Arbitration Firm Agrees to Settle False Advertising Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.


The National Arbitration Forum—the country’s largest administrator of credit card and consumer collections arbitrations—has agreed to get out of the business of arbitrating credit card and other consumer collection disputes, in order to settle a false advertising, consumer fraud, and deceptive trade practices action filed by Minnesota Attorney General Lori Swanson.

The Forum allegedly misrepresented its independence and hid from consumers and the public its extensive ties to the collection industry. The Forum is named as the arbitrator of consumer disputes in tens of millions of credit card agreements.

According to Attorney General Swanson’s complaint, the Forum allegedly told consumers and the public that it is independent and neutral, operates like an impartial court system, and is not affiliated with and does not take sides between the parties. The Forum allegedly worked behind the scenes, however, to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appoint the Forum to decide the disputes.

The complaint also alleged that the Forum has financial ties to the collection industry. The company allegedly arbitrated 214,000 consumer arbitration claims in 2006, nearly 60 percent of which were filed by laws firms with which the Forum is linked through ties to a New York hedge fund.

“The National Arbitration Forum remains committed to consumer arbitration as the best and most affordable option for consumers to resolve disputes quickly and efficiently. However, the FORUM lacks the necessary resources to defend against increasing challenges to arbitration on all fronts, including from state attorneys general and the class action trial bar,” said Mike Kelly, CEO of Forthright, which provides administrative services for the Forum.

Pending Federal Legislation

Legislative proposals pending in both houses of Congress threaten to eliminate pre-dispute arbitration, according to the Forum’s press release announcing the settlement. The Arbitration Fairness Act of 2009 (S. 931/H.R. 1020) would invalidate every pre-dispute contractual arbitration agreement that is part of a consumer, financial or franchise dispute. The Fairness in Nursing Home Arbitration Act (S. 512/H.R. 1237) would eliminate pre-dispute mandatory arbitration in all nursing home contracts. Legislation before the House to create a new Consumer Financial Protection Agency (H.R. 3126) would provide regulatory authority to restrict or eliminate consumer arbitrations.

In announcing the settlement on July 20, Attorney General Swanson said that she had accepted an invitation from Congressman Dennis Kucinich, Chairman of the Congressional Committee on Oversight and Government Reform, to testify before the Committee. She said she would ask Congress to prohibit the use of mandatory pre-dispute arbitration clauses in consumer contracts.

“The playing field is tilted against the ordinary consumer when credit card companies bury unfair terms like forced arbitration clauses in fine print contacts. Congress should change that,” said Swanson.