“If the law supposes that,” said Mr. Bumble… “the law is an ass — an idiot.”

— Charles Dickens, “Oliver Twist” (1838)

Credit card law not a law

Under the Credit Repair Organizations Act, companies (including credit card companies) that claim they are going to repair your credit must advise you in writing: “You have a right to sue a credit repair organization that violates the [act].” Hooray! In a Jan. 10 judgment, the Supreme Court upheld that obligation, forcing a commercial sector that contains some of the nastiest, most dead-eyed, most cold-hearted predators lying somewhere between the great white shark and the black widow spider to continue to issue such notices in accordance with the law.

But wait. Before we get even to the second of our three cheers, we have to pause. The Supreme Court went on to rule that, although such notices have to be issued, they don’t necessarily carry any weight. If, buried in the small print of the original contract between the corporate spider and the consumer fly, there’s a clause that says that arbitration is mandatory, then that consumer has absolutely no right to sue, regardless of what the company has written.

So the highest court in the land has enshrined in American law the right (actually, it’s an obligation) of a company knowingly to lie to its customers in a way that materially misleads. Wow. When Mr. Bumble characterized the law as an ass and an idiot he had no idea of just how mind-bogglingly perverse some 21st-century justices would get.

What is mandatory arbitration?

The ruling reinforces the rights of companies to stop consumers from accessing justice through the courts, and instead forces individuals to rely on arbitrators, whose decisions are legally binding on both parties. What’s wrong with that? Well, not necessarily anything, but sometimes these arbitrations are little more than a “rigged public hearing before a hired corporate stooge,” in the words of The Detroit News on Jan. 16. The article went on to quote a Public Citizen report from 2007 that revealed that 94 percent of all arbitration hearings for credit card company MBNA ruled against the customer.

Think that’s bad? In September 2009, a class action was begun against Accretive, LLC. According to the attorneys who filed, this company owned and controlled both the National Arbitration Forum (NAF, one of the biggest arbitration providers in the country) and various companies and law firms involved in the debt collection industry. In a press release, the plaintiffs’ attorneys alleged:

NAF is now “under siege by local and state prosecutors for working alongside creditors, rubber-stamping illegitimate arbitration awards against consumers, deceiving the courts and the public, and undermining the integrity of the arbitration system.” The complaint specifically alleges that NAF maintained a near perfect success rate — ruling in favor of business entities — by engaging in improper, deceptive and corrupt acts…

Credit card companies and arbitration

Of course, credit card companies aren’t the only organizations frequently to insist on arbitration in their contracts, but they — along with others in the financial services sector — are big users. Indeed, the appellant who won the recent Supreme Court ruling was one far-from-widely-admired example.

In itself, there’s nothing wrong with card issuers and others using arbitration. On Jan. 16, the PressOfAtlanticCity.com website quoted a Stanford Law professor who argued that it’s “a fast, cheap, easy, convenient way of resolving small disputes.” However, on the same day, Forbes quoted Lauren Saunders, managing attorney at the National Consumer Law Center, who was equally persuasive when discussing possible bias among arbitrators: “Who are you going to favor, the company that might send you more business, or the consumer who you’ll never see again?”

Resolving the arbitration issue

Those two arguments (speed, cheapness, ease of use versus possible arbitrator bias) genuinely are similarly compelling. It’s as much in the interests of consumers as credit card companies to resolve relatively minor disputes with the minimum cost and fuss. However, the appearance of justice rigged to favor one side over the other undermines the entire process.

There is, however, a glimmer of hope. The legislation that created the new Consumer Financial Protection Bureau (CFPB) also gave it powers to intervene to level the playing field. On Jan. 5, the Think Progress website quoted from the act:

The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties…

Roughly half of the people reading this will be thinking that the last thing America needs right now is another government regulator interfering in private contractual relationships between consenting parties. But the plain fact is that arbitration is — after too many scandals in recent years — broke, and does need fixing. And if the only body that can quickly restore trust in it happens to be the CFPB, then maybe consumers and credit card companies alike should welcome its involvement.

That is a purely personal view from this blogger. If you disagree, please do comment below. You’re welcome to quote the following:

“The first thing we do, let’s kill all the lawyers.”

— William Shakespeare, “Henry VI, Part 2” (1592)

Published 01/23/12 (Modified 01/26/12)