'Neutral' credit dispute arbitrator to cease operations

Attorney General Lori Swanson said Sunday that her office reached a sweeping legal agreement that requires a Minnesota company to get out of the business of arbitrating credit card debts and other consumer collection disputes nationwide.

The settlement comes less than a week after Swanson sued the National Arbitration Forum over its handling of debt disputes between consumers and credit card companies. The lawsuit accused the St. Louis Park-based firm of violating state consumer fraud, deceptive trade practices and false advertising laws by hiding financial ties to collection agencies and credit card companies.

"To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator. Now the company is out of this business," Swanson said. "I am very pleased with the settlement."

The settlement takes effect Friday.

The National Arbitration Forum denied Swanson's accusations but said it decided to voluntarily stop administering consumer arbitration disputes because of mounting legal costs.

Mike Kelly, CEO of Forthright, which provides administrative services for the National Arbitration Forum, said consumers will now have "no meaningful alternative to costly and unpredictable litigation."

Kelly said the company doesn't have the resources to continue defending itself against state attorney generals, class action lawsuits and on other fronts. He said the forum remains committed to consumer arbitration, arguing it's the best and most affordable option for consumers.

"Without access to arbitration, consumer disputes will now be forced into an overcrowded and underfunded legal system, where many consumers who cannot afford attorneys will have to navigate complex court procedures," he said in a statement.

Swanson had said the National Arbitration Forum handled more than 214,000 collection claims in 2006, 60 percent of which were filed by law firms with ties to the collection industry.

Under the settlement, the company must stop accepting any new consumer arbitration or taking part in processing or administrating any new consumer arbitration nationwide. The company must stop administering arbitration involving consumer debt including credit cards, consumer loans, utilities, telecommunications, health care and consumer leases, Swanson said.

The settlement allows the company to continue arbitrating Internet domain name disputes, personal injury protection claims and cargo disputes. Those areas were not part of the lawsuit.

Swanson also said she has been invited to testify Wednesday before the Congressional Committee on Oversight and Government Reform. She said she will ask Congress to bar the use of mandatory pre-dispute arbitration clauses in consumer contracts.