Ok, so the reason we have arbitration at all is to save the courts time. This makes sense.
This seems like such an easy problem to solve too. Just don't let the company or the worker pick the arbitrator. Require by law that the arbitrator be picked by a judge, or be randomly assigned by the court system, who has presumably vetted the arbitrator.
The main problem with these things is that the arbitrator is picked by the company, so they have a strong incentive to favor the company. Arbitration wouldn't be so bad if the inherent bias is removed.
The problem is that companies favor arbitration because arbitration tends to favor companies. If arbitration were truly neutral, and it were easy to access with low costs to the consumer, companies would stop using them.
So even if companies don't pick the arbitrator, arbitrators still have an incentive to find in favor of companies.
Additionally, small claims court already basically works like what you're describing, no jury just one arbitrator not picked by either side--the judge.
Restructuring arbitration for neutrality and thus cannibalizing arbitration as an industry seems like a fine outcome to me. Feels a bit like the payday loan industry: I'm sure it does some people some good, but it's largely just predatory and throws people into a rigged game. We'd be better off with less of it.
An underappreciated facet of payday loans is that without them desperate people would borrow from unsavoury people - making them illegal drives the high risk loan business underground into the hands of the Mafia. And then the consequences for the desperate people for defaulting is no longer bankruptcy, but broken legs or worse.
I agree we should have less of it, but all legislation should be mindful of the consequences of certain types of restrictions.
I was told that the mafia in the US lost a lot of business with the rise of credit cards but I can't find a source for that. Some researchers say that people turn to payday loans not only because they don't have access to bank loans but because the charging structure for payday loans is transparent and up-front:
"But most of the RiteCheck customers I interviewed had done the math and found that it was less expensive to use RiteCheck than to use a bank. In their experience, required minimum balances and fees for everything from ATM usage to account maintenance were going up."
In the case of payday loans I don't think we have to worry about throwing the baby out with the bathwater. The number of people that will literally start turning to the Mafia for loans has got to be minuscule.
On the other hand, the number of people who will no longer be bent over a barrel every day will be significantly improved.
The demand is not really "pre-existing", it's one created by the payday loan industry to a large extent. Especially by advertising their use for buying consumer goods. What tends to happen is not that people go to the Mafia (traditionally they come to you!), but that people make creditors of their utility companies and landlords by deferring payment.
(The older alternative to unsecured very high interest short term loans is those secured on valuables - the pawn shop).
I'm not sure about the laws in your locality (in the UK you have to have a licence from the UK Office of Fair Trading to offer consumer credit), but I would generally support banning anyone other than payday loan companies from selling very high interest loans - high interest loans from utility companies and landlords strikes me as an obscenity.
> What tends to happen is not that people go to the Mafia (traditionally they come to you!)
> high interest loans from utility companies and landlords strikes me as an obscenity.
My point is usually that this is a lot cheaper, since these don't usually charge interest at the payday rates. Utility companies have barriers to cutting you off.
But ultimately people who have negative cashflow week-to-week are going to get in trouble. Limiting how much debt they can get in causes them to hit the buffers earlier, but less hard.
(Incidentally, this is yet another major problem with "universal credit": paying it on a 6 week delay is designed to force people to use payday lenders!)
No, the demand is created by the people who are desperate. Let's not put the cart before the horse here. They're not going to go away even if the services do.
If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere.
Switzerland is a wealthy low-crime country to start with, the mafia do not have a strong hold. For example the homicide rate in Switzerland is 0.54 per 100,000 people, by comparison in the United States it is 5.35 per 100,000 people.
>>> An underappreciated facet of payday loans is that without them desperate people would borrow from unsavoury people - making them illegal drives the high risk loan business underground into the hands of the Mafia. And then the consequences for the desperate people for defaulting is no longer bankruptcy, but broken legs or worse.
> If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere.
You could solve the loan shark problem and cap the interest rate by socializing the rest of the risk through some mechanism -- say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products. Obviously there are details to be worked out, but the burden of a policy to combat loan sharking does not have to fall on the most vulnerable.
