Use of ODR in Overcoming Disputes in the Financial Sector

Use of ODR in Overcoming Disputes in the Financial Sector

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Abstract 

Financial cases are facing multiple barriers when it comes to litigation. Indeed, companies in the financial sector are facing countless cases based on many similar consumer contracts. It is time and money consuming for the firms as much as for the consumers. A solution can be considered and has been encouraged by the current pandemic context : online resolution of disputes.[1]

Introduction

The financial sector consists of companies providing financial services, such as banks, and insurance companies.[2] Many of these firms have been developing and are now available online and provide various services to their customers through their websites or apps.

Thus, this sector characterizes itself by the existence of numerous small value disputes that do not require the analysis of complicated problems of law[3]. Due to such cases (whether in the financial sector or other areas), ordinary regular Courts are clogged[4]. In India, “32 million cases are pending”. Hence, Alternative Dispute Resolution (ADR) has made its way to the center stage of justice in many countries of the world. ADR consists of proceedings like arbitration, mediation or conciliation that are directed at settling a dispute outside of Courts. Their use, and more specifically the use of arbitration is becoming more and more expensive for the parties appointing their arbitrators.

In addition to this, with the COVID-19 pandemic and worldwide lockdown restrictions, the use of virtual online software to replace university lectures and companies’ meetings became our new routine. 

Thus in this specific case, Alternative Dispute Resolution turned into Online Dispute Resolution. Its aim is still to resolve disputes outside of court, but online. It has lots of the same benefits that ADR has. A study has shown that 90% of cases in the financial sector have been “resolved without a judge or mediator”. Namely, it is not as costly as litigation and thus can now replace the use of ADR. This is one of its most important characteristics, indeed as it was mentioned above, in the financial sector the claims generally consist of small amounts of money that cannot justify the use of expensive ways of resolving a dispute.

Moreover, when compared to litigation, ODR is a quicker way of resolving a dispute and is, therefore, more cost and time-efficient.[5]It is also very practical for parties located in different areas of the world. The use of online platforms makes communication between the parties much easier and less formal thus making the entire process more accessible and understandable for someone that is not familiar with the legal world. 

Some Financial companies that work online have even decided to incorporate an internal online dispute resolution entity for their customers[6]. This system has proven itself to be faster in ADR and especially when the number of cases is very high and concerns hundreds of contracts.

In Australia, an internal dispute resolution service is provided by some banks which allows the maintaining of positive relations between financial companies and their customers. This concept can be used nowadays by more online banks in India as well. When the resolution of such disputes regarding online contracts is made online it permits a certain type of continuity for the customers.

This mechanism also takes place in the European Union under a 2013 Regulation on ODR for consumer disputes[7]. It was made for similar reasons concerning a simple, fast and cheap resolution of disputes.

Thus, ODR is evolving just like ADR did before it. And it seems to be a very efficient solution that is likely to be chosen by customers that have heard about it.

Whether it be in the financial sector or any other sector that is concerned with a high volume of low value cases, ODR is a mechanism that will be making its way to the spotlight of dispute resolution.  


[1] Author – Nayla Bayl

[2] Editor – Siddhant Singh

[3] Soumyajit Saha, Online Dispute Resolution of Banking Disputes in the wake of COVID-19, Bar and Bench, 13 June 2020, (Online Dispute Resolution of Banking Disputes in the wake of COVID-19 (barandbench.com).

[4] Indulekha Aravind, Online Dispute Resolution is beginning to find takers in India, Economic Times, 12 January 2020 (ODR: Online dispute resolution is beginning to find takers in India – The Economic Times (indiatimes.com) last visited 7/2/2020).

[5] PEW Trusts, Online Dispute Resolution Offers a New Way to Access Local Courts (2019), Online Dispute Resolution Offers a New Way to Access Local Courts, pewtrusts.org.

[6] Ian Ramsay, Miranda Webster, The Evolution and Consolidation of External Dispute Resolution Schemes in the Financial Sector: From the Banking Ombudsman to the Australian Financial Complaints Authority, 30(3) Journal of Banking and Finance Law and Practice 182, 183 (2019).

[7] Hungarian Financial Arbitration Board (2019), https://www.mnb.hu/en/hungarian-financial-arbitration-board/online-dispute-resolution-platform.

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