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.
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.