There are few of us who are not party to some kind of fine-print contract for the various services we all use on a daily basis.  From credit cards, to bank accounts, to vehicle purchases, we all engage in contracts we don’t read.  And the fact is, the companies know you don’t read those contracts, and the government doesn’t care.

Contained in many of these contracts are “arbitration clauses” in which the consumer gives up their rights to have their day in court in order to go forward with their case before a private arbitrator (often a retired judge).  A lawsuit was filed several years ago, which has plodded through the courts on this very issue.

This lawsuit (called Ross, et al. v. Bank of America, N.A., (USA), No. 05-cv-7116 (S.D.N.Y.)) claims that the settling defendants Bank of America, Capital One, Chase and HSBC and the non-settling defendants Discover, Citibank and National Arbitration Forum violated federal law by conspiring, with each other and certain non-defendants, to require that their cardholders (a) take all legal disputes to arbitration rather than court and (b) give up any right to participate in class actions against these credit card companies.

Why would they do such a thing? Because consumer arbitration, quite predictably, has been unfairly stacked against consumers for some time.

In March 2008, the City of County of San Francisco filed a lawsuit against the National Arbitration Forum on behalf of its citizens, accusing the arbitrator of unfairly favoring credit card companies in disputes with their customers. Drawing upon research by Public Citizen and others and the City’s own investigation, the suit alleges that in specific cases the NAF approved an inflated award, improperly imposed attorneys fees, and did not respond to consumer requests to appear at an arbitration. The lawsuit said that between January 2003 and March 2007 NAF heard 18,075 credit card cases, and ruled in favor of consumers on just 30 occasions.


furthermore the Minnesota Attorney General brought an enforcement action against NAF, alleging that it had “actively encouraged” credit card issuers to place mandatory arbitration clauses in their contracts naming the forum as the arbitrator. The suit also alleges that a group of hedge funds with ties to a large debt-collection agency called Axiant owns a stake in the forum through an entity created to hide the connection. Nearly 60 percent of the debt collection claims handled in 2006 by the National Arbitration Forum had been filed by an Axiant predecessor, according to the Attorney General.

The National Arbitration Forum “has extensive ties to the debt-collection industry,” the Attorney General said at a press conference. “This is not an independent company and it needs to cease telling the public that it is.”

“This is as big of a case as I’ve ever filed as attorney general,” Swanson said. “These practices attack the foundation of our legal system.” The suit alleges violations of state consumer fraud, deceptive trade practices and false advertising laws

The NAF stopped taking consumer arbitrations.

Companies do not choose arbitrators who do not rule in their favor. One former National Arbitration Forum arbitrator, a Harvard law professor named Elizabeth Bartholet, was blackballed after she awarded $48,000 to a consumer in a case brought by a credit card company. After the same company had her removed from other pending cases, she resigned, citing the National Arbitration Forum’s “apparent systematic bias in favor of the financial services industry”.