AAA & NAF suspend arbitrations over consumer debt collections pending new guidelines

The Wall Street Journal (7/22, Sidel, Sharma) reports, "Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits. The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established." The National Arbitration Forum, in a settlement with Minnesota Attorney General Lori Swanson, had earlier said "it would stop accepting new cases as of Friday. Their retreat has big implications for credit-card and cellphone companies, which generally require customers to agree to mandatory arbitration." Consumer advocates "have criticized the practice for years, saying consumers often don't realize they are waiving their right to sue when they sign contracts with the companies."

The Wall Street Journal (7/22, Kim) reports, "Consumer advocates say the development opens the door for customers to take their grievances to court instead of being forced to settle their disputes through the arbitration process. 'In the long run, I think this is the beginning of the end of forced arbitration in all consumer contracts, from credit cards, to nursing homes to cellphones,' said Ed Mierzwinski of U.S. PIRG, a consumer-advocacy group."

The San Francisco Chronicle (7/22, Abate) reports, "A congressional committee will hold hearings today at which NAF and its adversaries will argue about whether consumers are put at a disadvantage by the common practice of requiring that disputes be arbitrated rather than fought in court." Carol Kaplan, "a spokeswoman for the American Bankers Association, which represents many credit card issuers, said most consumer contracts are probably written in such a way that another arbitrator could be designated to replace National Arbitration Forum. But Paul Bland, a staff attorney with the advocacy group Public Justice, said NAF was the designated arbiter in so many consumer agreements, including cell phone contracts, that no other arbitration service is big enough to replace it."