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National Arbitration Forum case

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City Attorney Dennis Herrera is pursuing a major case to protect credit card consumers against so-called "arbitration mills," which purport to impartially resolve disputes over credit card debt, but that in reality almost always rule on behalf of credit card companies.

The lawsuit against the National Arbitration Forum and two other companies was filed on March 24, 2008, and has earned national news coverage -- including a June 2008 cover story in BusinessWeek entitled, "Banks vs. Consumers (Guess Who Wins)" by Robert Berner and Brian Grow. In one early legal battle in the case, Herrera successfully obtained a court order prohibiting credit card collection agencies from publishing debtors' Social Security numbers and other private information in court documents -- a clear invasion of privacy and a recipe for identity theft.

Said Herrera: "When arbitration is fair and impartial, it can hold significant benefits in terms of efficiency and access to justice. But the evidence is clear that NAF is anything but fair or impartial. It is little more than a collection agent masquerading as a neutral party."

The civil action filed in San Francisco Superior Court alleges unfair and unlawful business practices by the NAF and others that favor lenders over credit card holders in arbitration proceedings. In fact, NAF's own statistics show that consumers prevailed in just 30 cases out of more than 18,000 arbitrations that went to a hearing -- less than two-tenths of one percent. There was not a single instance in which a credit card company that initiated an arbitration claim against a consumer lost at a hearing, according to Herrera's complaint.

Herrera's suit alleges that NAF engaged in myriad unethical practices in order to find against consumers in the proceedings, including failing to require debt collectors to prove that the consumer has been made aware of the arbitration; failing to honor consumers' requests for hearings; and ignoring consumers' submissions of evidence or arguments throughout the arbitration process. The suit additionally alleges that NAF unlawfully allowed inflated awards to lenders; included inappropriate attorneys' fees among other arbitration costs and fees; and used attorneys suspended from the practice of law or otherwise ineligible to practice law in California as arbitrators even though NAF advertised that all of its arbitrators were experienced attorneys or judges.

Last updated: 8/5/2009 12:42:52 PM