Future of Mandatory Arbitration Provisions in Consumer Contracts Uncertain
For years, companies, including credit card and cell phone companies, have included mandatory arbitration provisions in consumer contracts. However, a recent series of events has put the future of forced arbitration into question.
On July 14, Minnesota Attorney General Lori Swanson sued the National Arbitration Forum (NAF), one of the nation’s largest providers of arbitration services for the credit card industry, for consumer fraud, deceptive trade practices and false advertising. The complaint alleged that the company deceived consumers into thinking it was a neutral arbitrator in debt collection when, in reality, NAF worked behind the scenes with credit card companies and other creditors, such as cell phone providers, to write itself into small-print purchase agreements as the sole arbitrator consumers could use if they had problems with creditors. NAF quickly settled the lawsuit, agreeing not to take accept any new cases.
In the aftermath of the NAF lawsuit, the American Arbitration Association (AAA) has announced that it will also stop participating in consumer-debt-collection disputes until new guidelines are established. Additionally, JPMorgan Chase, one of the nation’s largest credit-card issuers, has announced it will no longer submit disputes to arbitration and is evaluating the inclusion of arbitration provisions in its consumer contracts.
As Ashby Jones wrote in a blog at the Wall Street Journal (7/22), “It’s too soon to say, in all likelihood, but we could be in the early stages of an arbitration revolution.” Consumer advocates are hopeful that the settlement reached between the Minnesota Attorney General and NAF, as well as AAA’s withdrawal from the consumer debt collection disputes, will lead to the end of mandatory arbitration. Consumer attorneys have argued that the recent chain of events shows a need for Congress to pass two bills currently before it, the Arbitration Fairness Act and the Fairness in Nursing Home Arbitration Act, which ban forced arbitration. Consumer attorneys have also responded by filing lawsuits seeking to set aside thousands of arbitration awards and judgments in consumer debt cases.