News

Rights At Risk With Binding Mandatory Arbitration

Friday, September 28, 2007

Sep. 27, 2007 (KGO) (KGO) -- How many times have you been ticked off at the cable company, your cell phone service or your credit card company and threatened to sue? You might not know it, but you may have given up that right long ago because of the fine print in the contract you've signed. Many consumer contracts require disputes to be settled through binding mandatory arbitration.

There was a big push in Washington, D.C. today for the elimination of binding mandatory arbitration. Consumer groups are lining up to do away with this little known contract provision which more and more companies consider crucial to their way of doing business.

Are you willing to give up your constitutional rights to own a cell phone? How about for cable for a few more channels to flip through? Is using a credit card worth tossing away your right to a jury of your peers?

When you sign up for wireless service, for cable, for a charge card, that's what you often do.

One credit card application disclosure reads "I understand the customer agreement contains an arbitration provision that may limit my legal rights including my right to go to court, to have a jury trial, and to participate in class actions."

And it is not really "may," it "does." Most credit card contracts do.

"Major industries have adopted these contracts as an entire across the board mechanism for making sure they never have to face consumers in the court of law," said Laura MacCleery with Public Citizen.

The consumer group, Public Citizen, Thursday issued a scathing report on the state of binding mandatory arbitration. Public Citizen has gone over thousands of California public records and says the deck is stacked against consumers.

Michael Finney: "How often does a consumer win, how often does the company win, and is it and equal and fair playing field?"

Laura MacCleery: "Absolutely not. The consumer wins four percent of the time. What we found is that the businesses got their win 94-percent of the time. That's stunning."

Arbitration lives in a murky world where our courts back up its decisions, but the common rules of law, as you know them, don't always apply.

For instance, in the Channel 7 library we found miles and miles of tape of court trials, but only one single session of binding mandatory arbitration. Why? Because those hearings are usually held in private, their findings are often kept secret, too.

"I had no idea that such a system existed. I could not believe such a thing could exist," said Anastasiya Komarova of San Francisco.

Anastasiya Komarova grew up in the former Soviet Union. So she's familiar with secret private hearings. Still she was surprised she could get caught up in such a system here.

"I had an immediate flashback to the Soviet Union. I thought this is impossible. I was so proud to become a citizen of this country. It was the happiest day of my life because I knew that individuals have a voice and this is a country that is run by law," said Komarova.

The credit card company MBNA got this Anastasiya Komarova confused with another Anastasiya Komarova. The company went after her for $7,800. When she refused to pay, she says, the debt was sold to a collection company, National Credit Acceptance, out of Sacramento. That company sent the debt and Anastasiya into binding mandatory arbitration.

Anastasiya didn't own an MBNA card and never signed a contract saying she would go to binding mandatory arbitration. She says she had to get attorney Anne Marie Murphy to stop the madness.

"You have a process where it's a private arbitration panel or arbitrator that basically is rubber stamping these collection cases that come through," said Murphy. "And then being brought to court to be confirmed. It's a very truncated process that goes very quickly. It can last just a month or two to go from getting an arbitration award to getting it confirmed in court."

National Credit Acceptance says this isn't about arbitration, but mistaken identity and that the issue was resolved before Anastaysiya's attorney got involved. In this case, the company says, it is just a way for attorneys to make money.

While not commenting on this particular incident, San Francisco-based Consumer Action says, for consumers, the issue is simple.

"This really is amazingly one-sided. The arbitration forums really don't have much to offer for the consumer, but they have a lot to offer corporations that so enthusiastically support them," said Joe Ridout with Consumer Action.

But that's not the take of the National Arbitration Forum, a for-profit arbitrator.

"Allegations of a systematic bias toward business parties in consumer arbitrations have no empirical support," aid Roger Haydock, the National Arbitration Forum's managing director. "A win rate in consumer arbitration is only meaningful when it is compared with win rates in similar court cases."

The National Arbitration Forum says when consumers initiate the action, they win more often.

"In the California data, the consumer prevails in approximately 60-percent of these cases," said Haydock.

And John Hall of the American Bankers Association tells us, "arbitration is an efficient, fair and low-cost method for resolving legal disputes... an Ernst & Young study showed that consumers prevailed more often (55 percent) than businesses in cases that went to arbitration."

Capital One told us they "believe arbitration is a low-cost method which is more effective and fair to consumers."

Chase believes "arbitration creates a simple, streamlined and inexpensive way for individual consumers to resolve disputes with us."

"Quite frankly, we're very glad that you are doing a piece on this because I think it's something that Bay Area consumers need to hear about. They need to know that it could be them," said Murphy.

Two more points -- most of these contracts do not bind the companies to arbitration. They are still free to go to court. And, there is legislation before Congress that would allow binding mandatory arbitration only if both parties agree to it.

>> Public Citizen: How Credit Card Companies Ensnare Consumers (PDF)

Get more News »