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Consumer advocates slam credit-card arbitration

They charge the deck is tilted in favor of banks in disputes with credit-card holders.

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Despite advocates' concerns, it's unclear whether consumers who go through arbitration are any more likely to get a judgment against them than those who go to court. The National Arbitration Forum (NAF), one of the nation's largest private arbitration firms, is commonly used by creditors and secondary debt buyers. A Monitor analysis of the last year of available data from NAF found that arbitrators awarded in favor of creditors and debt buyers in more than 96 percent of the cases. () Such results may be similar to outcomes in court. It also found that the 10 most frequently used arbitrators – who decided almost 60 percent of the cases heard – decided in favor of the consumer only 1.6 percent of the time, while arbitrators who decided three or fewer cases decided for the consumer 38 percent of the time.

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NAF would not comment on the findings because it had not participated in the analysis, but maintains that its arbitrators are neutral. Edward Anderson, managing director of NAF, says that caseloads of arbitrators probably reflect types of cases. "Undoubtedly, the more complex the disputes, the more arbitrator time would be involved and the fewer cases an arbitrator would be able to handle," he writes in an e-mail, noting that cases where one party does not respond are less complex than those where there is a controversy. Indeed, arbitrators who heard few cases were far more likely to hear contested cases than other arbitrators.

But consumer advocates say arbitrators have strong incentives to rule in favor of business. One commonly applied rule allows either party to reject an arbitrator for any reason. Businesses can use this "one strike" rule to their advantage, say consumer advocates, since they may have more information on an arbitrators' prior rulings than consumers do. And the knowledge that rulings bring repeat business may create financial pressures for arbitrators.

"Arbitration work is often very lucrative, and arbitrators know that if they rule against a corporate defendant too frequently or too generously (from the standpoint of that corporation), they will lose the work," wrote F. Paul Bland, staff attorney at Public Justice, a Washington, D.C.-based nonprofit legal services group that opposes mandatory binding arbitration agreements in consumer contracts, in comments for the Congressional hearing.

NAF's Anderson denies any charges of pro-business bias. He says the arbitrators who work for NAF are former judges and attorneys with at least 15 years' experience. Strict guidelines prevent any financial conflicts of interest. "To suggest, as some do, that their compensation for these cases influences their integrity would be unwise, if not insulting," writes Anderson. "After all, many of these arbitrators are former judges, and all have a sincere interest in helping parties resolve disputes fairly and efficiently."

NAF says its one-strike rule is not pro-business. Allowing a party to remove an arbitrator regardless of evidence of bias, the [NAF's Code of Procedure] follows a middle ground, comparable to the rules of the various courts around the country," writes Anderson. "We do not believe such a rule favors one party or another, any more than the same provisions favor parties in a court."