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Tuesday, July 21, 2009

Law - "Arbitration company to cease consumer work" [Updated]

From the Chicago Tribune blog, Chicago Law, an entry, complete with links to the complaint and settlement agreement: It begins:

The reputation of consumer arbitration took another hit, as one of the biggest companies that specialized in resolving small claims by banks and credit-card issuers over unpaid bills agreed to stop handling such cases.

The Minnesota attorney general sued the National Arbitration Forum last week, accusing the privately held Minnesota-based company of being an arm of the collections industry rather than the impartial alternative to the court system it marketed itself to be. Here's a copy of the complaint.

In an agreement announced Sunday, the NAF no longer will be allowed to settle disputes between consumers and credit-card companies. The settlement allows the company to continue to arbitrate Internet domain disputes.

Chicago area lawyers who represent borrowers hailed the settlement as a significant victory.
"I think this particular organization was horrendously unfair and now we know the reason," Dan Edelman said. “People don’t understand that arbitration awards can be turned into judgments and result in asset seizures.”

Edelman filed a lawsuit last week seeking to invalidate NAF arbitration awards that were taken to local courts to allow collections agencies to enforce the judgments.

The settlement also provides more evidence to consumer advocates who have been challenging mandatory arbitration clauses written into consumer contracts. In addition to credit cards, contracts involving autos, cell phones and health care require consumers to resolve disputes through binding arbitration rather than going to court.

[Updated 7/22/09] Today's WSJ has a story headed "Credit Card Disputes Tossed Into Disarray ." Reported by Robin Sidel and Amol Sharma, it begins:
Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits.

The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established. Its decision came two days after another big group, the National Arbitration Forum, said it would stop accepting new cases as of Friday.

Their retreat has big implications for credit-card and cellphone companies, which generally require customers to agree to mandatory arbitration. They argue arbitration is less expensive and time-consuming for both parties than going to court.

Consumer advocates have criticized the practice for years, saying consumers often don't realize they are waiving their right to sue when they sign contracts with the companies. Critics also say the arbitration process favors companies over consumers.

The National Arbitration Forum said companies prevail over consumers in 94% of such cases. Credit-card companies defend those results, arguing that there is typically a long paper trail proving the customers owe the amounts in dispute.

Posted by Marcia Oddi on July 21, 2009 04:30 PM
Posted to General Law Related