December 25, 2009

• Arbitration becoming a thing of the past, Pt.3
    The road to victory.

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  Research conducted in 2007 by Public Citizen discovered that only six percent of arbitration cases involving Bank of America's MBNA institution settlements were in favor of the credit card consumer. Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts. The report showed that the National Arbitration Forum (NAF) was the firm hired by MBNA to negotiate credit card disputes with the consumers. Nearly two years later, Minnesota's Attorney General Lori Swanson, filed suit against NAF alleging that the company deceived consumers by not informing them that the credit card company had hired them and misleading the cardholder into thinking they were a neutral party. Court documents also said that NAF continued ties with the lender.

  Within a week of the filing, NAF settled with the Attorney General by agreeing do cease all arbitration activities including those from credit card companies, banks, utilities, health care operations, and cell phone companies. Shortly thereafter, the American Arbitration Association (AAA) stepped in to say that they were voluntarily stopping all arbitration processes. Furthermore, the company said that it was time lawmakers take the necessary action to implement reform that would “enhance an array of due process elements” to bring about “fairness and transparency.” In short, the AAA was calling for new reform to further regulate the actions of credit card companies.

  These activities placed lenders in a difficult situation. They did not have the resources available to handle credit disputes themselves and yet had just lost the two largest arbitration firms in the business. With credit card defaults already rising to historical highs, lenders could hardly afford to jeopardize any further receipts. Since the contract's clause mandated all disputes be handled through arbitration, seeking court action was out of the question.

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