Report faults binding mandatory arbitration
Credit card holders stand little chance of winning in mandatory arbitration of disputes with their banks, according to a report released Thursday by national consumer advocacy group Public Citizen. Arbitration firms used by companies such as MasterCard Inc., Visa, Discover Financial Services LLC and American Express Co. ruled against consumers in about 18,000 of 19,000 disputes analyzed in Public Citizen’s study. The group examined data from California because it is the only state that requires arbitration companies to publish the results of cases they hear. However, consumer advocates at Public Citizen and in Maryland are confident the problem is national in scope.

Credit card holders stand little chance of winning in mandatory arbitration of disputes with their banks, according to a report released Thursday by national consumer advocacy group Public Citizen.

Arbitration firms used by companies such as MasterCard Inc., Visa, Discover Financial Services LLC and American Express Co. ruled against consumers in about 18,000 of 19,000 disputes analyzed in Public Citizen’s study.

The group examined data from California because it is the only state that requires arbitration companies to publish the results of cases they hear. However, consumer advocates at Public Citizen and in Maryland are confident the problem is national in scope.

“There is no reason to think that the California experience does not mirror that in Maryland,” said Mark Steinbach, past president of the Maryland Consumer Rights Coalition. “Unfortunately, there is no data available in Maryland because, by its nature, arbitration is intended to keep these matters private and out of the public eye.”

Roger Haydock, managing director of Minneapolis-based National Arbitration Forum, responded in a written statement that consumer outcomes in arbitrations are the same as in courts. (All of the arbitration cases in the study were handled by NAF.)

“Every published study and all empirical data indicate consumers prevail at a rate that is greater than or equal to litigation, where similar subject matter is at issue,” Haydock said. “Evaluating arbitration outcomes is only meaningful in comparison with court outcomes of similar cases.”

The report “varies wildly from other respected research on the topic,” Edward Yingling, chief executive of the American Bankers Association trade group, said in a statement. He said arbitration is a faster, less expensive alternative to complex litigation in customer disputes with credit card issuers.

In 15,000 other cases analyzed by Public Citizen, there was either a settlement outside arbitration, the customer or the card issuer dropped their dispute, or a customer filed for bankruptcy protection.

Public Citizen’s report highlighted several alleged problems with arbitration, namely the financial incentive for arbitrators to rule in favor of businesses that hire them; the lack of due process safeguards; and limited avenues for consumer appeals.

Jane Santoni, a consumer protection lawyer in Towson, sees binding mandatory arbitration as a growing problem in the state.

“I can tell you based on my experience with living, breathing clients that it’s a horrendous nightmare and consumers are at such a huge and unfair disadvantage,” she said. “I became a lawyer because I believe in trial by peers, and the binding mandatory arbitration is sickening. The companies hold all the cards. Period.”

One client she recently represented in Baltimore County was an identity-theft victim with a master’s degree in engineering, Santoni said. His credit card company had forced him into mandatory binding arbitration, where the arbitrator decided he was responsible for $25,000 in charges. After attempting to challenge the award, he ended up settling for $9,000, she said.

Paul Bland, a staff attorney for Public Justice, a Washington D.C.-based public interest firm, said cases like that are becoming more commonplace — and not just with credit card companies.

“The biggest problem for the country as a whole is companies use this as a shield to make it impossible for consumers to sue the companies,” he said. “Banks, most cell phone companies, nursing homes, any new car sales with a loan … computer companies like Gateway and Dell — literally hundreds of big companies. And they are used as a shield to bar lawsuits.”

While NAF is only part of the problem, Bland said, it has the worst reputation.

The report was released at a press conference with Sen. Russ Feingold, D-Wis. He and Rep. Hank Johnson, D-Ga., have introduced legislation that would limit mandatory arbitration in contracts.

The report can be accessed at this Web site..

The Associated Press contributed to this story.
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