Another nail in the "arbitration is cheaper for debt collection" argument
Regular Tortdeform readers will know that I've previously explained that it is more costly for companies to take a delinquent customer to arbitration that it is to take the customer to court. That's because arbitration has a sliding fee scale:
Let’s compare the cost of taking a debtor to arbitration vs. taking a debtor to court in the two populous states of Texas and California. The table below indicates the cost of filing and serving a complaint requesting $4,999, $7,499, and $25,000 in an NAF arbitration proceeding, in a Texas court, and in a California court:
In California and Texas, it is much cheaper to commence an action in court as opposed to arbitration. I have been unable to find a comprehensive listing of court filing fees by state, but the handful of states I checked are in line with the pricing of these states. As the table shows, it can be over five times as expensive to take a debtor to arbitration than it does to take him or her to court. So just to initiate the legal action, the courts have a substantial cost advantage over the arbitration system. Why are mandatory arbitration clauses so prevalent in consumer credit card agreements? | Tortdeform
Additional proof that I'm right on this comes from a company called Knology, Inc. Knology provides high speed Internet, phone, and cable services. And they just sent this notice to their customers:
It is important that you read this section carefully. It provides for resolution of disputes (whether based in contract, tort, statute, fraud, misrepresentation, or any other legal or equitable theory) through final and binding arbitration before a single neutral arbitrator instead of in a court by a judge or jury or through a class action. All disputes arising out of or relating to this agreement (other than actions for the collections of debts you owe us) including, without limitation, any dispute based on any service or advertising of the services related thereto, shall be resolved by final and binding arbitration... (Emphasis added.)
The whole point of mandatory arbitration clauses is to ensure that corporations are never sued, either by individuals or through class actions. If it were truly less expensive to arbitrate collections disputes, Knology wouldn't make the exception in the arbitration agreement. Claims that mandatory arbitration clauses protect customers who pay their bills on time are simply false. Mandatory arbitration clauses protect corporations who don't want to follow the law.