Minnesota Attorney General Sues National Arbitration Forum. Claims Consumer Deception.

Today the Attorney General of Minnesota, Lori Swanson, filled a lawsuit against the largest consumer arbitration company, National Arbitration Forum. She claims that the National Arbitration Forum tells the public and government that it acts fairly and impartially to help mediate complaints between consumers and credit card companies. It appears that Attorney General Swanson finally found the magic word to unlock this issue, bullshit.

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If you want to find out exactly how this National Arbitration Forum screws consumers you may want to read “Arbitration and the Godless Bloodsuckers” which was written by a former state court justice.

Consumer arbitration agreements have been grossly unfair for years. Many supposedly impartial arbitrators actually worked for or in the office of large debt collection companies.

Additionally, apparently there is more information of interest about National Arbitration Forum issue.

The second crack in the wall comes in a deposition of Harvard Law Professor Elizabeth Bartholet, taken on September 26, 2006, by a lawyer challenging the NAF as being biased in a consumer case against Gateway Computers. Professor Bartholet had also served as an independent contractor arbitrator for the NAF, until she resigned. Her February 8l, 2005 resignation letter expressed her concern that NAF’s system is biased in favor of lenders and against individuals. NAF fought hard to block Professor Bartholet from testifying in the Gateway case, but after a lot of back and forth, a court basically ruled that she would be permitted to testify so long as she did not give the names of particular parties whose cases she had handled as an arbitrator. Her deposition describes how she was also blackballed by a credit card company after she ruled against it in a single arbitration. At the time that the credit card company decided to block her from hearing any more cases involving itself, she was scheduled to hear a number of other consumer cases. NAF sent out letters to the consumers falsely stating that she would no longer be the arbitrator in their cases, because she supposedly had a scheduling conflict. The professor did not have a scheduling conflict, however, but the NAF sent out this explanation rather than the true one that she had been blackballed by a lender who didn’t like how she had ruled in a past case. Professor Bartholet has testified eloquently about how NAF operates a systematically unfair system that is biased against credit card companies.

National Arbitration Forum and the grossly deceptive practice of credit card arbitration surfaced in a well produced article in Business Week titled “Banks vs. Consumers (Guess Who Wins)

What if a judge solicited cases from big corporations by offering them a business-friendly venue in which to pursue consumers who are behind on their bills? What if the judge tried to make this pitch more appealing by teaming up with the corporations’ outside lawyers? And what if the same corporations helped pay the judge’s salary?

It would, of course, amount to a conflict of interest and cast doubt on the fairness of proceedings before the judge.

Yet that’s essentially how one of the country’s largest private arbitration firms operates. The National Arbitration Forum (NAF), a for-profit company based in Minneapolis, specializes in resolving claims by banks, credit-card companies, and major retailers that contend consumers owe them money. Often without knowing it, individuals agree in the fine print of their credit-card applications to arbitrate any disputes over bills rather than have the cases go to court. What consumers also don’t know is that NAF, which dominates credit-card arbitration, operates a system in which it is exceedingly difficult for individuals to prevail. Source

Credit card arbitration is a scam and has always been a scam. I remember one case in particular where a client was being pursued by the arbitrator for MBNA and I personally took papers over to the arbitrators office and guess where it was, at the collection office of Wolpoff & Abramson. Guess what, the consumer lost. Big surprise huh?

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At the same time as this information was breaking, a development in North Carolina looks like it also dented the armor of these arbitration agreements.

A North Carolina Superior Court judge has ruled that the mandatory arbitration agreements in three payday lenders’ consumer contracts are unenforceable, effectively giving the go-ahead to class action lawsuits seeking to recoup illegally high fees paid to the lenders.

The three cases involve tens of thousands of consumers who patronized Advance America, Check Into Cash, and Check ‘n Go in North Carolina from 2001 until the businesses left the state in 2005 and 2006.

“North Carolina law is very clear that the defendants’ payday lending operations here were illegal,” said Carlene McNulty, attorney for the North Carolina Justice Center, one of the organizations that filed the lawsuits. “Now that the Superior Court has cleared away the defendants’ procedural defenses, we’re very hopeful that we will soon achieve justice for our clients.”

The contracts for payday loans included mandatory arbitration agreements that required consumers to resolve any disputes with the company through the arbitration process. The agreements also prohibited consumers from participating in class action lawsuits against the company.

Because the cost of pursuing such cases on an individual basis would be enormous, the companies’ contract term banning class actions essentially denied the consumers any meaningful way of recovering the illegal overcharges.

The Superior Court rulings came about as a result of a North Carolina Supreme Court ruling last year. The court found in a predatory mortgage lending case, Tillman vs. Commercial Credit, that mandatory arbitration agreements are unconscionable and unenforceable. In light of that ruling, the state Court of Appeals remanded the three class-action cases to the North Carolina Superior Court.

“This is a very important decision because it is the first case in which a North Carolina court has applied the Tillman ruling to a class action ban,” said Paul Bland of Public Justice, a national public interest law firm based in Washington, DC. “We believe that Judge Hooks’ thoughtful and well-reasoned decision will be very influential in shaping the future of the law in North Carolina and elsewhere.”

“The defendants’ ban on class actions amounted to a get-out-of-jail-free card—immunity even if they broke the law,” explained Mal Maynard of the Financial Protection Law Center in Wilmington. “This ruling was plainly right and supported by a wealth of solid evidence.”

Superior Court Judge Jack Hooks found that the arbitration agreements were unconscionable and thus unenforceable. He noted that, in fact, no individual arbitration claims had ever been filed in North Carolina against any of the three payday lending companies. He went on the say that the contractual prohibition against class action participation in these cases violates the public policy of the State of North Carolina and is therefore unenforceable.

In addition to the three organizations, the class members are represented attorneys from three law firms: Jerry Hartzell of Hartzell and Whiteman in Raleigh, N.C; Mona Lisa Wallace and John Hughes of Wallace & Graham in Salisbury, N.C; and Richard Fisher of Cleveland, Tenn. Source

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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