San Francisco Sues Provider of Arbitrators
By NATHAN KOPPEL                                             April 2008

An organization that helps resolve disputes between credit-card companies and their customers has been accused of disregarding the rights of consumers and of favoring lenders in a lawsuit filed last month by the San Francisco city attorney.

The lawsuit was filed against the National Arbitration Forum Inc., a leading provider of arbitrators. Companies such as credit-card issuers often prefer to resolve disputes with their customers through private arbitration, handled by one or a few lawyers known as arbitrators, rather than in court, in an effort to save time and money.

 

Charged: An organization that helps resolve disputes between credit-card companies and customers has been accused of favoring lenders.   How it Works: Credit-card issuers often prefer to resolve disputes with their customers through private arbitration. Here to Stay? Arbitration has increased in popularity in the past 15 years, seen as a cheap, quick alternative to the court system.

The suit alleges that in specific cases NAF approved an inflated award, improperly imposed attorneys fees and didn't respond to a consumer's request to appear at an arbitration, among other things. Also named as defendants in the suit: FIA Card Services NA, a Delaware bank that issues credit cards, and a California debt collector.

From 2003 through March 31, 2007, 18,075 consumers' arbitrations in California were resolved through hearings conducted by the NAF, according to the suit, citing data reported by the NAF. Thirty of the matters, or fewer than 0.2%, were won by consumers.

"NAF is actually in the business of...churning out arbitration awards in favor of debt collectors," reads the suit, which is filed on behalf of the "people of California" and seeks $2,500 for each unfair and deceptive act committed.

The NAF said it is reviewing the claims to determine its next steps. "The National Arbitration Forum's independent case administration and neutral decision makers constitute a system that satisfies or exceeds objective standards of fairness," it said in a statement. "Our arbitration program has been supported in all courts in which it has been reviewed." The NAF declined to discuss the specific data included in the lawsuit.

A spokeswoman for Dennis Herrera, the San Francisco city attorney, didn't respond to requests for comment.

Arbitration has increased in popularity in the past fifteen years, with proponents hailing it as a quick, cheap alternative to the court system.

But many plaintiffs lawyers and consumer advocates say that consumers are often forced into arbitration without adequately consenting, and that their recoveries can pale in comparison to jury verdicts. In Congress, Democratic lawmakers have introduced legislation to ban companies from requiring consumers to arbitrate disputes, although the measure is believed to face long odds.

In 2004, the suit alleges, California resident Elizabeth Marcotte was hit with a $25,0000 award, plus $10,000 in attorneys' fees, in a credit-card collection case. But Ms. Marcotte allegedly wasn't notified about the arbitration, because she was served at an old address, even though she had notified the credit-card company of her new address. The NAF awarded the attorneys' fees without requiring proof that the debt collector actually incurred the fees, according to the suit. Ms. Marcotte wasn't reached for comment.

In another credit-card collection case, the NAF allegedly entered an award against California resident John Sheakley, without responding to his request to appear at a hearing and explain why he didn't owe the purported debt to a bank that was a predecessor of FIA Card Services. Mr. Sheakley wasn't reached for comment. A spokeswoman for FIA Card Services declined to comment.

Write to Nathan Koppel at nathan.koppel@wsj.com