Darr - One of the Points Lawyers - Consumer Arbitration

As I mentioned in another post, I’m Alex Darr, one of the lawyers who writes over at Doctor of Credit. I thought it was time to post a thread about my experience as an attorney arbitrating against big banks in the realm of points, miles, and credit cards. At the end of this first post, I’m going to do the “cover my backside” routine. Please read it. You can read a bit more about me on my website as well.

I started getting involved in consumer arbitration in 2015 and 2016. I did some half-hearted representation of my own claims with mild success. In February 2017 I started reading about this guy who stole my first name, so I call him Bachuwa. He writes “The Fine Print” columns over at Frequent Miler.

I gave him a call, and we’ve been collaborating in this area ever since. His raw enthusiasm married to my legal brain is an excellent combo! (Make no mistake, I too am enthusiastic, and Alex is plenty smart). We still manage our own, independent firms, but we enjoy sharing notes and working together when it makes sense. Given that we share the same name, we’ve taken to calling ourselves Alex & Darr, which sort of merges into “Alexander” (I know, it’s cute–it was Alex’s idea).

Alex still writes over at Frequent Miler, and I’ve been writing articles over at Doctor of Credit. Alex is more of a points enthusiast who enjoys juicing the miles for exotic travel. I prefer reading about the world of intense MS/churn/whatever you want to call it. I just think it’s fascinating what some folks do with credit cards, even if I don’t do it. (I’m boring and put all of my spend on an Amex Gold Card. The business card is a Starwood Amex).

Together, Alex and I have filed lots and lots of consumer arbitrations. Most of the claims I handle are federal consumer protections claims like the Fair Credit Reporting Act, Equal Credit Reporting Act, and Truth In Lending Act.

It’s surprising to me, but these gigantic financial institutions are failing to follow basic, clear federal law. One violation that we see a lot is when a bank closes a client’s credit account and doesn’t provide a reason for the closure.

In the next few weeks I’m planning on writing another article for DoC about rights under the Electronic Funds Transfer Act and claims that are prevalent there.

I’ll end this first post here, but look forward to talking about some of this stuff with all of you and maybe answering a question or two.

I’m not your lawyer. If I post something here, it’s not intended to be legal advice. If you send me a PM or email and I respond, that doesn’t create an attorney-client privilege. Some states may consider this attorney advertising. If I provide an example of a previous case, that doesn’t guarantee a similar outcome in a future case. I may use examples or hypotheticals–any similarities between them and a real case are purely coincidence. I have a full disclaimer available on my website.


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Well thank you. This is the kinda posts we love here. Not sure why there isn’t a bunch of replies.
So I’m in first with a thanks.

Thanks @owenscott! I’m sure once I do more write ups people will get interested (I hope so, at least). Right now I’m working on wrapping up a big piece of work that’s keeping me busy. Good problem to have!

Do you think arbitration deserves the bad name its gotten?
Making the other side pay more in filing fees than the consumer and having the matter considered in the consumer’s jurisdiction seem like really nice perks!

In my book, only mandatory and binding arbitration has and deserves a bad name. Arbitration as a method of dispute resolution, as long as it is by choice and with a reasonable method and chance of appeal (as opposed to no choice, unlikely appeal, and financially slanted towards those who usually pay for it) should be fine. IANOP and IANAL.

In short, no. The full answer is more nuanced than that, but on the whole, I don’t hate on it the same way some people do. In principle, it understandably upsets a lot of people (giving up major rights, like being able to have a grievance heard in a court of law). But, in my experience, in practice arbitration is much nicer to consumers than the consumer watchdogs will admit. I can only speak from my experience, but I’m able to get some really great results for clients, much much better than they’d do in a class action (which can sometimes enrich mainly lawyers).

I’ll note that a lot of my arbitrations are purely fiscal in nature. My clients have suffered some monetary harm, we bring an arbitration (or threaten one), and the goal is to remedy the financial harm. It’s just money. I can imagine that the nature of forced arbitration feels less fair to an individual who’s been, for example, sexually harassed, and is forced into confidential arbitration.

But I am often frustrated by the overwhelming sentiment of “arbitration is bad.” Because that sentiment often makes some people close minded. I write articles about arbitration victories and people dismiss the results because “all arbitration, in any form, is terrible!!!”-- but people have claims and we can help. Rather than shooting us an email, those people brood in this sentiment of arbitration being evil and do nothing with their claims. That’s frustrating. When people take that approach, the business wins. For me, and for my clients, arbitration has been a helpful niche. We’ve learned a lot in the last year of focusing on this, but two things stand out:

  • Arbitrators are not slanted towards the business. However, your experience depends largely on the arbitrator you get. Some arbitrators are more pro-consumer, other pro-business.
  • Clients get paid. There’s no way to deny the settlement and award checks we’ve earned for our clients. It’s real money we’re able to recover for them.

I don’t know if I’d say I’m “pro arbitration,” but it’s the system we have and I aim to do the best as I can within the confines of that system.

