Minnesota lawsuit claims credit card arbitration firm has ties to industry

In a move that could reverberate through the credit card industry, the Minnesota attorney general on Tuesday sued the National Arbitration Forum, charging that the dispute-resolution company engaged in "deceptive practices" in hiding its ties to the debt-collection and banking industry.

It's the latest challenge to a controversial dispute-resolution process increasingly used by credit card companies, cellphone providers and employers. It's unclear how many credit card disputes are handled each year through arbitration. But most issuers now require consumers to sign away their right to sue, and have their disputes settled through arbitration by a former judge, lawyer or other legal expert.

The lawsuit comes at a time when Congress is considering whether to ban mandatory arbitration clauses in contracts, and credit card companies and other industries are grappling with a handful of arbitration-related lawsuits.

Minnesota Attorney General Lori Swanson, in suing the National Arbitration Forum — one of the largest providers of arbitration services for the credit card industry, alleged that the company "actively encouraged" issuers to place mandatory arbitration clauses in their contracts and sometimes "assist(ed)" issuers in arbitration claims against consumers. A hedge fund with a stake in entities controlled by the forum also has financial ties to a large debt-collection agency, according to the lawsuit, raising concerns about the forum's ability to fairly deal with card cases.

"The ordinary consumer is trapped in a shadow system of arbitration," Swanson says. "This is not an arm's-length" process.

National Arbitration Forum, in a statement, says its contractors are "independent," ensuring the "impartiality" of arbitration.

The forum, responding to claims about the forum's ties to the debt-collection industry, said that "at no point does any minority shareholder or fund have any role or influence" over the arbitration process.

Experts believe that Swanson's lawsuit could fuel the move for reform of the arbitration process.

The timing of the case "could not be better" for supporters of arbitration reform, says Sarah Cole, an Ohio State University law professor. Legislation introduced by Sen. Russ Feingold, D-Wis., and Rep. Hank Johnson, D-Ga., would make mandatory arbitration clauses unenforceable in consumer contracts.

Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...
See It, Share It
PHOTO: Firefighters rescue a woman who got stuck in a chimney in Thousand Oaks, Calif.
Ventura County Fire Department
PHOTO: Apple Pay is demonstrated at Apple headquarters on Oct. 16, 2014 in Cupertino, Calif.
Marcio Jose Sanchez/AP Photo
PHOTO: Up in Ash: Mount Sinabung Erupting
Tibt Nangin/Anadolu Agency/Getty Images
PHOTO: Defendant Jodi Arias testifies about killing Travis Alexander in 2008 during her murder trial in Phoenix, Feb. 20, 2013.
Charlie Leight/The Arizona Republic/AP Photo
PHOTO: Kim Kardashian, Kanye West, their daughter North West and Delphine Arnault attend the Givenchy show as part of the Paris Fashion Week Womenswear Spring/Summer 2015, Sept. 28, 2014 in Paris.
Bertrand Rindoff Petroff/French Select/Getty Images