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.
- Download the PDF of the City Attorney’s complaint, People of the State of California v. National Arbitration Forum, Inc. et al, San Francisco Superior Court No. 473-569 (March 24, 2008)
- Read the City Attorney's news release: "Preliminary Injunction in Herrera's Arbitration Case Halts Publicizing of Private Information; City Attorney Wins Court Order Against FIA to Immediately Cease Disclosing Consumers’ Confidential Information" (April 16, 2008)
- Download the PDF of the Court's Order Regarding People's OSC Re: Preliminary Injunction and Motion to Seal, which protects credit card consumers' private information from being published in public court filings (April 30, 2008)
- Read the City Attorney's news release: "Herrera's Suit Against Credit Card Arbitrator Featured in Cover Story of Current BusinessWeek; National publication praised for 'excellent, exhaustive coverage of a practice that is victimizing too many consumers'" (June 6, 2008)
- Read the cover story in BusinessWeek [external link]: "Banks vs. Consumers (Guess Who Wins)" by Robert Berner and Brian Grow (June 5, 2008)
- Read the City Attorney's news release: "Herrera Hails Pre-Trial Ruling in Consumer Protection Case Against Credit Card Arbitrator; S.F. Superior Court Judge Denies Two Demurrers, Effectively 'Greenlighting' City's Case Against Unfair, Illegal Business Practices" (July 31, 2008)
- Read the City Attorney's news release: "Herrera Hails Federal Protections for Credit Cardholders, But Warns of More Problems; Law to limit rates and fees an 'important step' -- but abuses by credit card companies' 'arbitration mills' still under challenge by City" (May 22, 2009)