Attorney General Lawsuit Shines Light on Biased Arbitration Forum

The Minnesota Attorney General recently sued the National Arbitration Forum (“NAF”), contending that NAF committed fraud and engaged in false advertising and deceptive trade practices by intentionally misrepresenting its independence and neutrality and by hiding its ties to the debt collection industry.  Soon after the case was filed, NAF agreed to a settlement, the terms of which included a requirement that NAF stop accepting all future consumer arbitrations.  

The Attorney General’s lawsuit and others recently filed against NAF demonstrated that NAF was anything but the neutral, unbiased forum it represented itself to be.  The lawsuits exposed the following: (1) NAF actively concealed the fact that it was owned and managed by the same New York hedge fund which also owned the three largest debt collection law firms which had claims decided by the NAF; (2) NAF helped creditors draft claims to be filed against consumers or referred them to debt collection law firms which would then file arbitration claims against the consumers before the NAF; (3) NAF solicited business from creditors by touting arbitration before the NAF as a less costly and more effective debt collection tool than the courts; and (4) NAF instructed arbitrators how they should rule with respect to certain claims and denied assignments to arbitrators who found against repeat business filers.

The abuses inflicted upon consumers by NAF highlight the issues which accompany a system in which one party has greater and much more frequent access to the decision-maker and that decision-maker has an incentive to encourage repeat business from creditors and business interests.  Individuals should be free to have disputes with banks, credit card companies, and other commercial entities heard in the open and by an unbiased decision-maker in the court system.