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

SAN FRANCISCO (May 22, 2009) — City Attorney Dennis Herrera today applauded President Obama for signing a bill into law that will prevent credit card companies from arbitrarily raising interest rates, and place limits on the fees the companies can charge to consumers. But in response to the federal legislation, which passed the House and Senate by wide margins and with broad bipartisan support, Herrera warned of additional problems that continue to victimize credit card consumers.

“President Obama deserves enormous credit for his leadership in enacting legislation that takes important steps toward restoring fairness to credit cardholders,” Herrera said. “But we shouldn’t forget that still other egregious anti-consumer practices by lenders persist. Credit card companies continue to benefit unfairly by their ongoing use of ‘arbitration mills,’ which purport to impartially resolve disputes over credit card debt, but that in reality almost always rule against consumers. The president is exactly right when he says that you shouldn’t have to worry about signing away all your rights when you sign up for a credit card. But for too many Americans, that’s exactly where they find themselves when they go to arbitration.”

On March 2008, Herrera filed litigation against the National Arbitration Forum and two other companies for unfair and unlawful business practices that favor lenders over cardholders in arbitration proceedings. NAF’s own statistics, in fact, 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. The lawsuit earned national news coverage in June of last year in a BusinessWeek cover story entitled, “Banks vs. Consumers (Guess Who Wins)” by Robert Berner and Brian Grow.

The case is People of the State of California v. National Arbitration Forum, Inc. et al., San Francisco Superior Court No. 473-569, filed March 24, 2008.