Credit card arbitration firm sued by Minnesota AG

07.16.09
By Sarah Beldo

The Minnesota Attorney General has filed a lawsuit against the nation's largest arbitration company that handles consumer credit disputes.

Lori Swanson says that National Arbitration Forum of Minnesota misled consumers by concealing its links to the debt collection industry - relationships that impeded its impartiality.

Specifically, the suit claims that the forum violated the state's laws against consumer fraud, deceptive trade practices and false advertising.

The issue at stake involves mandatory binding arbitration clauses. A large number of credit card agreements include these clauses in their fine print, which effectively remove a customer's right to sue in the case of a dispute.

Instead, the provisions mandate that any disputes must be worked out with a private arbitration firm selected by the card issuer. The NAF is one such third-party arbitrator.

According to the lawsuit, the NAF works behind the scenes to convince credit card companies to incorporate arbitration clauses into their customer agreements - therefore generating more revenue for the company.

"The company tells consumers, the public, courts and the government that it is independent and operates like an impartial court system," Swanson said. "In fact, it has extensive ties to the collection industry - ties that it hides from the public."

The suit also describes the formation of a hedge fund operated by the NAF that has strong financial ties to a large debt collection agency called Axiant. Swanson uses this connection as further evidence of the forum's bias.

Consumer advocates are applauding Swanson's move. Nonprofit advocacy organization Public Citizen called the suit "an important effort to protect its citizens from the inherent corruption of the forced arbitration system."

The Arbitration Fairness Act is a bill currently being considered by the House of Representatives that would remove the mandatory aspect of arbitration clauses, so that both parties would have a say in whether the case is decided by a court or a private firm.

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The suit claims the National Arbitration Forum of Minnesota misled consumers.