New Trap Door for Consumers: out-of-control debt collection tactics

New Trap Door for Consumers: Card Issuers Use Rubber-Stamp Arbitration to Rush Debts Into Default Judgments, Says NCLC

2/17/2005 10:35:00 AM

To: National Desk, Legal Reporter

Contact: Jon Sheldon or Stuart Rossman, 617-542-8010, Web: http://www.nclc.org , both of National Consumer Law Center; or Paul Bland of Trial Lawyers for Public Justice, 202-797-8600

BOSTON, Feb. 17 /U.S. Newswire/ -- It's a troubling marriage of two anti-consumer practices that have already sparked vigorous protest: out-of-control debt collection tactics plus often-hidden clauses in contracts that nullify consumers' constitutional rights to trial by jury and a day in court.

-- Consumers Are Blindsided by Sudden Fast-Tracking of Often-Old Disputes, Amid Strong Evidence Arbitrators' Tactics Display Bias

-- Many Alleged Debts Aren't Even Valid, But There's Money To Be Made by Speeding Debt Collection Into Arbitration Instead of Settlement

-- Case Studies, Exhibits and Interviewee List Available with Full Report at: http://www.consumerlaw.org/initiatives/model/content/ArbitrationNAF.pdf

Now, at least two giant credit-card issuers and one of the nation's largest firms arbitrating their consumer disputes have combined these practices in a disturbing new way: They're using binding, mandatory arbitration primarily as an offensive weapon, by fast-tracking disputes over credit-card debt into rapid arbitration. A number of consumers charge that the banks often do this with little notice, after long periods of dormancy for the alleged debt or over consumers' specific objections -- then force those who don't respond swiftly or adequately into default. The arbitrator often forces the consumer to also pay for the hefty arbitration costs and the card issuer's attorney, making the total tab for consumers several times the original amount owed and many times what it would have been in more traditional debt settlements. So it's a neat pathway to turbo-charged profits for both the card issuer and the arbitrator.

The practice, based on industry data disclosed in several lawsuits, appears to affect tens of thousands of consumers. What's worse, it doesn't seem to matter that it is widely forcing victims of credit-card fraud to pay debts they clearly don't owe, or that the boilerplate language of mandatory arbitration clauses deprives those same victims of one of their most basic legal rights. That's because arbitration by definition says a consumer can't go to court to have his or her story heard, even if the alleged "debt" is a result of someone else's criminal fraud and in no way a result of the dunned consumer's actions!

Who's behind this new anti-consumer onslaught? One consumer lawyer who's been tracking the trend, Paul Bland of Trial Lawyers for Public Justice, says that "certain corporate lenders, most prominently MBNA and First USA Bank, are using arbitration with the National Arbitration Forum as a way of pursuing large numbers of claims against consumers." Bland says that NAF's operation "is geared toward rapidly churning consumers through an industry- friendly process," where "arbitration awards are regularly entered by NAF against consumers who probably did not even understand that they were defendants in a legal proceeding demanding money from them. And NAF's process often greatly increases the amounts consumers are deemed to owe."

"These are smart people who find themselves in situations where they feel blind-sided," says TLPJ's Leslie Bailey, who researched many of the cases. Bailey says the process "really moves quickly, without giving consumers a chance to have a proverbial horse in the race. There's a feeling that what's at stake is never expressed to them before they suddenly find themselves in default," and saddled with large costs.

Bland says NAF's executive director has testified that the firm handles about 50,000 arbitrations of debt collection cases each year. According to documents produced in one lawsuit by NAF itself (see exhibits with the full report) the consumer prevailed in just 87 out of 19,705 arbitrations NAF shepherded to an outcome. So NAF's client in this example, First USA Bank, prevailed a disturbing 99.56 percent of the time!

"Only a tiny percentage of consumers read the terms of credit card agreements, which are typically sent out as bill stuffers (statements stuffed in with monthly bills), printed in tiny font and filled with dense legal jargon" that's often incomprehensible even to highly-educated consumers, Bland says. "And very few consumers understand that they've supposedly given up their constitutional rights and agreed that the NAF is the sole forum for any legal claims they may have involving their bank. So when consumers receive notices from or about the NAF, they often believe these are junk mail or some mistake and throw them away."

