Legal News

An Arbitration Revolution? AAA Joins NAF, Stops Taking New Cases

By Ashby Jones

It’s too soon to say, in all likelihood, but we could be in the early stages of an arbitration revolution. Critics of mandatory arbitration have long railed against the practice, especially as applied to customers and their credit-card and cellphone companies, and it appears that the foundation of such practice is starting to crack.

The latest, and perhaps most significant development to date: Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits. Click here for the WSJ story.

The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established. Its decision came two days after another big group, the National Arbitration Forum, said it would stop accepting new cases as of Friday.

Although arbitration long has been controversial, the current situation developed rapidly starting last week when the Minnesota attorney general’s office sued the National Arbitration Forum over the way it handled disputes. Among other things, the lawsuit contended that NAF didn’t disclose that it has financial ties to the debt-collection industry, violating Minnesota laws against consumer fraud, deceptive trade practices and false advertising. Click here and here for earlier blog posts.

The two sides reached a swift settlement on Sunday, with NAF agreeing to stop taking new consumer-debt cases nationwide beginning this Friday.

“This is an issue beyond any one problem company,” said Minnesota Attorney General Lori Swanson. “It is a systemic industrywide problem. Consumers are giving away rights without even knowing it.”

An official with AAA said the group, which is a not-for-profit, will stop taking debt-collection arbitrations “until some standards or safeguards are established.”

A spokeswoman for NAF, a closely held, for-profit company, said it made the decision to stop doing credit-card arbitrations because it was being hit with a wave of lawsuits. “It has just come to the point where the forum has decided to stop administering consumer arbitrations,” said Christina Doucet, a spokeswoman for NAF.

Full post as published by Law Blog - WSJ.com on July 22, 2009 (boomark / email).