A court settlement in the state of Minnesota is expected to bolster calls for a clamp-down on the arbitration practices of many card companies. Experts say that the latest development can provide lawmakers the momentum they need to push for the ban of mandatory arbitration clauses found in most consumer contracts.
According to legal experts, most cardholders unknowingly sign binding arbitration agreements when they accept the terms of the card company's services. Basically, the arbitration clause means that cardholders surrender their rights to sue the card issuer or bank. Instead, an arbitrator chosen by the card company will act as a judge to settle disputes.
This practice has been the target of criticism by consumer advocates who point out that the clause is unfair and unjust. However, a recent court settlement in Minnesota is expected to give advocates and critics of the practice a much needed boost to elevate the issue to the federal government.
Lori Swanson, Minnesota's Attorney General, sued the nation's largest organization of credit card arbitrators, the National Arbitration Forum, for not disclosing business ties with the collection industry. According to Swanson, the company has been conspiring with many card companies, offering to issue judgment in their favors. In return, banks and card issuers have to appoint the company as an arbitrator.
Swanson points out that the Forum showed an impartial nature to cardholders but was actually working closely with card companies. In the court settlement, the company has agreed to cease all consumer arbitration by Friday. The attorney general says that the Forum will stop handling arbitrations concerning consumer debts, include credit card debts and loans.
Last year, an article from the Business Week exposed the Forum for marketing directly with card issuers. The article claimed that the company enticed banks and card companies, saying that its services would result to higher collections compared to court actions.
Swanson also adds that the company deceived cardholders by claiming that it was impartial and independent from card companies. She explains that the Forum claimed it was neutral and is not affiliated or connected with any of the parties involved in arbitration cases.
However, the Business Week article also alleged that the company lobbied hard to force card issuers to appoint the Forum as the sole arbitrator. The same article also claims that the company has financial ties to many of the players in the collection industry. Swanson said that it is time for unfair practices to stop and for the Congress to take action.