The Minnesota Attorney General sued National Arbitration Forum (PDF) last week, accusing NAF of colluding with creditors and debt collectors to screw consumers. At a press conference, AG Lori Swanson said “[t]his is a classic case of the little guy getting stepped on by fine-print contracts.”
Four days later, seeing the writing on the wall, NAF capitulated and agreed not to handle any more consumer collection arbitrations (PDF). No more credit cards, medical bills, consumer loans, or any of that.
This is a big victory for consumers. Without the NAF assembly line, creditors will have to use the legal system to collect. And while the legal system may not be as “efficient” as NAF’s assembly-line arbitrations, judges are not paid by the creditors.
At the center of the Minnesota Attorney General’s lawsuit was the fact that NAF and national debt collection law firm Mann Bracken shared a parent company, Accretive, LLC. Mann Bracken was also one of NAF’s best clients, bringing it hundreds of thousands of arbitrations every year, a clear conflict of interest.
Although it claimed to be neutral, NAF told creditors that “[t]he customer does not know what to expect from arbitration and is more willing to pay,” and that “you [the creditor] have all the leverage [in arbitration] and the customer really has no choice but to take care of the account.”
NAF also encouraged companies to include mandatory arbitration clauses (which NAF drafted) in their fine-print contracts, and it even helped creditors draft arbitration claims. It did what any company would, and worked hard to acquire and keep its best clients. Except that NAF’s best clients were also the ones winning all the arbitrations.
So where will the claims go? Many of the smaller claims will probably end up in small claims courts. States with small claims courts will have to ensure that they do not become the same kind of rubber stamp that NAF has been.
Larger claims will probably end up in district court. States should ensure that consumers need not have a detailed working knowledge of civil procedure to contest such lawsuits. Both small claims and district courts would be well-served to set a standard of proof required for creditors to succeed on their claims. No judgments should be granted without the consumer’s signature on a contract or some proof that the consumer made the purchases on which the creditor is collecting.
In the meantime, Congress should take note of the allegations in the Minnesota Attorney General’s lawsuit and pass the Arbitration Fairness Act, which would stop credit card companies and others from forcing arbitration on consumers. Everyone deserves to make an intelligent choice whether to give up their right to be heard by an impartial court.