>say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products
but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
> but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
Perhaps, but I have little sympathy for the feelings of the better-off people who want to clutch every penny to the point that they are jealous of the help the needy might get. If they're able to block reforms, then I think efforts need to be made to change their attitudes.
I'm struggling to follow your argument. You can also default on a payday loan - I think defaulting is better than the mafia, which is precisely the benefit of payday loans - they add in a step where you don't go to the mafia.
The problem is that pay day loans are typically pretty small <$500 and meant to be short duration 1-8 weeks, meaning that if it’s a $500 loan out for one month @15% that is $6.2 in interest, it is going to cost more than that to process and administer the loan, let alone funding costs, default risk, etc.
you'd presumably want to keep interest at around the level required to cover the defaulting rate, plus costs of operation. Any lower and you're essentially providing handouts - there's an argument to be had for that too (e.g. UBI, negative income tax) but it's a separate topic.
you'd presumably want to keep interest at around the level required to cover the defaulting rate, plus costs of operation
Add: Plus a profit to that
But that seems to be covered. There are multiple banks who will provide credit to consumers at lower interest rates than that and obviously still can make a profit.
Car loans are usually lower than that. Mortgages go for between 1 1/4 and 2% (last time I looked).
The maximum rate of 15% is usually applicable for credit card debts.
There is a saying, you can accept any customers you want as long as the price (interest rate) is correct. As a group you can manage this pretty well. For some segments of unsecured loans the default rates are high enough to warrant those interest rates. The customers who score better gets lower rates as there is competition in the market and they often shop around. Having too high rates gives a lot of not taken up loan offers which the managers hate.
Car loans are almost impossible to lose money on especially the secured ones. It becomes a question of "how much can a person damage a car before it being repossessed". Usually the car is fine and one gets the money back as long as you don't loan out more than you expect can be recovered after said damage. That's why you can give so low interest rates. Unsecured car loans are much more expensive and often requires full coverage insurance.
So yes, one can give out loans to lower interest rates than 15% but then you have to cut off the lower scoring customers that would not be profitable with that rate.
It's interesting that the mortgages in Switzerland can go that low. I remember that in the eurozone banks are earning negative interest on their reserves due to european central bank policy. I doubt that you would see 1.25% mortgage rates if this were not the case- it very well may be that these rates are not profitable, but are at least less unprofitable than letting the money sit in reserve.
I think the issue here is that in an ideal world, neither would exist. The original reply to your comment suggests that this is not even being considered and thus is satirizing your rationale.
I think that's a charitable reading of the parent comment. I thought I made it clear that in an ideal world payday loans (and the mafia) wouldn't exist, so I'm not even sure what kind of ideal world the parent comment is suggesting.
I'm fine with doing away with arbitration in most cases, but I'd rather just do that directly.
My point is that it's hard to enforce neutrality, because there is always an implicit incentive for arbitrators to find in favor of big companies. Even if those companies aren't directly choosing a specific arbitrator, big companies in the aggregate are the ones primarily driving the business.
> The problem is that companies favor arbitration because arbitration tends to favor companies.
That's only because they are paid by the companies (and picked by the companies). If the companies didn't pick and the payment came out of the disputed amount or the loser paid, then they wouldn't have an incentive to favor the company.
An article in Harvard Negotiation Law Review points out that courts can order arbitration if both parties agree to it, but cannot control the mechanisms of the arbitration. Therefore, if the company is paying any portion of the arbitrator's fee and the company is not leading in the process, they can elect to not pay the arbitrator's fee. In which case the arbitration fails and the case is dismissed. It appears to be in the plaintiff's interest to prefer mediation over arbitration. In essence, arbitration is broken.
Does the arbitration company make money when the employer doesn't? Nope.
Will the arbitration company force bribe money (Fine, Civil Suite) to make the problem go away? Nope.
Will the arbitration company put someone in jail for comitting a crime? Nope.
The entire point of arbitration is to eliminate the courts. "Tendancy" is the spin word, it leaves open the possibility the arbitration comapny might rule in favor of the employee. They will literally never do that.
