Minnesota Attorney General files suit against arbitration firm

AG says debt dispute company favors credit card issuers

Minnesota Attorney General Lori Swanson filed a lawsuit Tuesday against the National Arbitration Forum of Minnesota. Swanson accuses the company, which handles disagreements between credit card issuers and cardholders, of deceiving consumers by hiding its ties to credit card companies and unfairly siding with them during disputes.

"This is a classic case of the little guy getting stepped on by fine-print contracts," Swanson said, according to a press release on her website.

Many credit card contracts contain a mandatory binding arbitration clause that eliminates the cardholder's right to sue the issuer. Instead, the consumer must resolve any dispute with a third-party, private arbitrator, such as the NAF, which is selected by a credit card company or other creditor.

The lawsuit claims the NAF, the largest arbitration company in the United States, violates state consumer fraud and deceptive trade laws by hiding its financial ties to collection agencies and credit card companies. The lawsuit also claims the company violates false advertising laws by misrepresenting themselves as a neutral organization.

"The company tells consumers, the public, courts and the government that it is independent and operates like an impartial court system," Swanson said. "In fact, it has extensive ties to the collection industry -- ties that it hides from the public."

The NAF responded to the lawsuit by saying there are no "institutional investors" in the company. Although it did acknowledge having some "minority investors as wide ranging as University endowments and private equity funds," it said no shareholder plays a role in arbitration process.

The same company came under fire in June of last year after San Francisco's City Attorney Dennis J. Herrera filed a lawsuit against it. Herrera claimed the company "decided in favor of the business entity and against the consumer 100 percent of the time." The lawsuit said the company ruled in favor of consumers in only 30 of the 18,075 credit card cases heard before arbitrators between January 2003 and March 2007.

According to a study by the consumer rights organization Public Citizen, 94 percent of cases administered by the NAF brought by MBNA, now owned by Bank of America, were decided against consumers.

See related: Credit card arbitration: What it is, how it works, 6 tips for dealing with binding credit card arbitration, Study portrays credit card binding arbitration as fair

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Updated: 01-19-2019