The Attorney General's lawsuit claims the National Arbitration Forum has ties to debt-collection law firms and works against consumers by virtue of having a mandatory arbitration clause set forth in a credit card, bank, or retail contracts. Hundreds of thousands of consumer disputes are resolved each year not by a judge or jury, but by a private arbitration system.
The Attorney General’s suit alleges that the National Arbitration Forum represented to consumers and the public that it is independent and neutral, operates like an impartial court system, and is not affiliated with and does not take sides between the parties.
The lawsuit alleges that the National Arbitration Forum, while holding itself out as impartial, works behind the scenes—alongside creditors and against the interests of ordinary consumers—to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appointing the Forum to decide the disputes.
The lawsuit alleges that the Forum pays commissions to executives whose job it is to convince creditors to put mandatory arbitration clauses in their customer agreements. The suit alleges that the Forum does this to generate arbitration filings in the Forum—and hence, revenue—for itself.
The lawsuit alleges that, despite telling consumers and the public that it is not affiliated or aligned with the collection industry, the Forum in fact has financial ties to the collection industry.
The lawsuit alleges that, beginning in 2006 and through 2007, Accretive—a family of New York private equity funds—engineered two transactions. In the first transaction, Accretive formed several equity funds under the name “Agora” (meaning “Forum” in Greek), which invested $42 million in the Forum.
In the second transaction, three of the country’s largest debt collection law firms—Mann Bracken of Georgia, Wolpoff & Abramson of Maryland, and Eskanos & Adler of California—merged into one large national law firm called Mann Bracken. Accretive then acquired the majority interest in a debt collection agency called Axiant, which acquired the collections operations of Mann Bracken. Through these transactions, Accretive took control of one of the country’s largest debt collection enterprises and became affiliated with the Forum, the country’s largest consumer collection arbitration company. The lawsuit alleges that Accretive principals remain actively involved with the Forum.
The lawsuit states that, in 2006, the Forum processed just over 214,000 consumer collection arbitration claims, of which 125,000, or nearly 60 percent, were filed by the above law firms.
Swanson said that the Forum was aware of the affiliation problem in 2006 when it negotiated its relationship with Accretive. She pointed to an email from an officer of the Forum to the hedge fund stating: “…we should certainly plan for unwinding any deal in the event shared ownership becomes an acute issue.”
We'll follow this interesting story.
View the complaint here:
http://capwiz.com/nacanet/attachments/MN_Complaint_Against_NAF.pdf
Sources:
MN Attorney General Press Release
http://www.politicsinminnesota.com/2009/jul14/3464/swanson-files-suit-against-national-arbitration-company
Business Week
