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Arbitration case helps credit card users

Woman questions bill.

TEXT OF INTERVIEW

Bob Moon: There was more bad news for credit card issuers this week. And here's why we should all care: Whether you know it or not, you could easily become the target of something called an arbitration process. That's an out-of-court alternative to resolving disputes. And it's such a favorite of the credit card companies that before they'll do business with you, you have to give up your right to go to court, and abide instead by arbitration.

This week, though, the company responsible for deciding most of the country's arbitration cases -- and which, by the way, nearly always ruled in favor of the credit card companies -- threw in the towel. That was the National Arbitration Forum's way of settling a lawsuit brought by Minnesota's attorney general. Then the country's second-biggest arbitration provider halted business this week, too.

Minnesota's attorney general says the arbitration process is stacked in favor of the creditors. Lori Swanson joins us now.

Welcome to the program.

Lori Swanson: Well thank you for having me on Bob.

Moon: So how did this all work? Consumer had say, fallen behind on their credit card or their cell phone bill, at what point would the National Arbitration Forum step in and why do they have the right to do that?

Swanson: Well, in the fine print of credit card agreements, pretty much every American citizen has given up their right to have their day in court to dispute any contest over the charges. Instead, just by keeping the credit card, the consumer must resolve the dispute in arbitration by an arbitration company picked by the credit card company.

Moon: You alleged in your lawsuit that led to this settlement that they were basically on the side of the creditors. How lopsided were you alleging this was?

Swanson: It was a very lopsided process. We have marketing materials where the Forum told banks and credit card companies arbitration is going to be great for you, the consumer doesn't know what to expect.

And then on the other side, we uncovered a New York hedge fund owned a sizable chunk of the Forum, but also owned part of one of the country's biggest debt collection operations. Some of the executives were sending e-mails saying, there can't be any public information about these ties, that that would be a real problem.

Moon: Is it not possible that consumers lose as often as they do, because they simply didn't use their cards or accounts responsibly and they're at fault? There's a judgment against them?

Swanson: You know, in some cases, absolutely, the consumer does owe the money. There are people who have charged things on their credit card and they owe it. But what this case was really about was fundamental fairness. One party of the litigation not to have their thumb on the scale of justice, pressing it down. There ought to be a right of everybody to show that they don't owe the money.

Moon: What about the supporters' groups, like the U.S. Chamber of Commerce, say that this is going to remove a very important option, an option that consumers have that can in many cases be cheaper than going to court?

Swanson: If a credit card company and a consumer want to agree to arbitration as a way to resolve a dispute, this in no way impedes that. The problem with arbitration is that you have one party to the transaction, namely the credit card company, picking the arbitration -- and where the arbitration company also knows that if the arbitration company rules too much on the side of the consumer, that the credit card company can go elsewhere. That type of biases doesn't exist in the court system.

Moon: Did any consumer stories strike you as particularly poignant?

Swanson: Yeah, we had a lot of these cases involving consumers who were victims of identity theft, where they simply didn't owe the money. And yet, they would try to pass the information on, try to prove their case and they just couldn't get through. And then certainly, the information we heard from the employees -- basically being instructed, make it as difficult as possible for the consumer. You know, if the credit card company called the arbitration for them, they should bend over backwards, they should help them draft claims. But that if a consumer called, they should get them off the phone as quickly as possible, provide as little help as possible.

Moon: We've been talking about credit cards and cell phone bills and that sort of thing, but arbitration really extends to wide areas that consumers might not even know about, such as nursing homes, you might give up your right to sue a nursing home or an insurance company. There are all sorts of institutions, right?

Swanson: Correct. Nursing homes, health care. In fact, the National Arbitration Forum was working with this New York hedge fund group to really look at getting into health care, in a big way. They kind of envisioned that the National Arbitration Forum would really be part of what they called a "comprehensive alternative legal system." Under the agreement that we have with the Forum, it can't be involved in any of these types of consumer disputes. So, for example, health care would be off the table.

Moon: Well, there's certainly a lot more to come on this story. And we'll have to keep watching it. Lori Swanson is the attorney general of Minnesota. Thank you very much for joining us.

Swanson: Thank you for having me.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.
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Thank you Ms. Swanson. Now we must all be vigilant because there are others out there eager to take over what NAF has agreed to give up. AAA, CAS. and DeMar are already in place arbitrating for home builders. The arbitration process allows home builders to cut corners on the largest purchase you ever make, your home, with impunity.

Ms Swanson helped with a giant leap forward, but there is much more work to be done. H.R. 1020 and S. 931 - the Arbitration Fairness Act is necessary to stop the harm these arbitration clauses are doing to ordinary people once and for all. www.hadd.com

Lori Swanson is an American hero. I applaud her courage and strong sense of "right and wrong." She helped fix this broken system to the benefit of Americans. It's nice to know someone is working on our behalf, especially now.

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