Consumer advocates slam credit-card arbitration
They charge the deck is tilted in favor of banks in disputes with credit-card holders.
from the July 16, 2007 edition
Page 3 of 4
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."
But two former NAF arbitrators say banks took them off of cases after they issued rulings unfavorable to the institution. Richard Neely, a retired chief justice of the West Virginia Supreme Court, says he received two cases from the NAF in which he wouldn't charge consumers for the creditor's litigation-related fees. He never received another case.
After she decided against a credit-card company, awarding a consumer damages, Elizabeth Bartholet, a former NAF arbitrator and Harvard law professor, said in a 2006 deposition that she was repeatedly removed from cases by the credit-card company. Rather than telling alleged debtors that the creditors removed her, she said, at times NAF mailed letters saying she had a scheduling conflict and had withdrawn.
Courts may be more understanding of consumers who don't understand the system. Unlike NAF, many small-claims courts may be willing to reopen a case after a consumer mistakenly doesn't appear at a hearing. "Most judges are very forgiving if you come in and say 'I have no idea what's going on,' " says Richard Rubin, a New Mexico federal consumer appellate law specialist and chair emeritus of the National Association of Consumer Advocates.
Beltran says his debt stemmed from funeral expenses for his brother, not from any credit card. But at one point the debt buyer that went to court to enforce the arbitration award used a credit card agreement form to prove Beltran had agreed to arbitration. The contract Beltran signed, he says, had been negotiated in Spanish, but he was given only an English contract – illegal under California law – that contained terms he says he never discussed, including a 26.99 percent interest rate. After receiving notice of a court hearing to confirm the arbitration award, Beltran hired a lawyer. Earlier this month, Beltran settled his dispute. The debt has been discharged and his credit rating will be restored.
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