Chamber Study Calls Public Citizen Wrong on Card Debt Disputes

The U.S. Chamber Institute for Legal Reform fired back last week at a study that found that arbitrators in California overwhelmingly ruled in favor of credit card issuers and debt collectors in cases against debtors. The Chamber said the September 2007 study from the public advocacy group Public Citizen is being used in a law suit against the National Arbitration Forum.

The Public Citizen study tracked 18,075 arbitration cases in California from January 2003 to March 2007, and found that debtors won in only 30 of the cases. Public Citizen also claimed that 28 arbitrators heard nearly 90 percent of the cases, and that between 40 and 60 cases typically were determined in a single day.

In response, the Chamber’s commissioned study from Peter B. Rutledge found that decisions in small claims court on credit card debt disputes come to similar conclusions as those by arbitrators, though the arbitration process is typically quicker and less expensive. “Studies of debt collection actions [in small claims courts] in major cities reveal that the lender typically wins between 96% and 99% of the time,” according to Rutledge.

Rutledge argues that is because most debt cases “usually boil down to three facts – 1. did the debtor open the account?, 2. did the debtor incur the charge?, and 3. did the debtor make the payment?”

Rutledge continues, “If those three facts are uncontested, there is very little to dispute.” That’s why debtors suffer such a low win rate in both small claims court and in decisions by arbitrators, suggests Rutledge.

Rutledge also disputes the contention by Public Citizen that cases are heard very quickly and determined by only a few arbitrators. Point one, he writes, there are a relatively small number of arbitrators that specialize in cases between credit card issuers and debtors, thus these same arbitrators hear these cases.

Secondly, the case decision date is the date the information was entered into the National Arbitration Forum (NAF) system, not necessarily the date the case was heard, Rutledge found. In fact, the cases are heard over several days, but the findings are entered on a single date.

The Chamber further argues that the arbitration process takes thousands of cases out of the court system, where many cases would linger, putting a financial burden on the debtor.

The Chamber has claimed that the Public Citizen study was used recently as the basis of a case filed by the city of San Francisco (“San Francisco Sues National Arbitration Forum, Collector and Issuer,” April 8). The suit by the city attorney uses some of the study’s findings to charge that the NAF is biased towards debt collectors, and asks the court to prohibit unfair business practices in arbitrations.

Rutledge’s 36-page paper “Arbitration – A Good Deal for Consumers,” defends the arbitration system in general and devotes one section to Public Citizen’s findings.