Sept. 27, 2007
Mandatory Arbitration Stacks Deck Against
Credit Cardholders, Data Show
Major Arbitration Firm in California Rules Against
Consumers 94 Percent of the Time, Uses Arbitration as Debt Collection
Mechanism, New Report Shows
WASHINGTON, D.C. – Consumers who seek justice in
disputes with their credit card companies shouldn’t expect to find it
in binding mandatory arbitration (BMA); in cases decided in California
by a major arbitration firm over a four-year period, consumers lost 94
percent of the time, a new Public Citizen report shows.
Further, virtually all were collection cases filed
against consumers
by credit card companies or firms that buy debts from these companies,
indicating that credit card companies are using arbitration as a means
to collect debts. The report, “The Arbitration Trap: How Credit Card
Companies Ensnare Consumers,” was released at a press conference today
with lawmakers who have introduced legislation to protect consumers
from arbitration, and a victim of unfair arbitration proceedings.
In the report, Public Citizen pulls back
the curtain to reveal the cozy and dangerous relationship between
credit card companies and the private arbitration firms that decide
their binding mandatory arbitration cases. The result of an eight-month
investigation, the report provides, for the first time, a comprehensive
analysis of data on nearly 34,000 arbitration cases, and in-depth
stories of credit cardholders and their struggles in this nightmarish
system.
The report focuses on the National
Arbitration Forum (NAF), the go-to arbitration forum for the credit
card industry and a major player in the California arbitration
business. Between Jan. 1, 2003, and March 31, 2007, arbitrators working
for the Minneapolis-based NAF ruled for businesses in 94 percent of the
California cases examined. In fact, 90 percent of the NAF cases were
handled by just 28 arbitrators, who awarded businesses $185 million.
One arbitrator handled 68 cases in a single day – an average of one
every seven minutes, assuming an eight-hour day – and ruled for the
business in every case, awarding 100 percent of the money requested.
The same arbitrator is an attorney with his own practice serving
business and corporate clients.
“People shouldn’t have to give up their
legal rights just to get a credit card,” said Public Citizen President
Joan Claybrook. “This is a system that is unfair to consumers, many of
whom are struggling financially, and a huge gift to big business. We
need to ban mandatory arbitration clauses in consumer contracts now.”
“Public Citizen’s excellent report
provides solid evidence of the abuses that take place when consumers
are forced into binding mandatory arbitration agreements,” said Sen.
Russ Feingold, who, along with Rep. Hank Johnson (D-Ga.), has
introduced the Arbitration Fairness Act of 2007 (S. 1782 and H.R.
3010). “It’s time to restore choice to consumers and employees, and
restore the effectiveness of the laws Congress has passed to protect
them,” Feingold said.
The Arbitration Fairness Act of 2007
would ensure that citizens have a true choice between arbitration and
the traditional civil court system by requiring that agreements to
arbitrate employment, consumer, franchise and civil rights disputes be
made after a dispute has arisen. The act would prevent a party with
greater bargaining power from forcing individuals into arbitration
through a contract.
Buried in the fine print of millions of
customer-service agreements for everything from credit cards to cell
phones, as well as employment contracts, binding mandatory arbitration
clauses require customers to agree to settle any grievances through
arbitration, thereby forgoing their right to a trial by jury.
Most people don’t realize that by
accepting the credit card or computer, they are giving up their right
to go to court if they have a dispute with the company, and in fact
will be forced into a system in which the company holds all the cards.
Not only do the companies hire the arbitrators and drive millions of
dollars of business to arbitration firms – giving arbitrators a
financial incentive to rule for the company – but proceedings are
costly to consumers, largely handled through document exchange and kept
secret. Consumers who want due process must pay; in one case examined
by Public Citizen, a three-page decision cost $1,500 to obtain.
Public Citizen focused on
California data because California is the only state that requires
arbitration providers to disclose any information about arbitration
results. In all other states, there is no oversight or accountability.
Public Citizen’s investigation revealed customers left in the shadows
of arbitration, often spending years fending off collection agencies,
cleaning up identity theft messes, untangling themselves from
administrative bungling and bouncing back from credit rating hits.
Troy Cornock, a Hillsboro, N.H., resident, brought his arbitration
horror story to Capitol Hill. Cornock’s credit rating was decimated
after the card his now ex-wife opened in his name was not paid off. He
tried repeatedly and unsuccessfully to make credit card giant MBNA
aware that not only was it not his card, but also that he had moved to
a different address. MBNA kept sending all correspondence, including
notice that the case was being sent to arbitration, to his ex-wife’s
address.
NAF ordered Cornock to pay MBNA $9,446.85 but sent that ruling to
his ex-wife’s address. MBNA then went to court and successfully
petitioned for a default judgment against Cornock. Cornock hired a
lawyer, who had the default judgment set aside and successfully filed a
motion to have the arbitration award tossed out. Cornock’s days in
court are over, but his credit record is sullied and his financial
trials continue.
Most people have no idea what an arbitration firm is, Cornock said.
“Sure, it’s in the contract you sign, but that fine print should be in
big old bold print, warning you. In my case, they held an arbitration
hearing even though I didn’t sign a contract agreeing to arbitration.”
“Binding mandatory arbitration is a
systematic, privately funded denial of justice for consumers,” said
Laura MacCleery, director of Public Citizen’s Congress Watch division.
“It is a get-out-of-jail-free card for corporate hucksters.”
Read the full statement of Joan Claybrook.
Read the full statement of Laura MacCleery.
Read the full statement of Troy Cornock.
