Credit Card Arbitration Against Interests of Ordinary Citizens

The Minnesota Attorney General reached a settlement that required National Arbitration Forum (NAF), to stop taking consumer-debt cases, and the American Arbitration Association declared that it would follow suit. This settlement was a result of a lawsuit against the National Arbitration Forum by Minnesota Attorney General, Lori Swanson, Minnesota attorney general. The suit claimed that “The NAF works behind the scenes—alongside creditors and against the interests of ordinary consumers—to convince credit card companies to insert arbitration provisions in their customer agreements and then appointing the Forum to decide the disputes. The lawsuit alleges that the Forum pays commissions to executives whose job it is to convince creditors to put mandatory arbitration clauses in their customer agreements. The Forum does this to generate arbitration filings in the Forum—and hence, revenue—for itself.”

In most credit cardholder agreements there are arbitration clauses. When a cardholder agrees to those terms they have waived their right to file a lawsuit and have agreed to submit any dispute to arbitration. This arbitration is usually conducted by one of three companies: the National Arbitration Forum (NAF), Judicial Arbitration and Mediation Services (JAMS), and the American Arbitration Association. Arbitration is supposed to save both the card company and the cardholder court costs, and both parties benefit from an unbiased arbiter.

The arbiters and the creditors had a stake in the game and very few consumers used the arbitration option for many reasons. One reason could be that a 2007 study by Public Citizen of cases brought over a four-year period in California before NAF found that consumers lost 94% of the time. So it was the “creditors who brought the vast majority of claims,” says Ben Wogsland, a spokesman for the Minnesota AG’s office. Creditors would hire Axiant law firms who would send the cases to the NAF where “neutral” arbitrators would find in favor of the credit card companies (or cell phone carriers). NAF “made representations that aligned itself against consumers, including, for example, that ‘(t)he customer does not know what to expect from arbitration and is more willing to pay.”

Rep. Dennis Kucinich’s (D, Ohio) office is working on a bill to reform arbitration. In a staff report, Rep. Kucinich exposed NAF’s issues: arbitrators decided cases without any evidence, they ignored pro-consumer evidence, and they failed to dismiss cases that creditors filed beyond deadlines. Kucinich’s office must stay committed to protecting the consumer especially in light of the proliferation of stored value cards aimed at minority and disadvantaged populations.

Loretta Hunnicutt