Arbitration Options for Consumer Debt Collection Disputes Have Been Reduced — Hopefully There Will Be More to Come

From Consumer Fraud Blawg:

Two recent news items should come as welcome news to consumers. Regulatory and private action has led to the suspension of consumer credit collection arbitration by two groups who administer arbitration claims across the country. Given the anti-consumer nature of arbitration, these actions should help level the playing field for consumers in debt-related disputes.

National Arbitration Forum to stop administering consumer debt arbitration claims

In another pro-consumer effort, Minnesota Attorney General Lori Swanson recently reached a settlement with the National Arbitration Forum (“NAF”) related to pre-dispute arbitration clauses in credit card agreements. Under the settlement, NAF agreed to stop administering arbitration disputes between credit card companies and consumers. NAF also agreed to stop administering arbitration disputes involving consumer loans, health care, and consumer leases.

As stated in The New York Times, Ms. Swanson’s “lawsuit accused the firm of violating state consumer fraud, deceptive trade practices and false advertising laws by hiding financial ties to collection agencies and credit card companies.” Ms. Swanson was quotes in the article as stating “To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator.”

The American Arbitration Association imposes a moratorium on consumer debt collection arbitration

In somewhat related news, on July 27, 2009, the American Arbitration Association (AAA) announced that it has self-imposed an immediate moratorium on consumer debt collection arbitration cases. The AAA’s evaluation of a recently concluded program in this area found that there were “weaknesses in the consumer debt collection arbitration process.” As a result of this moratorium, the AAA will no longer administer the following types of arbitration cases:

  • Consumer debt collections programs or bulk filings
  • Individual case filings in which:
    • The company is the filing party and,
    • The consumer has not agreed to arbitrate at the time of the dispute and,
      • The case involves a credit card bill or,
      • The case involves a telecom bill or,
      • The case involves a consumer finance matter.

Nevertheless, the AAA has stated that it “will continue to administer all demands for arbitration filed by consumers against businesses and all other types of consumer arbitrations.”

More information on the AAA’s position on consumer debt collection arbitrations can be found here.