Last Monday the Supreme Court took a breather from the presidential election dispute and found time to issue an opinion in a case of considerable importance to the lending industry.

In Green Tree Financial Corp. v. Randolph, the court upheld the validity of an arbitration clause contained in a consumer finance contract. The decision was a victory for both lenders and consumers and a defeat for class action plaintiffs' lawyers.

The case began when Larketta Randolph financed the purchase of a mobile home through Green Tree Financial Corp. In the finance contract, she agreed that all disputes arising out of the transaction would be resolved by arbitration. She later sued Green Tree in court, claiming it had violated the Truth in Lending Act. She also claimed that it had violated the Equal Credit Opportunity Act by requiring her to agree to arbitration.

Ms. Randolph's lawyers sought to bring the case as a class action. As with many purported class actions, Ms. Randolph had suffered little actual damages.

The damages in a case like this may not be worth the time it takes to bring an action in court. But to a class action plaintiffs' lawyer, if the damages can be bundled together with the damages sustained by numerous other similarly situated persons, the case may have an enormous value just waiting to be unlocked. The problem is that too often the case has value only to the lawyer and does not provide any substantial benefit to the class members.

Green Tree responded to Ms. Randolph's lawsuit by pointing out that she had agreed to arbitrate any disputes and that it was therefore improper for the case to proceed in court. Green Tree, like other lenders, uses arbitration clauses as a tool to limit litigation costs and to provide relatively speedy resolution of customer claims.

Though consumers may give little thought to the matter when signing finance contracts, arbitration is a two-way street that provides real benefits to consumers.

For those consumers with real (or even merely perceived) grievances against lenders, arbitration provides a forum in which they can litigate their claims much more quickly and cheaply than in court.

Arbitrators, like judges, are required to be disinterested and have no reason to be biased against consumers, and all of the relief available in court is available in arbitration.

In short, for the consumer, arbitration has all of the advantages and none of the disadvantages of court, and it has the added advantage of being quicker and cheaper overall.

Mr. Harvey is a partner in the Philadelphia office of Pepper Hamilton LLP.

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