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Do your clients’ claims tend to be for technical violations (seeking statutory damages or similar), or are they for consumers that can prove actual damages? Or both? If the former, can you provide some of the more common claims?

It varies, but I’d classify many of the violations of consumer protection statutes (including the ones I pursue) as “technical.” Actual damages can be challenging if we’re looking “out of pocket” costs.

Thankfully, under the ECOA, for example (one are of emphasis in my practice) actual damages can include embarrassment, humiliation, and mental anguish. Additionally, under that statute, a court (or arbitrator) “shall” award punitive damages, even if there aren’t actual damages that can be proven.

Nice, clean out of pocket damages are always appreciated, but not always necessary.

Would you never recommend for anyone to opt out of binding arbitration for new and existing accounts when they have that chance?

Once someone is opted out, they could still go through arbitration by choice, but they are not obligated, right?

Interesting idea @scripta. I think it’s probably a safe course of action, but not foolproof. If you opted out of mandatory arbitration and then later wanted to arbitrate, the business would no longer be obligated to do so as a matter of contract law. However:

  1. If you don’t tell them that you’re opted out and simply file, I think there’s a good chance they wouldn’t even check some opt-out list, instead they’d just arbitrate.
  2. Even if they did see that you’re on an opt out list, they might acquiesce to your arbitration request.

In short, probably a safe thing to do, but not a guarantee that arbitration would be there in the event of a dispute. I personally don’t see a lot of value in opting out, so the balance, for me personally, probably weighs in favor of not opting out.

The final answer might depend on the actual arbitration provision (who covers different costs, right to appeal, etc) and the importance of the underlying transaction (something very important to me I might choose to preserve my court/jury rights).

What are some technical violations that we can profit from?

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I think you feel that way because you’re looking at this as a sophisticated consumer (which you, as a lawyer specializing in consumer arbitration, definitely are, and I suspect your consumer arbitration clients also tend to be).

Further, I suspect your experiences are biased by the types of disputes you seem to be exposed to. I infer from your posts that many of the consumer arbitration cases you handle are small-value claims involving financial services and often involving statutory damages. I suspect such claims tend to be easy to prove, usually not requiring much, if anything, in the way of expert witness opinions or other complexities.

Under these circumstances, there’s no question that the high costs of arbitration (which, under JAMS and AAA consumer rules, the company is almost entirely responsible for) give consumers a lot of leverage to obtain higher settlements on valid (non-frivolous) claims. I have filed a consumer arbitration case in the past and I have no doubt the settlement terms I obtained were significantly better than I could have obtained had I filed in small claims court (which was also an option under the applicable agreement).

But the reality is, relatively few consumers fall under that “sophisticated” category. This is a system where a small portion of consumers – those who have some legal awareness and know how to vindicate their rights (or at least know enough to know when they need to contact someone who does, which is why I said I suspect your clients are in this category) – can protect their interests and use arbitration as leverage, while everyone else gets screwed despite suffering the same harms. I can’t support such a system.

Arbitration as currently used in consumer contracts (among other types of contracts) is not used with the intention of benefitting both parties through increased efficiency, quicker resolutions, and lower costs (which is false; in fact, it costs more). Instead, it is used to prevent aggrieved consumers from organizing to vindicate their rights. As evidence, I would point out that the preclusion of class actions is not an inherent attribute of arbitration; both JAMS and AAA will administer class arbitrations, and it is possible to permit class court actions while requiring arbitration of individual actions. In practice, very few consumer contracts I have seen permit class actions in any forum.

The possibility of class-wide litigation used to act as a deterrent against illegal behavior, especially large-scale small-value harms like the ones you mention. It used to be that you could harm millions of consumers in a small way – say, by sneaking a junk fee on their bill or failing to lawfully process credit card disputes – and while many consumers might not notice or even realize the company broke the law, it only took one consumer who did to seek relief on behalf of everyone affected. (And if you felt you’d be better off proceeding on your own and filing suit individually, you could opt out of the class action.) Today, consumers often don’t have this protection, and as a result we see more and more egregious corporate behavior.

Also, many types of disputes are not as easy to prove as, say, your average FDCPA violation. Although not a consumer case, one example would be the antitrust claims in Amex v. Italian Colors, which would have required an expert analysis estimated to cost “at least several hundred thousand dollars” while the maximum individual recovery would have been $38,549. Obviously, without the ability to proceed as a class (where the costs of litigation and experts could be amortized over the entire class), these claims were not viable to pursue, despite the very real harms of Amex’s behavior.

Arbitration through a post-dispute agreement or as an optional choice for the disadvantaged party (the consumer) is perfectly fine, but as used today, it is simply a net harm to consumers (and employees, small businesses like in the Amex case, etc.).


Thoughtful analysis, and I don’t really disagree with it.

This is absolutely true. Above I noted that my claims are relatively small, fiscal injuries. As I said, I can understand why someone who’s suffered, for example, sexual harassment, would be very against compelled arbitration.

