Back in 2002, Stephen Ware wrote a policy analysis for Cato entitled “Arbitration Under Assault: Trial Lawyers Lead the Charge.” That assault – endorsed by the New York Times in a two-part series that is getting some attention – depends crucially on both an attack on freedom of contract and a refusal to take seriously what consumers vote for with their marketplace choices.
As has come to be widely acknowledged in recent years, most class action litigation over consumer financial claims goes on for the benefit of lawyers. It produces scanty benefits for customers but does drive up the costs of providing common services, which is passed along in the form of higher fees and rates. Given a chance, as a result, almost every company will seek to draft “fine print” substituting low-cost, relatively fast arbitration for forms of litigation whose transactional cost greatly exceeds the value to customers of eventual relief given. Even where there is strong competition in a market (among affluent credit card users, for example), it is exceedingly rare for consumers to switch accounts because one provider shunts claims into arbitration while another invites class action litigation.
What does this signify about consumer preferences? Consumers willingly switch all the time from one airline loyalty card to another in quest of better miles-and-points rewards, baggage allowances, pre-boarding policies, and so forth – but not to avoid arbitration policies. Why not? To the experts the Times prefers to speak to – and as the U.S. Chamber of Commerce points out, every single judge and law professor the Times spoke to was hostile to arbitration, which is hardly true of the universe of all distinguished law professors and judges – it must be inattention or false consciousness; consumers don’t realize that they’ve giving up terribly valuable rights. The other possibility is that consumers rationally place little before-the-fact value on a future benefit that is expensive to provide and mostly pays off for the lawyers who – as Daniel Fisher points out – mostly manage to stay in the background of the Times piece.
I’ve got more on the story at Overlawyered this morning, where I’ve been covering the Litigation Lobby’s war on arbitration since I launched the site in 1999. Other Cato legal scholars have agreed with a Supreme Court majority (but not with the Times) that the role of the government is ordinarily to enforce, not substitute its judgment for, clearly worded private contracts generating terms announced and known to the parties. And I’ll give the last word for the moment to blogger Coyote, writing about a recent California anti-arbitration bill so extreme that even liberal Gov. Jerry Brown saw fit to veto it: “Here is how you should think about this proposed law: Attorneys are the taxi cartels, and arbitration is Uber. And the incumbents want their competitor banned.”