Minnesota Sues a Credit Arbitrator, Citing Bias

[myrna minx]

Source: Businessweek

The Attorney General's lawsuit claims the National Arbitration Forum has ties to debt-collection law firms and works against consumers

By Robert Berner
The Minnesota Attorney General on July 14 sued the nation's largest arbitration firm involved in adjudicating delinquent credit-card debt, charging that it runs a biased process that favors major credit-card companies.

The civil suit filed against the National Arbitration Forum in state District Court in Minneapolis alleges that far from being an impartial venue for resolving such disputes, the NAF has conflicting ties to major collection law firms that represent credit-card companies. Indeed, the case claims that New York hedge fund Accretive LLC—in which Seagram heir Edgar Bronfman Jr. is a general partner—has cross ownership of such major collection law firms and the NAF, sending collection cases between the two. The suit also alleges Accretive is involved in the arbitration firm's business development. Accretive isn't named as a defendant in the suit. There is no allegation of wrongdoing by Bronfman.

snip
These practices go to the foundation of our legal system," Swanson adds in an interview. "Impartial resolutions of disputes are what democracy is all about, and the actions of this company undermine justice and are a threat to the legal system."

BusinessWeek made many of these assertions of bias in an investigative story on the NAF last year. The story showed how NAF worked closely with debt-collection firms to develop business with credit-card companies and buyers of delinquent credit-card debt. NAF marketing material obtained by BusinessWeek showed NAF claiming better debt recovery rates through arbitration than through the courts. And the story revealed a system whereby NAF arbiters—lawyers and former judges hired on a contract basis—had incentives to rule in the creditor's favor.

Read more: http://www.businessweek.com/bwdaily/dnflash/content/jul2009/db20090714_952766.htm

[Vinnie From Indy]

1. The American people appear to have become like head of cattle

We've been fattened up and now on to the slaughterhouse.

[ThomCat]

2. Arbitration has been an open scam for a long time.

Credit card contracts insist upon it precisely because it is something they can control. It is corporate, and outside the actual courthouse.

Where there is a chance to manipulate the environment for their own profit, corporations will. They must. It is what corporations do. They manipulate their environment for profit. If the manipulation isn't anticipated and prohibited (and then monitored for abuse and sanctioned) it is going to happen.

The idea that arbitration Hasn't been corrupted by credit card companies is absurd. If they didn't have such a firm control over arbitration they would prefer to go to courts, where despite the cost they know their teams of high-priced lawyers give them a huge advantage. They go to arbitration because it gives them a bigger advantage, and a bigger Return On Investment because of that advantage.

Being cheaper, by itself, wouldn't be enough to make arbitration so attractive to them.

[myrna minx]

3. It truly is a gamed system.

:hi: ThomCat.

[ThomCat]

4. .

:hi:

[mattfromnossa]

5. And what are our elected leaders doing about this?

"Impartial resolutions of disputes are what democracy is all about, and the actions of this company undermine justice and are a threat to the legal system."

[dflprincess]

6. In Minnesota the AG is an elected position

so we have at least one elected offical doing something.

[Q3JR4]

7. They've introduced The Arbitration Fairness Act

in congress. http://www.govtrack.us/congress/bill.xpd?bill=h111-1020&tab=summary

Could be good.

Q3JR4.

[Q3JR4]

8. Manditory binding arbitration

is the biggest scam there is. Most firms that are hired as arbitrators have an incentive to decide in favor of the company otherwise the company wouldn't employ their firm. Arbitration clauses are in EVERYTHING from cell phone contracts to credit card applications, franchise agreements, rental agreements, and even employment contracts.

There are terrible stories associated with arbitration, for example:

A woman who worked for Halliburton was drugged and gang raped by men in Iraq. When she took the company to court for not providing her with protection or listening to her concerns before the incident, the company cited her arbitration clause and she was ordered into arbitration.

It's horrifically expensive. If this woman takes Halliburton into arbitration and if the arbitrator rules against her she's going to have to pay for everything. One couple in a franchise dispute was forced to pay $35,000 for a reporter, $25,000 for the arbitrator and arbitration association, as well as several thousand dollars for the opposing lawyers' and witnesses' lunches, commutes, and hotels.

Finally in the unlikely case that she wins (arbitrators rule for the company that hired them 98% of the time) the only thing she can get out of it is money and if Halliburton takes it to state court they could get the award overturned, forcing the woman to start over from scratch--fork out more money and go back through arbitration AGAIN. On the other hand, if she loses, the courts are very unlikely to disturb the decision. It turns out that if an employee wins in arbitration state appellate courts confirm only 56.4 percent of those wins. But when the employer wins, the SAME COURTS confirmed 86.7 percent of awards.

A complete and total scam. That is why we must all support The Arbitration Fairness Act of 2009 as introduced in the U.S. House of Representatives.

Q3JR4

References:
http://www.opencongress.org/bill/111-h1020/text
http://rawstory.com/news/2007/CNN_legal_analyst_Alleged_Halliburton_rapists_1212.html
http://consumerist.com/306136/arbitration-firms-are-godless-bloodsuckers
http://pubcit.typepad.com/clpblog/2008/04/the-snowballing.html


Also, another arbitration horror story and a court case:
http://finance.yahoo.com/expert/article/moneyhappy/48748
http://cache.gawker.com/assets/images/consumerist/2009/01/higharbitration.pdf

[myrna minx]

10. Thank you for this informative post.

I wasn't aware of this Act. Thanks for the links.

[Q3JR4]

11. You're welcome.

Q3JR4
More arbitration links: http://consumerist.com/search/arbitration/

[mattfromnossa]

12. I was not aware of this act either.

Thank you for posting this.

[Vidar]

9. Good for Minnesota.

[mplsatty]

13. Swanson lacks moral authority

This is an attorney general that has been slammed (and hard) for busting a union in her office. The Minnesota Legislative Auditor confirmed last year that Lori Swanson ordered attorneys in her office to falsify affidavits, file meritless lawsuits for good press, etc. She's a bad apple, and while I'm no fan of NAF, I think it's unfortunate that progressives are willing to turn a blind eye to the awful things that Lori Swanson has done in her office just because we dislike NAF. NAF is terrible, but Lori Swanson has shown that her tactics aren't any better.