Collectors Still Threaten to Use Forced Arbitration to Deny Rights to Millions of Credit Card Holders

22 Apr, 2010, 10:45 ET from National Consumer Law Center

New Report Shows Inherent Biases; Consumers Lose 90 percent of Cases

BOSTON, April 22 /PRNewswire-USNewswire/ -- A report issued today by the National Consumer Law Center warns that millions of credit card holders remain vulnerable to abuses by corporations that impose forced arbitration on customers.

Some arbitration stopped after the exposure of secret financial ties between National Arbitration Forum, a leading "impartial" arbitrator, and Mann Bracken, a major debt collector.

But the report, "Forced Arbitration: Consumers Still Need Permanent Relief," explains why more action is needed to prevent creditors and collectors from again using forced arbitration to deny basic rights to consumers, trample on laws, win nine out of 10 cases and take shortcuts to garnishment of wages and attachment of bank accounts.

The report provides new details of a deal by a Wall Street investor that, with backing from Ivy League universities and financing from a federal program, secretly forged financial ties linking NAF to Mann Bracken. A bankruptcy trustee recently characterized the resulting arrangement as a "fraudulently biased arbitration process."

That biased system was exposed by a 2009 lawsuit by Minnesota's Attorney General. To settle the lawsuit, NAF agreed to stop arbitrating consumer disputes. Soon afterward, Mann Bracken shut its doors. Several major banks pledged to temporarily stop enforcing forced arbitration clauses.

"Forced arbitration has been exposed as a collection tool that systematically denies consumers' basic rights," said Robert L. Hobbs, the report's co-author and deputy director of NCLC. "Yet the fate of this discredited 'private court system' depends on legislation before Congress and a case before the Supreme Court."

On Monday, the U.S. Supreme Court will hear oral arguments in Jackson v. Rent-a-Center, where the power of courts to strike down unfair arbitration clauses is at stake. Congress has before it an Arbitration Fairness Act that would prevent the imposition of forced arbitration clauses on consumers and employees. Pending financial reform legislation would establish a consumer financial protection agency with the power to prohibit forced arbitration.

"The NAF scandal shamed the banks out of using forced arbitration for now," said David Arkush, director of Public Citizen's Congress Watch division. "But there's nothing to stop them from returning to it when the public spotlight shifts. Congress needs to pass legislation that protects consumers from the practice once and for all."

The report is posted on-line at www.nclc.org/forcedarbitration.

The National Consumer Law Center is a non-profit organization with 39 years of experience working on issues that affect low-income consumers. NCLC publishes legal manuals and consumer guides and works with and trains legal services, government and private attorneys, community groups and organizations representing low-income and elderly consumers.

For more information or to arrange an interview with the authors: contact Rick Jurgens at 617-226-0334 or by email at rjurgens@nclc.org.

For more information on the Arbitration Fairness Act, contact Cora Ganzglass at the National Association of Consumer Advocates at 202-452-1989.

SOURCE National Consumer Law Center



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