June 12, 2008

NAF's Weak Response to Business Week

By Graham Steele & David Arkush

The National Arbitration Forum (NAF) has responded to Business Week‘s investigation of NAF’s shady, for-profit arbitration practices. The rebuttal is full of irrelevancies, inaccuracies, and misrepresentations:

• NAF argues that "arbitration outcomes are the same as

  court outcomes for similar types of cases," citing a Chamber of

  Commerce-funded report by Catholic University law professor Peter

  Rutledge. But the Business Week story explains that NAF markets itself by saying the opposite

  — that arbitration provides a "marked increase in recovery rates over

  existing collections methods." (Not to mention that companies can

  "control the [arbitration] process and timeline," and that "93.7% [of

  arbitrations] are decided without consumers ever responding.")  Who do

  you think NAF is lying to — the public or its clients?

• NAF cites court decisions as evidence that it is impartial. But

  a closer looks reveals some serious problems with NAF’s citations:

  • NAF cites a discussion of its arbitrators (who seem to be independent contractors) in Marsh v. First USA Bank, 103 F. Supp. 2d 909, 925 (N.D. Tex. 2000).  This case is a distraction because the Marsh court explicitly refused to consider the real issue — whether NAF itself creates biased practices, procedures, and incentives for arbitrators. See id. ("[T]he Court concludes that Plaintiffs’ concerns are merely

    illusory. Plaintiffs’ accusations of bias are directed toward NAF, not

    the independent arbitrators who actually conduct the arbitration.") .  The court focused solely on individual arbitrators — and these very people "say that . . . NAF’s procedures tend to favor creditors."

    Just in case having biased procedures isn’t enough, NAF also teaches

    big corporations how to manipulate the procedures so that they can "control [the] process and timeline." In fact, NAF markets itself to big companies behind closed doors as offering a better way to squeeze money out of people.

    So the story here is not about individual arbitrators. It’s about NAF,

    which operates a system so biased against consumers that the City of San Francisco is suing NAF.

  • NAF also cites Green Tree Financial as saying NAF’s cost and

    fee schedules are fair and reasonable.  531 U.S. 79, 95 n.2 (2000).

    The Court endorsed a fee schedule in NAF’s procedural rules that "that limit small-claims consumer costs to between $49 and $175." Id. But NAF neglects to mention that it later revised those fees upward

    (good luck navigating NAF’s convoluted fee chart and explanations, but

    there they are). And NAF neglects to mention the biggest risk for

    consumers — that they could get stuck paying for the other side’s

    expenses, including its lawyers, which could cost hundreds of thousands of dollars.

• NAF cites a fine 2006 series in the Boston Globe on debt collection abuses in Massachusetts, arguing that courts, not arbitration, are the problem.  (See also this post

  from CL&P blog on courts in Chicago.)  The answer to this problem

  is reform to the small claims civil justice system, not NAF’s arbitration

  system.  Substituting one

  problematic forum for another does not protect consumers from abuse.

• Minor bonus point:  NAF hilariously claims it won’t "attack[] critics of

  arbitration," then devotes a substantial portion of its rebuttal to — you guessed it — attacking the credibility of two experts cited by Business Week.  Reminds us of the way the American Enterprise Institute and the Manhattan Institute just can’t get enough of attacking us.

Noticeably lacking in NAF’s rebuttal to the Business Week

article is any denial of the damning evidence of NAF’s internal

business practices.  Reporters Brian Grow and Robert Berner did an outstanding job.