Thursday, June 26, 2008

Repeat Player Advantage-3

"What if a judge solicited cases from big corporations by offering them a business-friendly venue in which to pursue consumers who are behind in their bills? What if the judge tried to make this pitch more appealing by teaming up with the corporations' outside lawyers. And what if the same corporations helped pay the judge's salary? ... Yet, that's essentially how one of the country's largest private arbitration firms operates. The National Arbitration Forum (NAF), a for-profit company based in Minneapolis, specializing in resolving claims by banks, credit-card companies, and major retailers that contend consumers owe the money. ... In California, the one state where arbitration results are made public, creditors win 99.998% of the time in NAF cases that are decided by arbitrators on the merits, according to a lawsuit filed the San Francisco city attorney against the NAF. ... But internal NAF documents and interviews with people familiar with the firm reveal a different reality. Behind closed doors, NAF sells itself to lenders as an effective tool for collecting debts. ... Arbitration ... purports to offer something akin to the evenhanded justice of the court system. ... Of the 18,075 that weren't dropped by creditors, otherwise dismissed, or settled, consumers won just 30, or 0.002%, the suit alleges. ... Elizabeth Bartholet, a Harvard Law School professor and advocate for the poor, worked as an NAF arbitrator in 2003 and 2004 but resigned after handling 24 cases. NAF ran 'an unfair, biased process,' she said in a deposition in September, 2006, in an Illinois state court lawsuit. ... What most troubled [Richard] Neely, the former West Virginia supreme court justice, was that the NAF provided him with an award form with the amount sought by the creditor already filled in. This encourages the arbitrator to 'give creditors everything they wanted without having to think about it,' says Neely. William A. Gould Jr., a Sacramento lawyer with a general private practice, says he stopped handling arbitrations for the [NAF] after doing several in 2003 and 2004 because the process 'just seemed to be pretty one-sided.'," Robert Berner and Brian Grow (B&G) at BusinessWeek, 16 June 2008.

B&G, check your arithmetic, 30 / 18,075 = .00166, or 0.166%. You lost two decimal places. See my 17 and 27 April 2008 posts. The OCC should do something here, stop every national bank from using the NAF and instruct it to keep records of all arbitration results. Would any bank use the NAF if it was not part of the collections process? I doubt it. The NAF suffers from the same problem the rating agencies and CPA firms do: lack of accountability.

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