Arbitration wins another court battle

court houseIt is quickly moving beyond dispute that federal consumer protection law favors binding arbitration over litigation. A North Carolina federal trial court recently joined two federal appellate courts in ruling that the federal warranty law, the Magnuson-Moss Warranty Act, does not ban binding arbitration provisions in consumer product warranties. This is good news for consumer product manufacturers, and better news for consumers if more companies turn to binding arbitration.

But still, auto, boat and RV companies, primary targets under the MMWA, shy away from going the arbitration route. Let’s hope this changes.

The MMWA, state lemon laws and other consumer protection initiatives have given rise to assembly-line law firms, who style themselves “consumer advocates” on billboards and in late night TV ads but file thousands of resource-draining lawsuits each year for check-engine light and other minor complaints.  Compared to arbitration, litigation is a terribly inefficient means for resovling disputes. This is particularly so in the consumer warranty setting, where a case can takes years to wind through the court system and litigation costs invariably dwarf the maximum case value.

As one scholar has observed in the context of class action consumer litigation:

Arbitration is superior in many cases to class actions in vindicating consumer rights. Individual arbitration provides swift resolution of disputes; allows for easy and complete recovery; and does not pit the interests of consumers against an attorney tasked with representing their interests. Indeed, consumers consistently report that they prefer pursuing their claims in arbitration to class action litigation. Therefore, both for the individual complainant and for aggrieved individuals in the aggregate, a contract selecting individual arbitration often will afford consumers a better mechanism for obtaining meaningful relief than class action litigation.

The same practical considerations apply to indvidual warranty claims:  less time to resolution, availability of complete relief, and avoiding the inherent conflict of interest created by attorney fee-shift provisions.

Now may be the time for consumer product makers to look at arbitration anew, devise consumer-friendly programs and make the case showing that arbitration is better for consumers.



Filed under Best Practices, Court Decisions, Customer Experience, Resolving Disputes, Statutes & Regulations, Warranty

2 responses to “Arbitration wins another court battle

  1. Pingback: A “high-five” for arbitration (sans the lawyers) | Driving Value

  2. Pingback: Debating Warranty Arbitration | Driving Value

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