Only six percent of consumers win credit card arbitration
by Carol Thompson
According to a study conducted by Public Citizen, consumers only win six percent of the credit card disputes that are taken to arbitration.
In the more than 19,000 cases studied by the consumer advocacy organization, 94 percent of the decisions favored the business.
Although the study was conducted several years ago, the numbers haven’t changed much today.
In the report, Public Citizen revealed the cozy and dangerous relationship between credit card companies and the private arbitration firms that decide their binding mandatory arbitration cases.
The report focuses on the National Arbitration Forum (NAF), the go-to arbitration forum for the credit card industry and a major player in the California arbitration business. Between Jan. 1, 2003 and March 31, 2007, arbitrators working for the Minneapolis-based NAF ruled for businesses in 94 percent of the California cases examined. In fact, 90 percent of the NAF cases were handled by just 28 arbitrators, who awarded businesses $185 million. One arbitrator handled 68 cases in a single day – an average of one every seven minutes, assuming an eight-hour day – and ruled for the business in every case, awarding 100 percent of the money requested. The same arbitrator is an attorney with his own practice serving business and corporate clients.
Public Citizen focused on California data because California is the only state that requires arbitration providers to disclose any information about arbitration results. In all other states, there is no oversight or accountability. Public Citizen’s investigation revealed customers left in the shadows of arbitration, often spending years fending off collection agencies, cleaning up identity theft messes, untangling themselves from administrative bungling and bouncing back from credit rating hits.
Companies track how arbitrators rule, and do not choose arbitrators who do not rule in their favor. According to Public Citizen, one NAF arbitrator, a Harvard law professor, was blackballed after she awarded $48,000 to a consumer in a case in which a credit card company filed a claim against the consumer.
After the same credit card company had her removed from other pending cases, she resigned, citing NAF’s “apparent systemic bias in favor of the financial services industry.”
Some arbitrators, the study shows, signed dozens of awards in one day, often not considering the evidence of the consumer.
Laws have been proposed to change the manner in which arbitration is handled, yet, Congress has taken no action for years.