Shopping for Justice

When Bank of America does it, they don’t want courts, like the rest of us, they look to the National Arbitrators Forum (NAF). NAF, a privately held, for-profit arbitration firm contracts with about 1,700 freelance arbitrators to decide about 200,000 cases a year. Most cases NAF decide concerns consumer debt, just like your credit cards. Founded in 1986, NAF catered heavily to one client, ITT Consumer Finance, whose general counsel opposed the relationship. He feared it would deny individuals broader rights they enjoyed in courts. He dismissed NAF saying, “Shopping for justice – that’s what it is.” Arbitration is supposed to represent an alternative to going to court to resolve disputes. But, arbitration is supposed to be fair, like the court system. Most people accused of falling behind do owe money. But, with special default interest rates, penalties, and charging credit limits, owing money may not be the end of the story. Sometimes billing mistakes and fraud play a role in consumer debt claims.

In San Francisco, the city attorney sued NAF, accusing it of churning out awards without sufficient justification. He says NAF has done an “end run around the law” to unfairly benefit large banks and credit companies. Some current and former NAF arbitrators agree. Arbitrators are contractually encouraged to make decisions in haste, based on scant information, rarely with any debtor participation, sometimes with no documentation of notification to the debtor. This behavior offends notions of “fundamental fair play” our founding fathers guaranteed to us in the Due Process clause f the Fourth Amendment to the Constitution. Richard Neely, a former State Supreme Court Justice contracted to decide some cases for NAF. When NAF provided him with an award form, that already had the amount the creditor sough filled in awaiting his signature it offended Neely’s conscience. He thought NAF encouraged arbitrators to mindlessly give big lenders everything they asked for. When creditors succeed, the lawyers add fees of 15 to 20% to judgments billed to debtors. In cases he decided, Neely denied creditors administrative fees they requested, but which would not have been available to creditors, who had filed suit in court. He estimates these exotic administrative fees at about $300 per case.

One of the selling points of any alternative to traditional court systems is cost savings. But, when consumers pay $300 extra to give up due process fundamental fairness, we must closely examine the savings. Neely concludes “NAF is nothing more than an arm of the collection industry. It’s a system set up to squeeze small sums of money out of desperately poor people.” With 1700 arbitrators, and rules different from both state and federal court, when a creditor believes an arbitrator won’t give them what they want, the creditor can drop the case, re-file it and get an arbitrator they like better. Creditors use delays and dismissals to manipulate outcomes of cases. When Elizabeth Bartholet, a Harvard Law School professor worked as an arbitrator for NAF, she awarded $48,000 in damages to a debtor and was coincidentally removed from all other cases pending before her. Bartholet swears its, “unfair and biased.” Laurie Raymond complained to MBNA, parent company of Bank of America, that charges attributed her were the result of fraud or mistake. Raymond insisted she had never signed any arbitration agreement and disputed NAF’s power of her. Raymond even had concessions from MBNA, acknowledging she did not have to pay. MBNA nevertheless brought an NAF claim against Raymond and won $16,642 award. NAF had not even held the hearing Raymond had requested. Although courts usually do not review cases NAF decided, in this case, a state court overturned the award.

MBNA says, “We believe arbitration can be an efficient and fair method of resolving disputes between our customers and the company.” Edward C. Anderson, an NAF founder and former CEO confirms the company educates lawyers for creditors on benefits of arbitration hoping the lawyers’ clients purchase NAF’s services. A September, 2007 NAF PowerPoint presentation aimed at creditors promises “marked increase in recovery rates over existing collection methods.” It goes on to advertise that creditors control the process, the timeline and that creditors can receive stays and dismissal of action without fees. An arbitration company collaborating closely with frequent participants to land more business and more profits is troubling to anyone expecting NAF to remain neutral.

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