When the Deal Goes Down

This may not seem like a big deal, but it certainly is in my line of work (I represent people who are being sued by their credit card companies). The National Arbitration Forum is shutting its doors: Credit Card Disputes Tossed Into Disarray

Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits.

The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established. Its decision came two days after another big group, the National Arbitration Forum, said it would stop accepting new cases as of Friday.

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Although arbitration long has been controversial, the current situation developed rapidly starting last week when the Minnesota attorney general's office sued the National Arbitration Forum, based in St. Louis Park, Minn., over the way it handled disputes. Among other things, the lawsuit contended that NAF didn't disclose that it has financial ties to the debt-collection industry, violating Minnesota laws against consumer fraud, deceptive trade practices and false advertising.

So, who cares, right? Well, you probably should. The Forum was a place credit card companies could go to obtain money judgments against their customers without going through the fuss and muss of actually proving their cases. If there was a procedural abuse you could conceive of, the Forum practiced it. Notices to appear would show up in people's mailboxes with no information about the date, time and place of the hearing. Hearings often took place in Minnesota, even if the defendant lived thousands of miles away. If some luckless defendant had the temerity to try to participate, their attempts to file documents would be rebuffed for failing to conform to Forum rules. The defects, as well as the underlying rules supposedly broken were, of course, left unstated. The Forum also relied on good old-fashioned "sewer service" to notify defendants of a pending hearing. In many cases, people had no idea an arbitration had taken place, and an award entered against them, until they got a notice informing them that their credit card company was attempting to enforce a big money judgment against them.

There is legitimate business activity and then there is abuse, and the Forum engaged in abuse. The MN attorney general's suit against the Forum is amazing to read. The Forum was set up by the card companies and some of the more prominent debt collection firms. Creditors attorneys practicing in front of the Forum worked for firms whose partners were part owners of the Forum. It was a corrupt system, and certainly emblematic of the abuses and rip-offs the underlay a significant part of the growth in the financial sector.

The Chamber of Commerce spin is that this will throw credit card litigation into "disarray." Don't believe it. You can still arbitrate a case to your hearts' content. You just can't do it in front of an arbitration factory where the results are pre-ordained. My default position is to be pro-business, but I am not going to blindly support this sort of consumer abuse. The Forum is gone and America's financial sector is better off for it.