In what may signal a sea change in the resolution of consumer debt collection disputes and potentially many other types of consumer disputes, the National Arbitration Forum (NAF) has announced that it will no longer accept consumer arbitration cases, and the American Arbitration Association (AAA) has announced that it has placed a moratorium on consumer debt collection arbitration cases. The announcements came amidst increasing Congressional scrutiny of consumer arbitration and, in fact, were made the same week as the U.S. House of Representatives’ Domestic Policy Subcommittee held hearings generally denouncing mandatory arbitration of consumer debts. NAF and AAA had previously been the two largest providers of consumer arbitration services, accounting for hundreds of thousands of consumer arbitrations a year. Their withdrawal from the consumer debt collection arbitration arena creates uncertainty as to how certain disputes between financial service companies, especially credit card companies, and consumers will be resolved in the future.
NAF, which is reported to have handled hundreds of thousands of consumer debt collection arbitrations each year, made the first and biggest splash. On July 19, 2009, it announced that as of July 24, 2009, it would no longer administer consumer arbitration disputes. NAF cited “mounting legal costs, a challenging economic climate, and increased legislative uncertainty surrounding the future of arbitration” as the reasons for its decision,1 which was brought to a head by a lawsuit filed by Lori Swanson, the Minnesota Attorney General, alleging that NAF shared a common owner with one of the nation’s largest debt collection agencies. NAF quickly agreed to settle that lawsuit and, as part of the settlement, discontinue its consumer arbitration services.
Two days after NAF made its announcement, AAA followed suit and announced that it too was discontinuing, for the time being, consumer debt collection arbitrations. In contrast to the practical reasons NAF provided for suspending debt collection arbitrations, AAA cites more principled reasons for abandoning its consumer arbitrations. AAA has taken the position that “a series of important fairness and due process concerns must be addressed and resolved before [it] will proceed with the administration of any future debt collection arbitrations.”2 According to AAA, among the concerns that must be addressed are notice, arbitrator neutrality, and pleading and evidentiary standards. For each, AAA suggests improvements and enhancements that could be made, not only within the AAA, but “as part of a broader debt collection arbitration reform.”3
Improving the notice provided to consumers in consumer debt collection arbitrations topped AAA’s list of concerns. According to AAA’s senior vice president Richard Naimark, consumers’ failure to appear or participate in the arbitration process is one of the most difficult issues surrounding consumer debt collection arbitrations. AAA offers four alternative steps that could be taken to address this concern: (1) considering a tiered method of communication for delivering initiating letters, starting with an initial communication sent by regular mail and escalating to service in a manner specified for service of process pursuant to relevant state or federal law; (2) requiring service in a manner similar to a summons and complaint in litigation; (3) using multiple methods of communication, including regular mail, overnight or first-class mail, e-mail, or fax; and (4) reemphasizing the content of the communications to ensure that consumers appreciate the gravity of arbitration.4
Another concern with consumer debt collection arbitrations is the perceived bias of arbitrators for the business party. To address this concern, AAA suggests the following steps be implemented: (1) limit the number of cases that an arbitrator may hear involving one particular party; (2) communicate that limitation to the parties to address perceptions regarding arbitrator neutrality; (3) eliminate the ability of businesses to disqualify arbitrators based on prior adverse rulings; and (4) automate arbitrator appointment for debt collection arbitrations so that arbitrators on the roster of debt collection arbitrations are appointed on a random or rotating basis.5
Finally, AAA made the following suggestions to improve pleading and evidentiary standards: (1) implement supplemental requirements for consumer debt arbitrations that would specify the documentation and supporting evidence required for demands for arbitration; (2) provide additional specialized arbitrator training so that arbitrators can identify and address issues regarding the appropriate amount of interest and attorneys’ fees that may be awarded; and (3) reinforce the need for arbitrators to be satisfied with their understanding of the applicable law relevant to the particular case, as well as other evidence submitted.6
Even if these concerns are addressed and AAA resumes handling consumer debt collection arbitrations, the uncertainty surrounding how disputes between financial services companies and consumers will be resolved in the long and short terms remains. This is because NAF, which has permanently ceased consumer arbitrations, handled exponentially more cases than AAA. Thus, financial services companies are faced with the task of finding arbitrators to step into the shoes of NAF and AAA. If they are unable to do so, NAF’s and AAA’s announcements may mark the beginning of a fundamental shift away from mandatory arbitration clauses in consumer contracts.