July 14, 2008

Arbitration Better than Court for Consumer Debtors, Study Shows

WASHINGTON, D.C.—The U.S. Chamber today cited a new analysis of California debt collection arbitration cases as the latest evidence that arbitration is a much better alternative for the consumer than the court system.

“As a growing number of American families are facing burdensome debt collection issues in these times of economic uncertainty, it is astounding that America’s plaintiffs’ lawyers are working to tear down a proven dispute resolution system and force tens of millions into court,” said Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform.

The new analysis, conducted by Navigant Consulting, looked at nearly 34,000 California debt collection arbitration cases. It found that 32.1 percent of the consumer debtors named in cases that did not settle prevailed in their case—either winning their arbitration hearing outright or having the claims against them dismissed. In another 16.4 percent of the cases that did not settle, the study found that consumer debtors had the claims against them reduced by a median of almost $825.

Consumers fare much more poorly when facing debt collection lawsuits than they do in arbitration.  For example, a study released last fall by the Urban Justice Center found that less than eight percent of consumers facing debt collection lawsuits in New York City courts prevailed by having their cases dismissed—a rate four times worse than that of arbitration.

“The data is increasingly clear: for most consumers, arbitration is a better way to resolve disputes than being forced into court,” Rickard said.

The new analysis comes at a key time in the consumer arbitration-versus-lawsuit debate. Plaintiffs’ trial lawyers are lobbying Congress on a string of proposals designed to eliminate arbitration as a viable option for millions of American consumers, instead forcing them to face the court system as the only means of dispute resolution.

The New York City study found that 80 percent of the lawsuits ended in default judgments against consumers who did not respond nor appear in court to argue their case. In contrast, of the California arbitration cases in which consumers failed to respond, no cases ended in the automatic entry of default judgments. Instead, the creditor was required to demonstrate the existence of the claimed debt to the arbitrator and in more than one out of five cases the claim against the debtor was reduced.

Other previously released research addresses arbitration claims in which the consumer is the plaintiff rather than the defendant. That research has shown that the consumer prevails 65 percent of the time in consumer-initiated arbitration.

The Navigant Consulting analysis was done at the request of the U.S. Chamber Institute for Legal Reform and is available here.

Navigant Consulting used data initially collected by Public Citizen, which is available here.

The study of New York City civil courts conducted by Urban Justice Center is available here.

Consumer Debt Collection: A Side-by-Side Comparison*

California Arbitration Cases New York City Court Cases
(random sample)
Consumers Won, Case Dismissed, or Case Not Served on Consumer 32.1%
(of total excluding settlements)
Claims Against Consumer Reduced 16.4%
(of total excluding settlements)
Defaults 47.3% 80%
Settled 21.2% 5.9%
Total Cases 33,948 600

* Percentages do not total 100 percent due to some overlap among categories.

ILR seeks to promote civil justice reform through legislative, political, judicial, and educational activities at the national, state, and local levels. The U.S. Chamber of Commerce is the world’s largest business federation, representing more than 3 million businesses and organizations of every size, sector, and region.

Cookie Notice

By clicking “I Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

Cookie Notice

By clicking “I Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. Review Settings