July 20, 2009

Minnesota Settlement With National Arbitration Forum Demonstrates Need for Congress to Curb Forced Arbitration

Statement of David Arkush, Director, Public Citizen’s Congress Watch Division

Minnesota Attorney General Lori Swanson’s settlement with the National Arbitration Forum (NAF) is a tremendous win for consumers. Public Citizen, which has long criticized NAF’s lack of neutrality as an arbitrator, is gratified that the company will no longer hear consumer disputes with credit card companies, banks and others.

For years, NAF has been the credit card industry’s go-to provider for credit card collection arbitrations. The Minnesota Attorney General’s lawsuit charged NAF with falsely claiming to be a neutral forum despite having corporate ties to large debt collection firms, treating major U.S. corporations as its clients and secretly collaborating with the U.S. Chamber of Commerce to try to discredit reports on its bias, such as Public Citizen’s 2007 report showing that big corporations win 95 percent of the time before NAF.

The issues raised by the Minnesota lawsuit against NAF demonstrate the dangers of letting major corporations force consumers into private, secretive tribunals of their own choosing. The problem is much broader than NAF alone, extending to forced arbitration itself. Attorney General Swanson laudably recognized this in a July 19, 2009, letter to the American Arbitration Association (AAA), in which she urged AAA to abandon forced arbitration because it is a "fundamentally unfair" practice.

Only federal legislation can ensure that these events are not repeated and that another arbitration company does not step into the void left by NAF. Congress should protect consumers and employees by passing legislation to end forced arbitration once and for all. The Arbitration Fairness Act (H.R. 1020 and S. 931) would do just that. In addition, the Consumer Financial Protection Agency Act (H.R. 3126) would create an agency empowered to protect consumers from forced arbitration in contracts for financial products such as credit cards.