This is where I might disagree with you. Companies screwed consumers before arbitration, and they’ll continue to do it if mandatory arbitration is repealed. I don’t think class actions have done much to benefit consumers in a material way. I don’t think the threat of class actions deter businesses.

Here’s a Forbes piece on the issue. One big caveat for this article. The fourth paragraph opens with “Researchers at Mayer Brown.” The non-lawyers might not recognize that name, but I instantly recognize it as a global, mega law firm based in Chicago (I interviewed there once–they put me up in the Four Seasons. It’s the only time in my life I’ve stayed at the Four Seasons.). Mayer Brown represents big businesses. So this “study” is a bit suspect, as Forbes notes. But it concludes that class actions enrich lawyers and most consumers don’t see anything for it.

As I said before, I’m not really pro-arbitration. I’m working as best I can within the system. However, I do get frustrated when I try to spread the word about arbitration and people instantly respond with “ARBITRATION SUCKS.” To be clear, that’s not what @anotheruser is doing. His is a reasoned critique of arbitration, justifying this response. But some of the commenters on our blog posts are so quick to dismiss something that might be able to help them.

Probably the most prevalent violations are:

  1. Equal Credit Opportunity Act - bank closes your credit card or line of credit* and they fail to give a reason for why they did. Or, they give you a reason that is either false or not sufficiently specific. They have to give you a “specific” reason for the closure.**

  2. Fair Credit Reporting Act - If a bank uses your credit score in making a decision about your application for a product (including deposit accounts), they have an obligation to furnish that information.

*A lot of checking accounts come with lines of credit attached to them. If the bank closes your checking (and the attached line of credit), they likely have triggered the ECOA’s requirements and need to give you a specific reason for the closure. I’d bet a majority of compliance officers don’t know this.

**Here is part of the relevant regulations:

  1. 12 CFR § 1002.9(b)(2) - The statement of reasons for adverse action . . . must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the creditor’s internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor’s credit scoring system are insufficient.
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Or something like a product defect/liability claim, which is likely to require (potentially expensive) expert witnesses. (There’s been a trend of companies hiding arbitration clauses in the warranty contract, with mixed success in enforcement. The arbitration clause applies not only to warranty-related disputes, but claims related to the product itself.)

I’m skeptical of that study’s conclusions given the source, as you mention, but I don’t have time to dig into it right now. The CFPB’s study, limited to the financial sector, suggests that class actions are, overall, a vastly more effective mechanism of providing relief to consumers than individual arbitrations (in part because very few individual arbitrations are brought), even after accounting for attorneys’ fees (not quoted below but provided in the study):

In the class settlements we reviewed, the annual average of the aggregate amount of the settlements was around $540 million per year. This estimate covers, for settlements approved between 2008 and 2012, more than $2 billion in cash relief including fees and expenses and more than $600 million in in-kind relief. These figures represent a floor because a number of settlements also required companies to change business practices. Cases seldom provided complete or even any quantification of the value of this kind of behavioral relief.

I’m not going to quote the arbitration conclusions because of the length, but the relevant data is available in the executive summary. To be fair, the arbitration data won’t reflect confidential settlements where the case doesn’t make it to an award, and the arbitration data will be biased by the fact that arbitration is commonly used by savvy consumers (on certain forums) as leverage in valid debt collection claims (which the company can be expected to win). But overall, the numbers are so far apart that there’s no other conclusion possible.

I hope I didn’t come off as dismissive or rude. I commend what you’re doing; you’re just making the best of a bad situation, and there’s nothing wrong with educating and representing consumers. In fact, you’re actually improving the situation by increasing the cost of using arbitration clauses. (It’s unlikely to happen, but in theory, if more consumers were using the high cost of arbitration as leverage against companies in disputes, suddenly the equation would change. It might become cheaper to stop using arbitration clauses and engage in better business practices.)

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Does it matter if you are considering “consumers” as a whole, or “me” as an individual? Sure, the totals are much larger for class actions, but that pot is being divided into many many more shares too. I’m pretty certain an individual arbitration is going to net me far more than any class action will over the same matter, even though the class action would cost the company far more than my one individual little claim.


It matters if that win is accessible to you via arbitration. Many types of more complicated corporate abuses are hard or non-economic to prove in an individual basis.

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Isnt that a little bit of apples and oranges? Of course, if something isnt possible, the alternative will always be more beneficial.

The implication was that a $5 million class action settlement is obviously far better for consumers than a $500 individual arbitration settlement. It ignores that the $5 million is for 100,000 consumers, unlike the $500. It’s only better for those consumers who would otherwise take no action on their own - but that’s because they wouldnt have done anything at all on their own, not because it was their better option.

Maybe in raw dollars and cents (I.e. this class action got 50m for the class). But in terms of what the individual consumer actually ends up with, it’s typically “here’s $7.”

Didn’t come off that way at all. The bulk of your points are very accurate. I think the most compelling argument against arbitration and individual resolution are those cases where a sophisticated expert is needed.