Is arbitration fair? Do retail investors get a fair shake in arbitration hearings, considering one member of the three-member panel is an industry person? The argument has been ongoing, with the most recent salvo fired off by a new academic study. The study suggests that unless you work on Wall Street, you probably don’t think arbitration is very fair (the Bloomberg news story on the survey).
In 2007, we published several articles on the arbitration system. We published a story in December, 2007 about how the Democrat-controlled Congress had introduced legislation (H.R. 3010: Arbitration Fairness Act of 2007) to kill mandatory arbitration when the public opens a brokerage account or credit card account; the bill is still in committee where it will probably languish forever). Then in January 2007, our story “Fix Arbitration Now” argued that on its 20th anniversary mandatory arbitration “is neither fair, cheap nor swift.” So said lawyers on both sides of the table (albeit for different reasons). What’s more, arbitration results are final and can be somewhat mysterious: No explanation of how a panel comes by its binding conclusion is necessary.
Former Newsweek reporter Gary Weiss wrote a book, Wall Street Versus America, where he discussed how odd it is that in America a person can open up a brokerage account and yet give up his right for legal redress in a courtroom.
The Securities and Financial Markets Association (SIFMA) argues that the arbitration system is still cheaper and quicker than going to court and that it is in fact the best, fairest way to deal with client complaints.