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National Arbitration Forum Backs Off Consumer Arbitrations

Legal challenge in Minnesota proves to be the last straw

By James Limbach
ConsumerAffairs.com

July 20, 2009

Forum, as the group is known, says it ”lacks the necessary resources to defend against increasing challenges to arbitration on all fronts.”

In her lawsuit, Minnesota Attorney General Lori Swanson claimed the group, the largest arbitration company in the country for consumer credit disputes, misrepresented its independence and hid from consumers and the public its extensive ties to the collection industry.

Swanson’s lawsuit alleges that the National Arbitration Forum, while holding itself out as impartial, works behind the scenes -- alongside creditors and against the interests of ordinary consumers -- to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appointing the Forum to decide the disputes.

“This is a classic case of the little guy getting stepped on by fine print contracts,” said Swanson.

Swanson said that credit card companies, banks, retail lenders, and cell phone companies increasingly place -- in the fine print of their consumer agreements -- what are known as “mandatory pre-dispute arbitration clauses.”

Legislative proposals pending in both houses of Congress threaten to eliminate pre-dispute arbitration as a means of alternative dispute resolution. The Arbitration Fairness Act of 2009 (S. 931/H.R. 1020) would invalidate every pre-dispute contractual arbitration agreement that is part of a consumer, financial or franchise dispute -- in effect, every contract.

Forum maintains that it provides “fair and affordable access to justice to American consumers regardless of size of their claims.” A spokesman for the company says, “consumer disputes will now be forced into an overcrowded and underfunded legal system, where many consumers who cannot afford attorneys will have to navigate complex court procedures.”

Homebuilders next?

The Minnesota action follows a recent report by Public Citizen that explores the homebuilding industry's usage of private arbitration to avoid responsibility for structural defects and flaws in their products -- often violating state consumer protection laws on many fronts.

"The arbitration companies know that their futures depend on keeping the people who hire them happy, and that means the builders and warranty companies," said David Arkush, the director of Public Citizen's Congress Watch division. "As a result, the system is stacked against the consumer."

A 2007 report from Public Citizen stated that in California, arbitrators ruled against consumers 95 percent of the time in cases involving credit card disputes.

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