E.g. Google's executives harassing women then using binding arbitration to remove their ability to sue them, which irregardless of the merit of the case, would be dismissed by the arbiter every time. Took a company-wide revolt to get them to stop. I'm beyond sure if the could've gotten away with literal beating and raping women they would've, and nobody wants to deal with the horror show executives participating in that kind of behaivour would become when they started down that road.
The problem with this approach is, the courts are there to avoid people exacting justice on their own terms which I'll remind you in our history, we've done quite a few times and it doesn't work out well. Sitting a mob of strangers down and having them pass down a ruling is a much better approach. Remember, 17 guns in america per man women and child and growing.
You do not want the setiment if corporations existing to literally eat people alive or that executives would shoot their own families for money to continue to grow. You don't want to let the faith in government and the courts wane over this BS. We've got a good thing going on right now in the US, it'd be a shame to throw it away over something as banal as executive pay or stockholder income.
Arbitration is also a lot cheaper than going to court, so companies would save money on arbitration even if arbiters were slightly less likely to side with them than courts.
Not exactly. Most plaintiffs attorneys are working on contingency, i.e. a percent of the judgment. Going to court costs the plaintiffs themselves nothing. They only need to have a case with a decent enough chance of winning or settling for enough to make it worth the plaintiff attorney’s time.
Also, almost no one has in house litigators. So companies being sued also have to shell out for counsel by the hour.
>Most plaintiffs attorneys are working on contingency.
I very much doubt that. The vast majority of disputes that would end up in arbitration are smaller contract disputes, not personal injury claims.
>Also, almost no one has in house litigators.
They have counsel on retainer, and some companies still do. All big companies would if forcing customers and employees to accept arbitration wasn't an option.
> The problem is that companies favor arbitration because arbitration tends to favor companies. If arbitration were truly neutral, and it were easy to access with low costs to the consumer, companies would stop using them.
Another important factor is that arbitration is often used by companies as a way to shield themselves from class action lawsuits. Even if arbitration were fair with low costs to the consumer, no one would go through it individually to collect a $10 damage.
If a million employees each suffered $10 in damages from a particular action of a company, there needs to be a way for them to collectively pursue damages.
One thing that could fix this would be making the decision for arbitration binding on companies. Basically, once a company picks arbitration, it can’t ever go back. Then make it so someone other than the company picks the arbiter. This would go a long way towards removing perverse incentives.
I should have phrased it better. I am not talking about an arbitration case itself, but the decision to use arbitration as the means for settling disputes. If company decides to use arbitration in 2018, then in 2020, they are not allowed to change their mind to not use arbitration. Deciding to use arbitration locks the company in. Thus, the various arbitration providers don't have any concern that if their decisions are not friendly to the company the company will stop using their services.
This is how every arbitration clause I've seen is structured. I think it's a good idea to write that restriction into law, given anyone deviating from the norm is probably tryin to game the system to their advantage.
> Ok, so the reason we have arbitration at all is to save the courts time. This makes sense.
Honestly I think it does _not_ make sense. If courts are too overloaded, then we need more courts or we need to change the laws/processes that overload them.
> This seems like such an easy problem to solve too. Just don't let the company or the worker pick the arbitrator. Require by law that the arbitrator be picked by a judge, or be randomly assigned by the court system, who has presumably vetted the arbitrator.
> The main problem with these things is that the arbitrator is picked by the company, so they have a strong incentive to favor the company. Arbitration wouldn't be so bad if the inherent bias is removed.
I think these are good ideas, but I think there's another very big one to consider: why should anyone be allowed to choose arbitration before the dispute at hand arises? I simply think it should be disallowed. I always here people supporting arbitration say stuff like "it's better for both parties", but if that's actually the case then both parties would choose the arbitration at the time of the dispute. Allowing people to tie themselves to arbitration ahead of time entirely removes the incentive to actually provide a fairer and better process to both sides.
I agree with you on all counts, but just to play devil's advocate if you had to mutually agree to arbitration after a dispute arises, odds are likely in bitter disputes one side will refuse only to cost the other side more money in legal fees.
I don't think that's enough of a reason to disagree with your point but it's certainly one to consider, especially if one side has a lot more resources and jurisdictionally each side will need to pay their own legal fees.
