Litigation: The Costly Road to (Hopefully) Positive Resolution
Let’s start with the option you might assume is your only option: litigation. In this case, both you and the defendant will have a lawyer, and you will present your evidence and case to a judge. The judge will then decide the case, based on past rulings and requirements in your industry.
The hope is that, especially in the case of a defaulted loan, the judge will rule in your favor. But that doesn’t always happen, and sometimes you spend tens of thousands of dollars (or more!) and many months (or more!) waiting for that resolution. Multiply that times all the defaulted loans your institution is dealing with and you will have lots of expenses and lots of delays.
Litigation happens in the courtroom, whether that is in person, or now virtual in some courts, thanks to COVID-19. Getting a hearing or trial, however, is often the sticking point. Courts are so backed up right now that, in some cases, it’s taking years to get a court date. Also, cases presented in court are public, and many companies don’t want that kind of public visibility into their activities and enforcement strategies.
Litigation is by far the slowest and most costly option when it comes to solving financial disputes.
Mediation: A Non-Binding Compromise
Rather than having a judge rule on your case, with mediation, you have a neutral third party (the mediator) who hears both sides of the dispute. Mediation can happen in person or remotely, but typically happens in real-time. You and the defendant present evidence and documents to support your case, and the mediator uses this information to negotiate. However, both parties must agree to the negotiation and any resolution as the process is non-binding.
Despite the mediation, if a resolution and formal settlement is not reached you will not have any binding or enforceable judgment. Rather, you will have a settlement agreement that may lead to additional litigation.
So while mediation may be more affordable than litigation, and may take less time, you are still left with the uncertainty of the solution actually being implemented and you recouping some of the money you’ve lost to the borrower who defaulted on the loan.
Arbitration: A Good Solution…and Online Arbitration: a GREAT solution
Just like Goldielocks trying different chairs, bowls of porridge, and beds to find the one that was just right, the legal industry has done the same to come up with a solution that doesn’t take as much time and won’t be as expensive.
Arbitration is similar to mediation in that a neutral third party reviews information provided by each party to come to a decision. This decision, however, is a legal and binding award when provided for in your arbitration rules or in your agreement. Once the award has been issued, you can take it to court to have it confirmed as a court judgment. That judgment is now fully enforceable with the full weight of the legal system behind it. If necessary, the court can issue a garnishment order to withdraw payment from the defendant’s paycheck or bank account automatically, levy liens, or file abstracts.
Arbitration can happen in person, but we’re also seeing a rise in the popularity of online dispute resolution, which requires little more than each party uploading their documents and evidence and waiting for a judge to make the decision. There’s no waiting for a court date or spending hours in the courthouse. You don’t necessarily need a lawyer for online arbitration, either, which also helps save money.
Understanding your options (arbitration, mediation, and litigation) for resolving financial legal matters is key to moving forward. Each comes with its own price tag and timeline, and in the matter of expediency, arbitration may very well be the fastest and best solution.