By Lucy Colby
This Wednesday, the House Subcommittee on Domestic Policy, chaired by Congressman Dennis Kucinich, will hold a hearing on the misuse of arbitration in consumer debt collection. Experts invited to testify include Michael Kelly, COO of the National Arbitration Forum (NAF), Minnesota Attorney General Lori Swanson, and Richard W. Naimark, a Senior Vice President at the American Arbitration Association (AAA). We expect this hearing to further illustrate why we need legislation to end forced arbitration.
The hearing should be particularly interesting in light of the recent suit filed by Attorney General Swanson against NAF alleging false advertising, deceptive trade practices, and consumer fraud. (See this statement from David Arkush, Director of Public Citizen’s Congress Watch Division, and this post from Deepak Gupta of Public Citizen’s Litigation Group.)
Just yesterday, in a huge victory for consumers, Swanson and NAF (the country’s most prominent provider of consumer debt collection arbitration) settled, under the condition that NAF will no longer accept any new consumer arbitrations. (See their consent decree here.) Swanson has also sent a letter to the AAA asking it to play a leadership role by ceasing to accept arbitrations on consumer credit and collection matters arising out of mandatory pre-dispute arbitration clauses. At Wednesday’s hearing, Swanson plans to ask Congress to prohibit the use of mandatory pre-dispute arbitration clauses in consumer contracts.
NAF is no stranger to civil suits. In March of 2008, San Francisco’s City Attorney filed a suit on behalf of the people of California against NAF alleging unlawful, unfair and deceptive business practices, and misleading and unfair advertising. The complaint asserts that while NAF insists it is a neutral provider of arbitration services, it is actually “retained by debt collectors and serves their interests alone in a non-neutral, biased and unfair manner.” That suit has received quite a bit of attention, including a cover story in BusinessWeek.
This past April, Deanna Richert, a former NAF employee, filed suit against NAF alleging sex and age discrimination. Because Richert had signed an agreement with NAF that contained – you guessed it – a pre-dispute mandatory arbitration clause, her suit also included allegations of unfair and biased arbitration practices and a demand for a jury trial. Her complaint revealed that NAF referred to businesses that regularly used their arbitration services as “famous parties,” and that NAF went to great lengths to ensure these “famous parties” were satisfied. NAF encouraged their arbitrators to decide in favor of “famous parties” and made sure that arbitrators who decided against them did not receive any more cases.
What makes this latest lawsuit different from the previous ones is that it exposed – in great detail – that NAF was at the center of a “broad arbitration ecosystem,” consisting of a “complex web of companies that compose some of the largest debt collectors and arbitrators of consumer credit card debt in the country.” The other suits certainly point out that NAF is far from the neutral arbitration provider they claim to be, but Swanson’s complaint went even further by revealing an actual business relationship between NAF and prominent debt collectors.
We happily wave goodbye to NAF as they exit the consumer arbitration industry. Congress must now pass the AFA to prevent another company from taking NAF’s place and ensure that employees and franchisees are also protected from forced arbitration.