What Can the US System of Financial Arbitration Learn from Overseas Jurisdictions? An Initial Responsive Empirical Exploration

Abstract

The United States largely relies on a system of arbitration to handle retail consumer financial disputes. This approach has undergone significant challenge in recent years particularly in light of recent abuses of consumer credit arbitration mechanisms. This paper reports on the results of a non-randomized small-n survey which we label the “Financial Dispute Study” aimed at evaluating the relative effectiveness of two major approaches to financial dispute resolution – arbitration and ombuds services. Nearly a hundred survey questionnaires were distributed to financial dispute resolution practitioners throughout the world. A total of forty-eight arbitrators and ombuds people from East Asia, North America, Europe, the Middle East and Africa responded. In the Study participants were asked how practitioners viewed the level of satisfaction, settlement rate and perceived increase or decrease in the use of the given method of financial dispute resolution – whether arbitration or ombuds service. This paper analyzes the method-effect, meaning we focus on the effect of the selected method of financial dispute resolution (whether ombuds or arbitration) on settlement, satisfaction and increase or decrease in use. In doing so, the study evaluates the relative effectiveness of two major approaches a financial dispute resolution mechanism might adopt.We find no statistically significant evidence that a given method, arbitration or the use of ombuds process has a large (or any) effect on the settlement rate, level of satisfaction and usage. To the contrary, arbitration and ombuds group point estimates are generally close to one another. Nevertheless, the data indicate slightly higher levels of settlement and overall increase in use in ombuds processes worldwide. These findings, combined with feedback from open ended interviews along with structural safeguards against repeat-player advantage integrated into the ombuds process ensuring that awards are rendered without prejudice to the claimant, suggest that merit may be found in exploring the potential applications and use of ombuds processes for the resolution of US consumer financial disputes. The paper concludes with some limited interpretation of the results.