CreditCardsAct

If you have a credit card, cell phone or other type of consumer contract, you almost certainly have a binding arbitration agreement in the fine print.

That means you have given up your right to sue; instead an arbitrator would act as judge. The arbitrator, under most contracts, is chosen by the credit card or services company. Most consumers have no idea that they have given up these rights, simply by agreeing to take a company’s services.

Consumer advocates have long argued that requiring consumers to use arbitration is unfair. Now a court settlement seems to bolster their arguments, and it may provide ammunition to lawmakers seeking to ban such mandatory arbitration clauses through federal law.

Minnesota Attorney General Lori Swanson recently sued the National Arbitration Forum, the nation’s largest administrator of credit card and consumer collections arbitrations, alleging the company had ties to the collection industry it didn’t disclose. The company’s response last week was to settle the suit, agreeing to stop all consumer arbitrations by Friday.

It will permanently stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care and consumer leases.

“I am very pleased with the settlement. To consumers, the company said it was impartial, but behind the scenes, it worked alongside credit card companies to get them to put unfair arbitration clauses in the fine print of their contracts and to appoint the Forum as the arbitrator. Now the company is out of this business,” Swanson said Wednesday in a news release.

Last year, a Business Week article accused the forum of marketing to companies by claiming its services would result in more collections than the court system.

Swanson said the forum misled consumers by calling itself independent and neutral, saying it operates like an impartial court system and is not affiliated with any of the parties.

But the forum has lobbied companies to put binding arbitration clauses in their contracts and to use the forum as the sole settlement company, seemingly promising results the companies would be happy with. The article also alleged the forum has financial ties to the collection industry, saying that the company has arbitrated 214,000 consumer arbitration claims in 2006, nearly 60 percent of which were filed by laws firms with which the forum is linked through ties to a New York hedge fund.

“The playing field is tilted against the ordinary consumer when credit card companies bury unfair terms like forced arbitration clauses in fine print contacts. Congress should change that,” Swanson said in a release.

Swanson’s office said the settlement allows the forum to continue to arbitrate Internet domain name disputes (which the company handles under an appointment from the Internet Corporation for Assigned Names and Numbers), personal injury protection claims (which the company performs under appointment and supervision under the New Jersey state government), and cargo disputes (which the company performs under rules established by the U.S. Department of Transportation). These areas were not part of the lawsuit.