STATEMENT OF ERIC J. MOGILNICKI
March 1, 2000
Good afternoon, Mr. Chairman, and Members of the Subcommittee on Administrative Oversight and the Courts. My name is Eric Mogilnicki and I am a partner at the law firm of Wilmer, Cutler & Pickering. I appear today on behalf of the American Bankers Association, the Consumer Bankers Association, the American Financial Services Association and the National Retail Federation. Each of these groups deeply appreciates this opportunity to provide the Subcommittee with information regarding the enormous benefits from the use of arbitration to resolve consumer disputes.
For over seventy-five years, there has been a strong federal policy in favor of arbitration. That policy was first embodied in the Federal Arbitration Act, 9 U.S.C. §§ 1-16, because it was clear, even in 1924, that litigation was consuming too much of the time, effort and money of businesses and individuals alike. The Senate Judiciary Committee Report that was prepared in connection with the Arbitration Act noted that "[t]he desire to avoid the delay and expense of litigation persists. The desire grows with time and as delays and expenses increase. The settlement of disputes by arbitration appeals to . . . business . . . as well as to individuals." S. Rep. No. 68-536, at 3 (1924). The Report went on to document the fact that arbitration took weeks where litigation took years; that the costs of arbitration were "trifling" compared to the expense of litigation; and that the participants in arbitration -- "winners and losers alike" -- were satisfied with the arbitration process. Id.
All of these conclusions are even more valid today. The delays and expense of litigation are enormous. Indeed, this Congress recently noted, in the Y2K Act, that "individuals already find [the legal] system inaccessible because of its complexity and expense." Y2K Act, Pub. L. No. 106-37, § 2(a)(3)(B)(iii), 113 Stat. 185 (1999).
Arbitration is still faster and less expensive than litigation. Today, arbitration takes less than half the time of litigation. Arbitration also allows individuals to pursue their claims without having to pay a lawyer to shepherd them through the complexities of our court system. See Lewis Maltby, Private Justice: Employment Arbitration and Civil Rights, Colum. Hum. Rts. L. Rev. 29, 55, 56-57 (1998); Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public Law Disputes, 1995 U. Ill. L. Rev. 635, 646.
And arbitration still satisfies the individuals whose claims are resolved. One recent study of securities arbitration indicated that well over 90% of the participants in arbitration believed their case was handled fairly. See Gary Tidwell, et al., Party Evaluation of Arbitrators: An Analysis of Data Collected from NASD Regulation Arbitrations (August 5, 1999) (presented to the National Meeting, Academy of Legal Studies in Business).
For all of these reasons, the Supreme Court has consistently upheld the use of arbitration clauses in consumer contracts. In 1989, the Court explained that "suspicion of arbitration . . . has fallen far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes." Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 481 (1989).
There are other substantial benefits to arbitration in the consumer credit context.
First, arbitration agreements give consumers a valuable right: the right to take financial institutions to arbitration, and so to have their dispute resolved quickly and inexpensively. Consumers do not have that right without an arbitration agreement. For its part, a bank or business that has agreed to arbitration has forfeited its right to litigate the consumer's claim. Instead, the financial institution must accept arbitration and abide by the arbitrator's decision.
Second, consumers who do not want arbitration can avoid it simply by choosing to do business with one of the many financial service providers that does not offer an arbitration clause in their contracts. Dispute resolution is one of many areas in which different financial service providers offer different products and compete for business. A ban on arbitration agreements would limit the choices available to consumers.
Third, certain disputes will never be heard unless they are arbitrated. To be sure, some claims are large enough to justify the costs of litigation. But the vast majority of claims are not large enough for litigation -- even though they involve disputes that are important to consumers. For such individual cases, only arbitration offers a cost-effective way of having the dispute resolved by a neutral third party.
Finally, the Federal Arbitration Act already prevents abuses of arbitration. If an individual arbitrator proves biased or improperly excludes evidence, the Federal Arbitration Act provides for judicial review. See 9 U.S.C. § 10. Similarly, the Act permits courts to review and reallocate fees that are excessive. See, e.g., Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997). These cases are rare because arbitration forums have detailed rules that eliminate the potential for bias or excessive fees long before a court must become involved.
For all of these reasons, and others, the American Bankers Association, Consumer Bankers Association, American Financial Services Association and National Retail Federation believe that arbitration offers an important way by which their members can resolve customer disputes fairly and expeditiously. Each of these organizations appreciates the opportunity to be heard on this important issue, and would welcome the opportunity to work with the Subcommittee and its Staff as its consideration of arbitration continues. We also ask for the opportunity to supply additional materials for the record.