> I agree with you on all counts, but just to play devil's advocate if you had to mutually agree to arbitration after a dispute arises, odds are likely in bitter disputes one side will refuse only to cost the other side more money in legal fees.
Honestly I think that you shouldn't have any inherent right to arbitration. You should have a right to access to a court. Arbitration should only there if both parties agree to it. If one party doesn't agree because they want to make it more expensive for you, so be it. I mean I can't really see what's fundamentally different than someone deciding they want to force you to a court trial for that reason versus them forcing you for another reason. It's just a legal strategy at the end of the day. If they are truly acting in bad will, they should be assessed court fees down the road. I know that that's difficult in the US court system, but that is a problem that should be fixed with the court system not by just side-stepping it with arbitration.
> You don't have any inherent right to arbitration. You _do_ have a right to access to a court. Arbitration _is_ only there if both parties agree to it.
I know this is the case and I believe it is generally the way it should be (ecxept of course the fact that the agreements can be entered into prior to the disputes). I was responding to the devil’s post by basically pointing what you wrote here.
> Your perfect world is captured by current employment contracts. Both sides agree to arbitration and then both sides stick by that agreement.
I’m not sure what point you’re making here. I think that agreements by parties to restrict themselves to arbitration regarding disputes that have not yet arisen should be legally unenforceable. I think it would improve the arbitration system in every way. (This was essentially the argument of my first post.) Are you disagreeing with me?
>Both sides agree to arbitration and then both sides stick by that agreement.
Unless because of career specialization, location, imperfect markets...whatever, you only have access to employers who insist on arbitration as part of the terms of employment.
One side agreed to it, and one side was coerced into agreeing to it.
> If courts are too overloaded, then we need more courts or we need to change the laws/processes that overload them.
This is certainly true, but many parties are mutually benefited by resolving some disputes via a neutral arbiter rather than the courts. It's just another example of where private companies can be more efficient than legal bodies.
There are just more inherent costs in a legal court of law.
I don’t disagree, but I don’t believe this is an argument against my claim that the choice of whether a dispute should go to arbitration should not be made before the dispute arises.
Aren't there already systems in place within the legal system to allow this? Like small claims court or appealing a parking ticket, where you present the case to one judge and they decide rather than holding a full trial before a jury.
I don't see why relying on one arbiter saves any more time than relying on one judge. Is it that the arbiter would be less qualified/lower paid than a judge?
To be legal, arbitration must be fair and protect the legal rights of both parties (although enforcing that requirement is obviously difficult). But arbitration doesn’t have to be as formal as a regular court, and that informality is supposed to save a lot of money, so US law actually prefers arbitration when it’s an option.
Small claims is capped at very small values. $5000 in VA. $5000 (corporation) or $10000 (individual) in CA. Too low for sexual harassment or other career-impacting transgressions by an employer.
IANAL, but why not just have a special labor court with more judges to be the nonbiased arbitrators? Or use retired judges to be like “independent contractor” arbitrators as a special division of the courts?
(I’m also not sure what the requirements to be an arbitrator are so please correct me).
This is what we have in Germany. It's called "Arbeitsgericht" ("labor court" basically) and as an employee you can go there and sue your employer.
For employees this is free in the first instance and you will have a neutral judge to rule about the situation. I think you don't even need a lawyer as an employee but just "file a case" with the court, but I'm not totally sure about that.
Anyway, it's a very important part of the system in Germany, those courts keep a lot of cases with work-related topics away from the "normal" courts while still providing a neutral platform for both parties.
In England and Wales there are Employment Tribunals. These are run by a government appointed judges in an informal manner that should let people represent themselves. They include a conciliation service.
There are time limits on when a claim can be made and - if monetary compensation is ordered - how much can be paid out [1][2].
In 2012 the government imposed a £1200 (from memory) fee for taking a case to tribunal. So a low wage employee without union representation who was harassed out of a job or unfairly dismissed would have to: File a complaint while looking for a new job. Pay the fees during or after a period of involuntary unemployment. Prepare their case while working their new job. Arrange time off for themselves (and witnesses) and pay for transport to the hearing(s). Make their case. Possibly receive compensation totalling a few thousand pounds.
