July 15, 2009

Suit filed against arbitration firm

A lawsuit filed in Minnesota says a national arbitration company has a secret connection to banks and debt collectors, court papers show.

State Attorney General Lori Swanson filed the suit that says the National Arbitration Forum, which helps negotiate settlements between banks and consumers, has actively encouraged credit card companies to mandate consumers use arbitration services to settle claims, USA Today reported Wednesday.

Generally, the clauses in the contract take away the consumer's right to take the card issuer to court.

The lawsuit says the forum is also connected to a hedge fund through investments that include both the forum and a large debt-collection agency.

The forum denied it was under the influence of any minority shareholder or fund.

Swanson, however, said, the ordinary consumer is trapped in a shadow system of arbitration.

This is not an arm's-length process, Swanson said.

In Washington, Sen. Russ Feingold, D-Wis., and Rep. Hank Johnson, D-Ga., have introduced legislation that would ban mandatory arbitration clauses, the newspaper said.