Bankruptcy

NAF, Just NAF

By Bob Lawless

"NAF" sounds like maybe something you should say when you're frustrated. "NAF!, I stubbed my toe." In some circles, NAF may already be turning into an expletive. NAF stands for the National Arbitration Forum, a for-profit business that has twisted the tools of arbitration into a debt collection tool. The discussion about NAF should not be confused with the larger discussion about consumer arbitration generally. NAF is a problem unto itself. This organization's aggressive tactics have been featured several times by different bloggers here at Credit Slips (here, here, here, here) and are the subject of a lawsuit by the San Francisco city attorney.

Paul Bland, over at the Consumer Law & Policy blog, has a must-read post up about NAF's newest tactic: a push in the law reviews and bar journals to argue that courts should not look behind the debt collector's arbitration award to see if it is supported by any evidence. Paul explains why NAF would especially agitate for acceptance of this rule.

Last month, the American Banker magazine interviewed me for a story on the San Francisco lawsuit. The reporter quoted me saying that when lenders use mandatory arbitration clauses to bring claims against their debtors, "it's kind of a ginned-up dispute." In a letter to the editor, managing director of the NAF, Roger Haydock, took objection to my characterization saying "it would be a further disservice to American Banker readers to let stand these allegations about consumer finance arbitration."

Arbitration was intended as an inexpensive and efficient alternative to court litigation to resolve disputes, but in a debt collection action, there is generally little dispute the money is actually owed. Rather, the point of the debt collection action is to get the power of the court to force the debtor to pay. As I put it to my students, the court can send people with guns--people who we normally call the "sheriff"--and they will seize the debtor's property.

Arbitrating a debt collection bypasses the normal procedural safeguards that a court proceeding will give, and before the NAF, the debt collector will almost always win. According to the San Francisco city attorney, in 18,075 cases, the NAF ruled against consumers in 18,045 of them. Under U.S. law, the debt collector merely has to walk the arbitration award to the courthouse and now can get the full panoply of judicial power to force the debtor to pay. If you don't like the characterization of this procedure as a "ginned-up controversy," how about "twisted a potentially helpful dispute resolution mechanism beyond its intended use and, for their own profit, turned it into a tool that abuses consumers."

Full post as published by Credit Slips on May 28, 2008 (boomark / email).