Misreport about AT&T’s ToS leads to reopening of arbitration debate

Mandatory binding arbitration. Familiar with the term? It’s used all around the cell phone world, most notably in a carrier’s terms of service. When you buy a new contract cell phone, you sign this terms of service document, under which you are bound for the two years of your contract. Inside the ToS lies a clause in which you waive your right to raise a dispute with your carrier in a trial by jury or in a class action suit. How does any alleged wrongdoing get resolved, then? By the arbitration process. This might seem benign upon first glance, but it’s been shown that consumers are at a notable disadvantage in arbitration cases. On Monday, Chris Davies of SlashGear noted a change in AT&T’s ToS. While it was not a change at all — the clause has been in there since January 2001, so I’m not sure what he meant by the report — it does raise the arbitration thing again, which is only good for consumer education.

What’s wrong with arbitration? For starters, it seems like a heavy conflict of interest. Arbitration panels are independent boards supposedly, but when they collect fees for their mediating services, they charge the company, in this case the cell phone operator. If you have a dispute with AT&T you will not pay an arbitration fee. The company will.

There are a few arbitration boards, so there is some level of competition. What would happen if one particular arbitration board ruled in favor of the consumer frequently? AT&T would likely bring its business elsewhere. Why not? If it is unsatisfied with the outcome it’s free to find an outlet which might see things a different way. That represents a loss of revenue for Arbitration Firm A, and a gain to its competitors.

Arbitration panels, therefore, have an incentive to rule in favor of the company, so it doesn’t lose valuable business. That’s anecdotal, of course, but in a study of 19,300 arbitration cases, the company won 95 percent of the time. AT&T still claims their arbitration clause is “among the most consumer-friendly in the nation,” but just because they say it does not mean it is true. AT&T’s claim is completely anecdotal, backed up by only weak and strawman defenses.

For instance, they cite a “federal judge in West Virginia” praising AT&T’s arbitration policy as “usually consumer-centered.” First of all, which federal judge? It’s not like federal judgeship is a position of secrecy. If this particular judge was confident in his claim, perhaps he wouldn’t mind his name attached to the statement. Second, AT&T puts up a strawman with January 2009 policy change, which doubles the minimum consumer payout. That’s great and all, but the consumer still has to win the case in order to collect the payment. Unless something has changed in the results, consumers are still largely losing.

The ToS change actually first appeared on Slashdot, and then made its way to SlashGear. I have no idea why, as it has been in place for years and years. We’ve written about it in the past, and The Consumerist has written about it ad infinitum. It’s nothing new, but it’s always an issue worth raising. If AT&T has wronged multiple customers on the same issue, those consumers should band together for a class action suit, rather than each take on AT&T individually. After all, if you’re David taking on Goliath, you’ll want an army of fellow Davids at your side.

Filed under : Consumer Issues