San Francisco Sues National Arbitration Forum, Collector and Issuer

The city of San Francisco has sued the National Arbitration Forum, the collection agency Columbia Credit Services Inc. and FIA Card Services claiming unfair and unlawful business practices.

The filing on March 24 by San Francisco City Attorney Dennis J. Herrara charges that the NAF is an “arbitration mill, churning out arbitration awards in favor of debt collectors and against California consumers.”

According to the filing with Superior Court of the State of California, the NAF “bends and breaks its own procedural rules in favor of its debt collector clients.”

The suit claims that the NAF rules in favor of business interests against California consumers “100% of the time … (and) ceases using arbitrators that decide in favor of consumers.”

The law suit found that there were 33,933 consumer arbitration hearings in California involving consumer collections from January 2003 though March 2007. Of these, 18,075 went to a participatory or paper hearing before an arbitrator. Only 30 of these cases resulted in favor of the consumer, according to the suit.

The suit reports that FIA is a national bank based in Wilmington, Del., and successor to MBNA Corp., following its purchase by Band of America. FIA issues cards to California consumers, according to the suit. Columbia Credit is a debt purchaser and collection agency based in Sacramento, Calif., according to the suit.

The suit charges FIA and Columbia with participating in NAF’s “sham by forcing consumers into the NAF forum which they know to be biased in their favor.” The suit also charges Columbia with seeking attorney fees from consumers that lose an NAF arbitrated suit, “an unlawful business practice” that abets NAF’s activities.

The NAF released a statement that said it did not comment on active litigation but that it is preparing its defense in the case. The Forum said its “independent case administration and neutral decision makers constitute a system that satisfies or exceeds objective standards of fairness. Our arbitration program has been supported in numerous courts in which it has been reviewed, and has frequently been praised by noted members of the nation’s judiciary, including the United States Supreme Court.”

The NAF also contended that studies have shown that “arbitration outcomes are the same or better than court, where similar subject matter is at issue. Arbitration provides all parties with the same substantive outcomes as court, and does so more efficiently and less expensively.”

In addition, the NAF said its arbitrators “are former judges or seasoned attorneys,” who have “a sincere interest in helping parties resolve disputes fairly and efficiently.”

The filing follows a study released last year by consumer advocacy group Public Citizen that found that NAF arbitrators ruled against California consumers in 95 percent of cases filed (“Activists: Mandatory Arbitration Stacks Deck Against Cardholders,” Sept. 28, 2007.)