Summary
The article paints a bleak picture for the future of dispute resolution, specifically arbitration in credit card debt issues. It further implies that there will be a flood of cases related to consumer credit card debt onto an already overloaded judicial system.
However there are alternatives available that can replace mandatory arbitration.
Analysis
Mandatory arbitration imposed by Terms and Conditions for credit card usage was felt by banks to be an ideal solution to defaults. However, the arbitration clause is frequently buried in the T & C. Like so many agreements in the consumer market the agreement is rarely read or even understood by the average consumer, who is certainly not about to pay an attorney to review the agreement and explain it.
Perception of fairness is crucial in all aspects of consumer relations, and under most agreements and arbitration actions the cards are stacked against the consumer once the default process starts. The bank will in 99% of the cases win.
The perception in a mandatory arbitration clause is that the institution not only mandates arbitration, but selects the overall provider, such as NAF. In some instances the mandated arbitration provider has affiliation with a particular roster of arbitrators that it considers to be independent. Consumers and consumer advocates believe that the structure of the agreement and the manner in which the process is conducted is unfair.
Another problem is that collection methods tend to be less than civil and are often considered to be harassing. If a consumer or advocate can draw a line connecting the institution, arbitration forum, provider and collection agency then the fairness of the process is not only called into question, it appears to subvert justice. Remember that in our system fairness and justice are paramount in the minds of many, and something that the system of ADR and judicial proceedings strive for.
So is there an alternative? A reasonable path may be to remove mandatory arbitration and replace it with mandatory ADR methodologies using a stepping stone approach from mediation to arbitration. Do not allow the institution to be the sole selector of the forum or its provider. Allow consumer input.
The majority of debtors desire to make their payments. Banks can ill afford to have thousands of under performing debts on their books. It is apparently a serious risk in these troubled times. However, restoring confidence by consumers in financial institutions by using ADR methodologies voluntarily to create workable credit loans is preferable.
Financial institutions must take the step to develop and present an alternative to mandatory, "unfair" processes, before the government steps in to "offer help".
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