Claims dropped a lot and it was five years before the Supreme Court told the government to knock it off.
It's rough (and precarious) at the bottom. There have also been large cut backs in legal aid for dealing with the "proper" courts (and not just for civil cases[3]).
[1] The tribunal can also order an unfair employer to give the employee their job back or change their employment conditions.
[2] I think there are differences for cases involving some forms of discrimination.
Beware of this. "Loser pays", implemented literally, would be a bad thing. What you should do, which is what England has, is "the party whose unreasonable behaviour led to the case coming to court pays". Can someone suggest a concise way of expressing that, to help voters avoid a bad tort reform?
In case it's not obvious, here's an example of where it matters. Alice damages Bob's car. Bob offers to settle for £100. Alice says, no, I want £500. Bob says, don't be silly, you can have £150, though that's too much, in my opinion. Alice sues Bob. The court decides that Alice should be compensated, so Alice "wins", and damages should be £80. Who should pay the court costs of £500? (And what if the damages were £300?)
Perhaps everyone already understands that "loser pays" means "the party whose unreasonable behaviour led to the case coming to court pays", but I can't help being suspicious that a reform of the legal system that would drastically reduce the number of cases coming to court might be sabotaged in some way by the people with vested interests who will implement it.
> In case it's not obvious, here's an example of where it matters. Alice damages Bob's car. Bob offers to settle for £100. Alice says, no, I want £500. Bob says, don't be silly, you can have £150, though that's too much, in my opinion. Alice sues Bob. The court decides that Alice should be compensated, so Alice "wins", and damages should be £80. Who should pay the court costs of £500? (And what if the damages were £300?)
Ok, you lost me on the part where the at-fault party (Alice) is owed compensation by the not-at-fault party (Bob). This makes absolutely no sense.
This effectively makes it impossible for a small plaintiff (or defendant!) to justify the risk of fighting anyone with a multi million dollar legal team at their disposal.
If the case is likely to win, then a lawyer or investor will pony up his own cash for a cut of the outcome. This means that only cases that people feel are overwhelming will be litigated. Marginal cases to bleed your enemy dry do not work, because they work against you.
Isn't that a bad thing since likely to win doesn't map directly to being right? For example, even if I was seriously wronged, my opponent could have access to greater legal resources, or my position could be socially unpopular, or the situation could be difficult to prove, etc.
Certainly litigation in the UK can be very difficult to stop once started as if either side gives up there is a good chance they will be expected to pay the other sides fees up to that point.
> Just don't let the company or the worker pick the arbitrator.
That's already the case. If the company and the worker can't agree on an arbitrator, they each pick one, and then the two get together and agree on a third arbitrator to use. Or a judge will pick one. The employee is not required to accept whatever arbitrator a company picks.
American court decisions are strongly based on precedent. If these contests were to move through the court system naturally for a few years, don't you think that over time the volume of work would diminish as each decision became precedent for the next?
from what I understand, arbitration is a way to come up with a resolution if possible before taking case to court. If arbitrator decision doesn't seem just to employee then why don't they appeal for court? Who own the cost of court proceedings in such scenario, company or employee? But given the exorbitant legal fees its not is favor of employee to take this route.
Because you signed a contract to abide by the outcome of the arbitration proceedings (i.e., it's "binding"). If you appeal, the judge will toss it out and you'll have wasted your money.
This is not really obvious if you’re not from the US. In Poland (and I guess other continental Europe countries) you can appeal to a regular court. The possibility to appeal to court is considered one of the basic rights one has.
that should be illegal, it should be impossible to waive a basic right. this will affect poorer people much more, as they have less experience, money to invest into a good lawyer and job options. it's not a fair process.
This seems like such an easy problem to solve too. Just don't let the company or the worker pick the arbitrator. Require by law that the arbitrator be picked by a judge, or be randomly assigned by the court system, who has presumably vetted the arbitrator.
The main problem with these things is that the arbitrator is picked by the company, so they have a strong incentive to favor the company. Arbitration wouldn't be so bad if the inherent bias is removed.