In major settlement, St. Louis Park company agrees to stop handling consumer arbitration disputes

Less than a week after being sued by the Minnesota attorney general's office, the nation's largest arbitrator of credit card and consumer collections has agreed to stop performing such work.

Less than a week after being sued by the Minnesota attorney general's office, the nation's largest arbitrator of credit card and consumer collections has agreed to stop performing such work, state Attorney General Lori Swanson announced today.

The National Arbitration Forum, based in St. Louis Park, allegedly deceived consumers into thinking it was a neutral arbitrator in debt collection, the lawsuit said. In reality, the suit alleged, the company had worked behind the scenes with credit card companies and other creditors, such as cell phone providers, to write themselves into customer purchase agreements as the sole arbitrator consumers could use if they had issues with their creditors.

At a news conference this afternoon in St. Paul, Swanson said that National Arbitration Forum was owned by a New York hedge fund that also ran a debt collection agency and that the company was involved in more than 200,000 arbitration proceedings each year.

"The playing field is tilted against the consumer toward the company," Swanson said.

According to Swanson's office, the company's sales pitch to credit card companies included these lines: "The customer does not know what to expect from arbitration and is more willing to pay. They ask you to explain what arbitration is, then basically hand you the money."

Under the agreement reached between Swanson's office and National Arbitration Forum, by the end of this week the company has to stop administering arbitrations involving consumer debt, including credit cards, consumer loans, telecommunications, utilities, health care and consumer leases.

The agreement, which was reached Friday, does not mean that the company has admitted guilt or responsibility for anything alleged in the lawsuit, which was filed last Tuesday.

"It's a big deal," Swanson said of the agreement. "A big, big deal."

She will testify before Congress this week against the practice of including such arbitration clauses in consumer contracts. She said she will also urge the country's second largest arbitrator to stop accepting arbitration filings on consumer credit and collections matters that originate from arbitration clauses.

National Arbitration Forum was given a week to stop handling such cases because there are cases in the pipeline that need to be completed, Swanson said. The company can still arbitrate Internet domain name disputes, personal protection injury claims and other cases.

In a written statement, the company's CEO, Mike Kelly, said, "The National Arbitration Forum remains committed to consumer arbitration as the best and most affordable option for consumers to resolve disputes quickly and efficiently."

Kelly said that the Forum was exiting consumer arbitration because of mounting legal costs, the economic climate and legislative uncertainty about the future of arbitration. The company did not admit fault.

"Notably, nothing in the Minnesota attorney general's complaint alleges that the arbitration proceedings administered by the Forum are unfair; the fairness of arbitration is ensured by the independence of the neutral arbitrators," the company's statement said.