Minnesota Lawsuit Claims Credit Card Arbitration Firm Has Ties to Industry

USA Today
July 15, 2009
Chu, Kathy; McGraw, Taylor
P. 1B

A lawsuit lobbing accusations of "deceptive practices" at a dispute-resolution firm threatens to have widespread ramifications, including in the credit card business. The case centers around the issue of arbitration, under which cardholders are required to waive their right to sue the issuer and instead must resolve any disputes through negotiations with a former judge, lawyer, or other legal expert. Minnesota Attorney General Lori Swanson has filed suit against the National Arbitration Forum, which is said to have encouraged card issuers to include mandatory arbitration language in their contracts and to have helped some issuers in pursuing arbitration claims against consumers. Its capacity to fairly handle card cases is additionally being challenged by the fact that a hedge fund holding interests in entities controlled by the forum is linked financially to a large debt-collection agency. "The ordinary customer is trapped in a shadow system of arbitration," according to Swanson. "This is not an arms'-length" process. The litigation comes as U.S. lawmakers debate whether or not to abolish mandatory arbitration clauses in contracts and as credit card firms and other industries take on arbitration-related lawsuits. Meanwhile, the Minnesota case could bode well for arbitration reform efforts. Sen. Russ Feingold (D-Wis.) and Rep. Hank Johnson (D-Ga.) are sponsoring a measure that would make mandatory arbitration clauses unenforceable in consumer agreements.