National Consumer Law Center advocates have written extensively about the gross unfairness of both abusive debt- collection practices and so-called mandatory arbitration clauses in consumer contracts. Broad outlines of the issues involved can be found on NCLC's Web site at these two links: http://www.consumerlaw.org/initiatives/model/arbitration.shtml and http://www.consumerlaw.org/initiatives/debt_collection/press_release.shtml

Bland says this new wave of problems "is all consistent with NAF's documented practice of advertising to corporations to the effect that its rules are slanted in their favor. NAF promises corporations that unlike other arbitration firms it bans class- actions, that it permits 'little or no discovery' (in arbitration proceedings), that it has a loser-pays rule that requires any non-prevailing consumer to pay the corporation's attorneys' fees, that it lets corporations avoid 'the risk' of a jury, and that it 'will improve 1/8their 3/8 bottom line.' " It's a clear conflict-of- interests: NAF reaps millions in business directed to it by credit-card companies while NAF sees most consumers just once, an easy temptation to what critics refer to as "repeat player bias" toward big customers.

---

NOTE:

FULL REPORT, CONTACTS, EXHIBITS AT:

http://www.consumerlaw.org/initiatives/model/content/ArbitrationNAF.pdf

http://www.usnewswire.com/

with fewer and fewer protections every day for consumers, thanks to the bush administration.

Predatory Capitalists, ready to screw the little guy into the ground at the drop of a hat. And it can happen to ANYONE.

Capitalism has gone too far over the line to ever redeem itself. It will feed upon itself until there's nothing left. The economy of the United States will be in shambles thanks to greed and the bush administration.

Jebus, we need some SANITY back in politics. I hope people have realized that Republicans ARE NOT good stewards of our country and that the Republican Party dies a swift death never to be resurrected.

Credit Companies,like Capital One, are using outsourced workers in India for collections- and they have access to account information and social security numbers. This is a big problem!!! This could result in identity theft globally!!! Not to mention, they are taking the job away from an American- an American who can't pay their Capital One bill because they are out of work- do they really want to get a collection call from someone in India? It is rough enough getting a collection call but when it is from an outsourced person halfway around the world, it is a BIG SLAP IN THE FACE!!!!!

have been showing up for the last 5 years - about the same time the cc companies wanted to not allow bankruptcies for the small consumer - yet the corporations have been going bankrupt a lot in that time - they have been sending these little packets in each credit card bill - you have to write in that you will not accept the binding arbitration - and with that close the account and pay it off -essentially -

it once was illegal to use loan sharking activities - now it is all above board and they have no problem hurting the many who are not rich -

the poor are being squeased in so many ways - credit card debt is really insidious

I don't know about First Bank, but MBNA targets high-risk consumers for their card. As with other forms of high-risk lending, aggressive collection tactics are essential to the business plan. It's usually the front-line collectors, under pressure to maximize their recoveries, who cross the line between legitimate collection tactics to outright harassment.

Are they in place to resolve disputed charges or do they arrange settlements for delinquent accounts?

Expect consumer bankruptcy under Chapter 7 to be the next pet project for Bush, to make it harder for individuals to discharge their credit card debt.

what I find disturbing is "credit rating" and building one
w/o using a credit card.

I mean here are these loan sharks and then your credit rating is used
in employment and getting insurance?

card you need to find small businesses that still sell an item on time and give you regular monthly payments directly to them. These businesses set the terms into the contract and you know ahead of time what the interest you are paying is and exactly how many months it will take you to pay it off. This is different than a credit card in that you must pay it off in so many months and you do not end up paying interest on an item that you let ride on the credit card for years. This is old fashioned credit building.

And Democratic Senators have been signing off on it since it first appeared.

I've written a letter to Senators Reid and Durbin (non supporters) asking that they urge other Democrats to oppose this shameful bill.

Please read the letter here.

http://www.ipetitions.com/campaigns/BankruptcyBill/

If you find you can, please sign it, and pass it on.

Thank you.

Hope