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Losing Your Rights in Arbitration

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A recent study published by the National Consumer Law Center shed new light on the abuses that can arise from forced arbitration.  Arbitration is a process where the parties avoid going to court by using a private process to resolve disputes that would otherwise normally end up in court.  Arbitration is a private process, with lots of secrecy and without many of the most important rights you would have in court.  Unfortunately, many agreements have forced arbitration buried in the fine print of your contract, including credit card agreements, car purchase agreements, bank agreements, phone company agreements and many others.

Millions of consumers have given up their right to have a court resolve any disputes, along with the protections provided by the court.  Instead, the big business gets to choose the arbitrator.  Often, big businesses chose arbitrators that had previously given them what they wanted in such cases.  Simply put, the deck is stacked against consumers in those cases, no matter what the facts are and no matter what the law says.  Once big business wins in arbitration, it is generally very difficult for a court to set that win aside.

The study showed that, back in 2006, a Wall Street Investor to stack the deck even more.  He helped facilitate a direct financial connection between a law firm who often represented big business in those arbitrations and the arbitration companies themselves.  This corrupt arrangement was finally uncovered by the Minnesota Attorney General in the summer of 2009.

As a result of the work by the Attorney General and her staff, the National Arbitration Forum (NAF) was exposed, and agreed to stop doing most consumer arbitrations.  At least four giant banks also agreed to stop enforcing the arbitration provisions.  The giant debt collection law firm, Mann Bracken, collapsed from the fraud charges.  Please click here to read the full NCLC report.

Now that the fraudulent practices of forced arbitration have been exposed, I hope that they will disappear.  However, the banks’ pledge not to enforce arbitration agreements expires in 2013.  That is why it is important to put legislation in place to prevent companies from forcing you into arbitration through the use of fine print.  There has been some discussion of this in Congress recently, but only time will tell if it becomes the law of the land.