Bankruptcy

Have You Already Lost?

By Elizabeth Warren

The reasons to dispute a credit charge are many--mistakes, failure to credit a return, identity theft, a lost payment that triggered penalty interest and fees, etc. Maybe the company will be nice and settle, or maybe the charge will be small an the customer will grumble and pay.  But if you had a serious dispute you wanted to pursue, have you already lost? 

Business Week has a cover story this week about credit card disputes are settled through arbitration.  The focus is on NAF, an arbitration outfit that, by its own accounting, arbitrated 18,075 cases between a business entity and a California consumer. The score?  Business won 18,045, and consumers won 30.   

Read the story for all the details.  Reporters Robert Berner and Brian Grow are investigative reporters at its best. The story is factual, compelling and genuinely scary.

When Congress promoted arbitration with the Federal Arbitration Act, most people thought it provided a good alternative to expensive litigation for equally powerful parties (including me).  But today an arbitration clause slipped into the 30+ pages of incomprehensible language in a credit card agreement will mean that a customer has waived her rights to a class action.  Worse yet, as Business Week shows, it means the customer has agreed to submit to a process that the arbitration company markets to credit card companies as a cheap way to collect on debts--whether the card issuers can legally prove their claims or not. Business Week even raises serious questions about whether the most basic procedural fairness--sending notice of the dispute or providing a hearing when a consumer asks for one--is provided.

The City Attorney in San Francisco is suing NAF, based only on the publicly available data--a reminder of the importance of collecting and reporting basic data about consumer transactions. Of course, it will be eye-opening to see what documents will come out during discovery. 

Senator Feingold has introduced legislation that would let consumers decide AFTER a dispute arises if they want to go to arbitration. The practices reported by Berner and Grow should make more people in Washington take another look at that legislation.

In the meantime, have credit card customers pre-lost every dispute?   

Full post as published by Credit Slips on June 10, 2008 (boomark / email).