Domestic Policy Subcommittee releases report on manditory arbitration

July 21, 2009 |

Review of the largest provider of arbitration for debt collection reveals law violations

The logo of the National Arbitration Forum

Washington D.C. – Dennis Kucinich (D-OH) the Chairman of the Domestic Policy Subcommittee of the Committee on Oversight and Government Reform, today released a majority staff report entitled “Arbitration Abuse: an Examination of Claims Files of the National Arbitration Forum,” which examines the nation’s largest provider of arbitration, the National Arbitration Forum, and concludes that there are numerous problems with the organization and its practices, including violations of California law and assisting in the violation of Delaware law.

Arbitration is the process by which disputes are resolved out of court, usually by retired judges or lawyers.  Mandatory arbitration occurs when consumers are deprived of their rights to a court trial as the result of boilerplate language in a contract they are required to accept, as a condition of their purchase, or an insert included in their monthly bill.  Mandatory arbitration has become a common clause in most consumer contracts and has been severely criticized by consumer advocacy groups.

Congressman Dennis Kucinich

Chairman Kucinich will hold a Domestic Policy Subcommittee hearing “Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts,” on July 22, 2009 at 2:00 p.m. in Room 2154 of the Rayburn House Office Building.  The hearing will evaluate contractually-mandated arbitration of disputes between businesses and consumers in the context in which the vast majority of those disputes occur—the collection of debts from consumers.  The hearing will also evaluate whether consumer debt collection arbitration, as currently administered, produces results that are fair and legitimate.

The Domestic Policy Subcommittee Majority staff reviewed hundreds of individual case files from the largest provider of arbitration for debt collection, the National Arbitration Forum (aka Forthright LLC). A summary of our findings follows:

1. Virtually all NAF “consumer arbitrations” are in fact debt collection actions brought by creditors or assignees of creditors, not by the consumers themselves, and almost all consumer arbitrations are decided in the creditor’s favor.
2. Decisions in identical cases differed depending on the identity of the arbitrator to whom the claim was assigned (See Exhibit A, attached).
3. Arbitrators in most of claims ignored the absence of evidence of whether or not the claims were brought within the statute of limitations.
4. Arbitrators in most of the claims ignored the lack of specific evidence of who was actually served with the notice of the arbitration.
5. Where there was specific evidence of how the notice was served, it often showed that the signature on the receipt was illegible, was a name different from the person who was supposed to be served, or was on one occasion an “X” and on two occasions a “John Doe.”
6. All of the arbitrators ignored evidence that should have resulted in dismissal of most of the claims (See Exhibit B, attached).
7. One Maine arbitrator, who did not ignore such evidence and did dismiss a lot of cases, ended up without any additional cases being assigned to him in Maine.
8. The NAF, itselt did not follow its own rules and sent claims to arbitrators despite the fact that those claims should have been dismissed for failure of the creditor to serve the notice or arbitration “promptly.”
9. The NAF is violating Califomia statutory law by refusing to publish the results of many of its Califomia arbitrations.
10. The NAF’s failure to publish the results of all of its California arbitrations is assisting at least one collection company in an illegal effort to obtain awards of attomey’s fees in amounts that violate Delaware law.

Read the committee’s report on the National Arbitration Forum.

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