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Report: Arbitration a Trap for Consumers

Public interest advocacy group Public Citizen came out swinging yesterday against mandatory arbitration of consumer credit disputes and against one dispute-resolution company that hears many of these cases. In a 74-page report, The Arbitration Trap, Public Citizen looked at the use of binding arbitration by the credit-card industry. The conclusion: "Mandatory arbitration is a rigged game in which justice is dealt from a deck stacked against consumers."

The study focused on California -- the only state that requires public disclosure by arbitration providers -- and on one credit-card company and one arbitration company there, MBNA and the National Arbitration Forum. Among the most damning allegations:

  • In more than 19,000 cases involving NAF arbitrators, 94.7 percent were decided in favor of the credit-card company.
  • The decision to file for arbitration is made by the company, not the consumer, in 99.6 percent of cases.
  • A small group of just 28 arbitrators handled nine out of every 10 NAF cases in California, ruling for the credit-card company 95 percent of the time.
  • A Harvard law professor was blackballed as an arbitrator after she awarded a consumer $48,000.

It is a system, Public Citizen President Joan Claybrook said, in which credit companies hold all the cards:

"With binding mandatory arbitration, hearings are in secret. No transcripts are produced. Written explanations of decisions often are not provided so no precedents can be set and appeal is nearly impossible. Consumers can be forced to pay thousands of dollars in arbitration fees compared to several hundred dollars in filing fees in court."

The Institute for Legal Reform of the U.S. Chamber of Commerce was quick to respond, calling the report a "bogus attack" and a self-serving tactic by the plaintiffs bar to line its own pockets. ILR President Lisa A. Rickard said:

"The plaintiffs' lawyers' attack on the arbitration system -- a process that has helped consumers resolve disputes for more than 85 years -- is nothing more than their latest attempt to enrich themselves by opening the door for more class action lawsuits."

No response as yet from the NAF. See also these releases from Public Citizen's press conference:

Posted by Robert J. Ambrogi on September 28, 2007 at 03:51 PM | Permalink | Comments (3)

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