Have You Already Lost?

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June 9, 2008 7:01 p.m.

Think about your next dispute with your credit card company. A mistaken charge? Failure to credit a return? A penalty fee that they promised to waive? Or ratchet it up a little: Identity theft? A lost payment that triggered penalty interest and fees? If you think you’ll be protected from mistakes, think again.

Business Week has a cover story this week on how credit card disputes are settled through arbitration, specifically through NAF, an arbitration outfit that, by its own accounting, arbitrated 18,075 cases between a business entity and a California consumer. The score? Business 18,045/Consumers 30. Whether you know it or not, you may have already lost your next dispute with your credit card company — even if they made the mistake and you can prove it.

Read the story for all the details. Reporters Robert Berner and Brian Grow give us investigative reporting at its best. The story is factual, compelling and genuinely scary.

The Business Week story is for everyone who things that, by and large, fairness will win out, for everyone who thinks that a big-name company would never deliberately take advantage of its customers, and for everyone who things that arbitration sounds like a low-cost, fair way to clear up problems.

When Congress promoted arbitration with the Federal Arbitration Act, most people thought it provided a good alternative to expensive litigation for equally powerful parties. But today an arbitration clause slipped into the 30+ pages of incomprehensible language in a credit card agreement will mean that a customer has waived her rights to a class action. Worse yet, as Business Week shows, it means the customer has agreed to submit to a process that the arbitration company markets to companies as a cheap way to collect on debts — whether the company can legally prove their claims or not. Business Week even raises serious questions about whether the most basic procedural fairness — sending notice of the dispute or providing a hearing when a consumer asks for one — is provided.

The City Attorney in San Francisco is suing NAF, and I’m eager to see what documents will come out during discovery. Senator Feingold has introduced legislation that would let consumers decide AFTER a dispute arises if they want to go to arbitration.

These are great moves. We need some protection here so that we don’t pre-lose every dispute that comes up.

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