GEORGIA STATE UNIVERSITY
March 15, 2000
I am writing to request the opportunity to participate in the upcoming workshop to be held on the above topic this spring. I have been actively involved in issues regarding consumer protection since my graduation from law school in 1969. In the 30 years since that graduation, I have been a practicing consumer protection lawyer, Executive Director of the National Consumer Law Center in Boston, a lawyer at the Securities & Exchange Commission working on cases involving investor protection, and a law professor. I have litigated many consumer protection cases and written fifteen consumer protection articles. I am the Chair of the Board of Directors of the Consumer Law Center of the South.
I have been involved in alternative dispute resolution for the last six years. In 1995 I published an extensive law review article on consumer arbitration. "Arbitration of Disputes Between Consumers and Financial Institutions: A Serious Threat to Consumer Protection," 10 Ohio Journal on Dispute Resolution 267 (1995). That article is referred to several times in the commentary to the American Arbitration Association's Consumer Due Process Protocols. I have been on numerous panels discussing consumer arbitration sponsored by the American Bar Association and the Practising Law Institute. In conjunction with several of these panels I published an extensive summary of recent consumer arbitration cases. I am Vice-Chair of the ADR Subcommittee of the Consumer Financial Services Committee in the American Bar Association's Business Law Section.
I have been working in the area of Online consumer transactions for several years. Last year I co-taught an MBA course in Georgia State University's business school on "Legal and Policy Issues in Electronic Commerce." Two articles on electronic commerce will be published this spring or summer. "Consumer Surfing for Sales in Cyberspace: What Constitutes Acceptance and What Legal Terms and Conditions Bind the Consumer" will be published in the Georgia State Law Review. I spoke about that topic at a law review symposium last month. "Consumer Privacy in electronic Commerce: As the Millennium Approached, Minnesota Attacked, Regulators Refrained, and Congress Compromised" will be published in the Notre Dame Journal on Law, Ethics, and Public Policy. I published another article on privacy and electronic commerce back when that issue was just beginning to draw attention. "Privacy Protection for Consumer Transactions in Electronic Commerce: Why Self-Regulation is Inadequate," 49 So. Carolina Law Review 847 (1998). I have spoken about consumer privacy in electronic commerce on several panels at conferences.
I am Co-Chair of the Working Group on Consumer Protection which is part of the Electronic Commerce Committee of the American Bar Association's Cyberspace Law Committee. In connection with that Working Group, I was responsible, along with two other law professors, for launching a Web Site last October designed to provide consumers with practical information they need when shopping on the Web. Safeshopping.org received over 150,000 visits in its first few months.
I believe that I will be able to make a substantial contribution to the workshop in light of my experience over the past 30 years. Further information on my professional activities is contained in my Vitae. http://law.gsu.edu/budnitz/vitaeweb.htm.
Below I will briefly address some of the questions the Commerce Department and the FTC have asked in announcing the workshop.
How does ADR work in resolving consumer disputes today? As a legal scholar, I would like very much to study consumer arbitration in a systematic and methodologically appropriate manner in order to answer this question. Unfortunately, this is not possible. No one outside of the companies conducting mediation and arbitration knows how ADR is working. Indeed, it is likely that the companies themselves are not collecting data in a manner which would enable scholars and policy makers to draw conclusions as to how well it is working. These are secret proceedings and outsiders have not been permitted to conduct objective social scientific research. Consumers in pending lawsuits in which companies invoke arbitration clauses are seeking to discover data to answer that question. The limited evidence to date does not indicate arbitration protects consumer interests, but is far from definitive. See Caroline E. Mayer, "Win Some, Lose Rarely?; Arbitration Forum's Rulings Called One-Sided," Washington Post, March 1, 2000.
