Swanson
WASHINGTON (Legal Newsline) - The country's trial lawyers say a settlement reached by Minnesota Attorney General Lori Swanson shows a need for Congress to pass two bills that ban forced arbitration, while an arbitration company says it can't afford to defend itself anymore.
Less than a week after filing suit against the National Arbitration Forum, on Monday Swanson announced a settlement that will require the NAF to stop arbitrating credit card and other consumer collection disputes.
NAF said it agreed to the settlement because of "mounting legal and legislative challenges." Swanson's lawsuit, filed Tuesday, alleged NAF informs consumers that it is an impartial entity, while convincing credit card companies and lenders to insert arbitrarion clauses into their contracts and then appoint the Forum to handle the negotiating.
"The appaling business practices of the NAF illustrate how forced arbitration fails to protect consumers from predatory financial lenders and other negligent corporations," AAJ President Les Weisbrod said.
"The NAF opetated by creating an economic incentive to rule against consumers in favor of credit card companies and debt collectors, a far cry from the 'fair' and 'unbiased' forum they marketed.'"
Swanson alleged the company arbitrated 214,000 consumer arbitration claims in 2006, and nearly 60 percent of which were filed by laws firms with which the Forum is linked through ties to a New York hedge fund.
Congress is mulling the Arbitration Fairness Act and the Fairness in Nursing Home Arbitration Act.
"The National Arbitration Forum remains committed to consumer arbitration as the best and most affordable option for consumers to resolve disputes quickly and efficiently," said Mike Kelly, CEO of NAF's business partner Forthright.
"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."
The City of San Francisco is in litigation with NAF, and Swanson says other state attorneys general have contacted her about the issues in her suit. She also said she is accepting an invitation to testify about mandatory pre-dispute arbitration clauses before Congressional Committee on Oversight and Government Reform on Wednesday.
The AAJ, formerly the American Trial Lawyers Association, said forced arbitration can be used as a weapon, and voluntary arbitration can be just as effective.
"The NAF settlement should convince all skeptics that forced arbitration is biased, one-sided and operates to accommodate the predatory corporations at the expense of consumers," Weisbrod said.
The NAF noted that Swanson never alleged its arbitration proceedings were unfair.
"The National Arbitration Forum provides fair and affordable access to justice to American consumers regardless of size of their claims," Kelly said.
"Without access to arbitration, consumer disputes will now be forced into an overcrowded and underfunded legal system, where many consumers who cannot afford attorneys will have to navigate complex court procedures.
"The consequence to American consumers is that there will be no meaningful alternative to costly and unpredictable litigation."
The consumer arbitration business isn't what it used to be, Kelly added.
"At this time, the costs of providing consumer arbitration services far exceed the revenue generated," he said. "Until Congress resolves the legal and legislative uncertainty the cost is simply too high for users and providers of consumer arbitration."
From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.