Minnesota Attorney General Lori Swanson filed suit today against the National Arbitration Forum of Minnesota, the nation’s largest arbitration company for consumer credit disputes, accusing it of consumer fraud, false advertising and deceptive trade practices by "misrepresenting its independence" and hiding its "extensive ties" to the collection industry.
"This is a classic case of the little guy being stepped on by fine-print contracts," Swanson said in a press release.
Increasingly, Swanson said, credit card companies, banks, retail lenders and cell phone service providers insert "mandatory pre-dispute arbitration clauses" in the fine print of consumer agreements. The clauses mean that consumers waive their right to seek legal action in the event of a dispute with the company; instead, the consumer agrees that any dispute will be resolved by an arbitrator selected by the credit card company or other creditor.
Usually, the consumer doesn’t realize that he or she is waiving that right, Swanson said.
"Credit card companies are among the most prolific users of mandatory arbitration clauses," Swanson’s release said. "Just by keeping a credit card, the consumer agrees to the terms and conditions of the card, even if the arbitration provision was sent to the consumer after the card was issued.
"As a result of mandatory arbitration clauses, which appear in millions of consumer agreements, hundreds of thousands of consumer disputes are resolved each year not by a judge or jury, but by a private arbitration system."
The lawsuit, filed in Hennepin County District Court, charges that the National Arbitration Forum works behind the scenes, "alongside creditors and against the interests of ordinary consumers," to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appointing itself to resolve the disputes.
Swanson’s lawsuit claims that the National Arbitration Forum pays commissions to executives to convince creditors to insert mandatory arbitration clauses in customer agreements, thus generating arbitration filings and revenue for itself.
Swanson was joined at her announcement of the lawsuit this morning by Richard Neely, retired chief justice of the West Virginia Supreme Court of Appeals, who was appointed as an arbitrator by the National Arbitration Forum after his retirement but stopped receiving cases after he refused to award attorneys’ fees to creditors.
"I am happy that a government official has stepped in to try to address this problem," Neely said. "This company tilts the playing field toward creditors and makes a mockery of our legal system."
A spokeswoman for the National Arbitration Forum, Christina Doucet, distributed an e-mail this afternoon defending the group’s practices and providing extensive background on its view of the arbitration process, though it did not specifically address the accusations in Swanson’s lawsuit.
"As an adversarial means of dispute resolution, like litigation, arbitration provides for a decision in favor of one party, typically leaving at least one party unhappy with the result," the e-mail read. "As such, any administrator of arbitration is likely going to get complaints.
"The National Arbitration Forum makes every effort to fully address complaints, including those filed by the Minnesota attorney general’s office. The National Arbitration Forum does this to ensure the fairness of the arbitration process and to continually improve the administration of arbitration."