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.
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.
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?
Alex [at] bachuwalaw [dot] com