Affordability, accessibility, and due process. In many instances, it is likely that arbitration is less expensive than going to court. However, the case law in consumer arbitration cases indicates that in many instances arbitration can be far more expensive than litigation. Baron v. Best Buy, 75 F. Supp.2d 1368 (S.D. Fla. 1999), on appeal to Eleventh Circuit. It certainly often is more expensive than a case in small claims court. Whether a consumer can afford arbitration depends upon how much process a consumer wants according to the rules of some arbitration companies. These companies' fees vary greatly depending upon whether the consumer insists on a hearing rather than just a decision based on documents. An Eleventh Circuit case found that there was no disclosure of the fees, and no guarantee that the arbitration company would set fees low enough to make the arbitration forum affordable. Randolph v. Green Tree Financial Corp., 178 F.3d 1149 (11th Cir. 1999).
In regard to accessibility, arbitration companies vary in their rules concerning where cases are heard. Some private arbitration rules ensure that cases will be heard in a forum convenient to the consumer. Others seem to guarantee that the forum will be inaccessible. For example, one company appeared to require all hearings to be in Minnesota. Patterson v. ITT Consumer Financial Corp., 18 Cal. Rptr.2d 563 (Cal. Ct. App. 1993)(the arbitration agreement "on its face suggests that Minnesota would be the locus for the arbitration."). One arbitration administrator is located in Europe and the consumer's lawyer had difficulty figuring out where to obtain their rules. Hearings were held only in New York. Brower v. Gateway 2000, 676 N.Y.S.2d 569 (N.Y. Sup. Ct. 1998).
Arbitration law does not guarantee meaningful due process. For example, arbitrators are not required to follow the law, have discretion over how much discovery to allow, and are not required to issue written opinions stating findings of fact or conclusions of law. The fees may so high they make it impossible for a consumer to avail himself of statutory rights. Randolph v Green Tree Financial Corp., 178 F.3d 1149 (11th Cir. 1999).
Provision of information to consumers. I have studied many arbitration agreements, and have found that they vary greatly in the extent to which they provide necessary information to consumers. However, even those agreements which clearly describe many important facts about arbitration contain a fundamental flaw which precludes a truly knowing and intelligent waiver of the consumer's right to the judicial process. That is, they require the consumer to agree before a dispute arises. Prior to a dispute, there is no way for the consumer to know whether he or she would prefer arbitration over a judicial forum, because preferences will vary depending upon the nature of the dispute. For example, does the consumer need extensive discovery in order to prove the case? Does the consumer have very sympathetic facts and need not rely on the law? Is there a consumer protection law or regulation which, if applied by a decision-maker required to follow the law, will impose liability on the seller? Before the consumer knows the nature of the dispute, the consumer cannot possibly know which type of forum he or she prefers.
Another problem relates to the way in which consumers' consent to arbitration is obtained. Some sellers and creditors obtain consent through clear and conspicuous provisions presented to consumers at the time the consumer and business commence their relationship. However, often creditors impose arbitration after a transaction has already been entered into by means of a stuffer in a mailing along with lots of other stuffers where the consumer is not likely to notice it. The seller or creditor is not required to obtain the consumer's separate signed assent because buried in the original agreement is a clause providing that the seller or creditor can unilaterally change and add terms. In an online environment, some fear that sellers and creditors may impose arbitration through clauses buried in e-mails containing much other information.
The above responses point out the many potential disadvantages to arbitration based on practices which court cases have exposed. This is not to suggest there is no merit to Online ADR. As Secretary Daley has pointed out, in a global e-commerce transaction involving a small dollar value, court resolution of disputes is probably not a practical option. ADR, including arbitration, is a reasonable alternative. The above examples, however, demonstrate that ADR can operate to the detriment of consumers. Therefore, we must design ADR systems which are fair, accessible, and affordable; which request the consumer's consent to ADR processes at a meaningful time; and which provide the consumer with essential information about ADR in a clear fashion.
I hope the above is informative, and I hope I will have the opportunity to participate in the workshop.
Mark E. Budnitz