You may have seen the series of articles currently running in the New York Times about unfairness in consumer arbitration. If you haven’t checked them out, I urge you to read them. They’re very well researched and the interviews conducted by the reporters integrate a variety of perspectives from all sides of this very complicated issue.
The debate within the legal community about how to provide effective consumer protection has been playing out for decades. It has evolved into something of a rote back-and-forth exchange between two opposing camps. On one side are the class action lawyers and the consumer protection advocates who provide stories like those detailed in the NYT article about the unfairness of arbitration and the partiality of arbitrators. On the other side, corporate General Counsels and corporate defense lawyers recount their experience with abusive class actions where law firms make tens or hundreds of millions of dollars and victimized consumers only make pennies. Both sides have very valid points. Regrettably, this zero-sum conversation has created a stalemate that has lasted for years. The Supreme Court decision AT&T v. Concepcion, which opened the door to pre-dispute binding arbitration clauses in consumer agreements, was a major development in this longstanding disagreement. Suddenly corporations could block class actions with the inclusion of a single clause, which represented a major shift in the debate.
The Consumer Financial Protection Bureau (CFPB), the Federal consumer advocacy organization championed by Elizabeth Warren and now run by Richard Cordray, was given authority by the Dodd-Frank act to investigate the use of these arbitration clauses and issue a regulation on their future. Their first opinion on the subject has now been released and it appears clear they will move to ban the use of pre-dispute, binding clauses featured in the NYT articles because they block redress for consumers. Based on the statistics shared by the CFPB, I believe this is the right decision because the reality is that consumers simply aren’t using these arbitration options to get fair redress.
Some argue that this new regulation will push us back to the 1980s and 1990s, returning to the stalemate between class action lawyers and defense firms. But no one, least of all the CFPB, wants to move backwards. The big question is: What does the future of consumer protection look like?
I believe Modria offers an answer to that question. Growing out of the work we did at eBay and PayPal, the Modria team is pioneering new forms of consumer redress and protection that break through the old debates about pre-dispute binding arbitration clauses vs. class action lawsuits. The Modria platform provides easily discoverable redress paths to consumers right at the place where the transaction initially took place. Modria enables disputes to be resolved immediately with a few clicks, or (if an instant resolution isn’t possible) in a matter of days – not weeks, months, or years. Through our collective experience, we’ve resolved hundreds of millions of disputes – more volume per day than the entire US court system – with most cases handled only by technology. The solutions we’ve designed, launched, and scaled represent a new option for consumer redress, opening new possibilities that were inconceivable just 10 years ago.
We know what good online dispute resolution (ODR) systems look like. ODR systems need to be transparent, independent, impartial, effective, fair, accessible, flexible, and affordable. Modria only builds systems that meet these criteria. Many of the older pre-dispute, binding consumer arbitration processes do not live up to these standards. We should leverage the power of technology to give consumers fast and fair resolutions to any issues they encounter. That is the future of consumer protection.
Don’t get me wrong. There are still a lot of difficult questions to answer… such as enforcement (both public and private), group resolutions vs. individual resolutions, whether pre-dispute binding systems are ever permissible, and the conditions under which consumer arbitrations should be appealable in a courtroom. Regulators, lawyers, consumer advocates, technologists and others need to tackle these questions and arrive at answers we can all agree upon. In the meantime, the tools of ODR can move us toward a future where 100% access to justice for consumers is potentially achievable. The time for the old debates is over. The Modria team works every day in pursuit of fast and fair resolutions. We welcome the conversation being raised by the New York Times and the CFPB because we believe it will help us get there.