Do Debt Buyers Ever Use Private Arbitration (JAMS or AAA) to Initiate a Credit Card Debt Recovery.

[HueyPilot]

I'm new to the private contractual arbitration concept. Is it ever used by attorneys for the JDB to collect on purchased credit card debt. If so, it would appear to have a devastating effect on indebted defaulted cardholders unable to pay the huge defense fees. The preferred method seems to be civil lawsuits and quick Motions for summary judgement. 

What's to prevent this transition to arbitration from happening. 

[BackFromTheDebt]

 

There was a time when creditors would initiate arbitration and take the debtors to National Arbitration Forum, NAF, which was a cheap rubber stamp for the creditors.  
 

The NAF scam ran out of Minnesota. 
 

At one point the Minnesota AG office put a stop to this scam.  
 

NAF closed. Some banks which had been particularly abusive, such as Cap 1, were forced to remove arbitration.  No creditors may initiate arbitration now. 
 

The only way a JDB can get involved in arbitration is if the debtor initiates arbitration. 

[HueyPilot]

3 minutes ago, BackFromTheDebt said:

No creditors may initiate arbitration now. 
The only way a JDB can get involved in arbitration is if the debtor initiates arbitration. 

FTC or Federal Legal Action precluding debt buyers from initiating arbitration seems to follow the banks preference. The result of FTC rulings or Federal penalties for  NAF's abusive practice and violations appears to have initiated the Credit Practices Rule but it seems to have a few loopholes or exceptions. Indications are the American Arbitration Association has imposed a moratorium on  debt buyer initiated arbitrations. Nothing seems permanent. Moratoriums are usually temporary measures for authorized periods of delay. Additionally major banks have voluntarily discontinued the use of mandatory pre-dispute arbitration in their credit card contracts however, it appears this could change if any creditor petitions the Commission for exemption to the FTC Credit Practice Rule. (Federal Trade Commission's Rules of Practice, 16 C.F.R. Section 1.16). Exceptions apply if States have similar rules. Could give creditors some ADR wiggle room for initiating action.

Here is a paper I found on the Credit Practice Rule:

https://www.ftc.gov/tips-advice/business-center/guidance/complying-credit-practices-rule#HowExemptionsAreGranted

 

 

 

 

[WhoCares1000]

I think because of the NAF tactics that were brought to light, even if the JDB initiated the arbitration proceedings, the consumer would be limited to paying the $250 fee and that would be it. Not only that but most contracts right now state that the creditor will pay the debtors arbitration fees if arbitration is elected (as a way to keep Congress from getting rid of arbitration). It would still me very costly for JDBs to do arbitration cases whether they initiated or the debtor initiates.

Besides, why should the bother at this point. Even with the CIC forums, most cases end up being defaults anyways and very few end up in arbitration. Now, if a huge number of people attempted to do arbitration cases, that might change the mathematics but until then. it is a safe bet that most JDBs will not elect arbitration over the courts. Now, OCs such as Discover and AMEX are a different case. They might initiate over court.

[HueyPilot]

I appreciate your input and comments. Minnesota seems to be one of the states that has a pretty aggressive Attorney General that is more consumer friendly than others. Seems to be a lot of history with rulings against unfair credit practices and large debt buyers. Law suits are difficult anywhere and these defaults are a Pandemic bigger than Covid. If even 10% of the debtors would fight or arbitrate the JDB industry would be on the decline. I have a new look on arbitration and I guess we all have to promote it to contribute to a few more consumer victories.

 

GO MINNESOTA WILD!

[BackFromTheDebt]

1 hour ago, HueyPilot said:

FTC or Federal Legal Action precluding debt buyers from initiating arbitration seems to follow the banks preference. The result of FTC rulings or Federal penalties for  NAF's abusive practice and violations appears to have initiated the Credit Practices Rule but it seems to have a few loopholes or exceptions. Indications are the American Arbitration Association has imposed a moratorium on  debt buyer initiated arbitrations. Nothing seems permanent. Moratoriums are usually temporary measures for authorized periods of delay. Additionally major banks have voluntarily discontinued the use of mandatory pre-dispute arbitration in their credit card contracts however, it appears this could change if any creditor petitions the Commission for exemption to the FTC Credit Practice Rule. (Federal Trade Commission's Rules of Practice, 16 C.F.R. Section 1.16). Exceptions apply if States have similar rules. Could give creditors some ADR wiggle room for initiating action.

Here is a paper I found on the Credit Practice Rule:

https://www.ftc.gov/tips-advice/business-center/guidance/complying-credit-practices-rule#HowExemptionsAreGranted

 

 

 

 

This seems to say things could change if things change. 
 

All things must pass.  
 

We can only look at the current state of things, where arbitration is expensive for the JDB and they can’t initiate.  
 

BOTH would have to change for the JDBs to go back to arbitration. 
 

Essentially, if we went back to the way things were with the NAF scam, we would need to worry.  
 

Unless there are major changes, this won’t happen. 
 

But it could happen. 
 

There was a joke in Poland during the iron curtain days:

An old man refused to put his money in the bank.  His son intervened:

 

SON: At least put in 100,000 zlotys. When you see how convenient and safe it is, you will want to put in the rest. 
 

OLD MAN: I have seen many banks fail.  What if the bank fails?

SON: The bank is backed by the Polish government. If the bank fails you still get your money. 
 

OLD MAN:  I have seen countries come and go.  I saw Poland fall before.  What if Poland falls?  What will happen to my money?

SON:  The Polish government is backed by the army of the entire Soviet Union. 
 

OLD MAN: What if the Soviet Union falls?

SON: Isn’t that worth 100,000 zlotys?

[HueyPilot]

I'm with you on the zlotys. I'm also anticipating my first arbitration soon and planning on the downfall of Cavalry Portfolio/Citibank.

[WhoCares1000]

13 hours ago, HueyPilot said:

I appreciate your input and comments. Minnesota seems to be one of the states that has a pretty aggressive Attorney General that is more consumer friendly than others. Seems to be a lot of history with rulings against unfair credit practices and large debt buyers. Law suits are difficult anywhere and these defaults are a Pandemic bigger than Covid. If even 10% of the debtors would fight or arbitrate the JDB industry would be on the decline. I have a new look on arbitration and I guess we all have to promote it to contribute to a few more consumer victories.

 

GO MINNESOTA WILD!

The previous attorney general (Lori Swanson) was the one that did this work. I don't know if Keith Ellison would continue it or not. Lori had an unsuccessful run for governor in 2018.

I am sure that if more and more consumers started to use the arbitration process, you would see it changed or removed. Remember that the creditors have the resources to send to Congress to change laws if necessary. After all, they got the bankruptcy process changed in 2005 in their favor.

[BackFromTheDebt]

51 minutes ago, WhoCares1000 said:

The previous attorney general (Lori Swanson) was the one that did this work. I don't know if Keith Ellison would continue it or not. Lori had an unsuccessful run for governor in 2018.

I am sure that if more and more consumers started to use the arbitration process, you would see it changed or removed. Remember that the creditors have the resources to send to Congress to change laws if necessary. After all, they got the bankruptcy process changed in 2005 in their favor.

At this point the creditors don’t want to remove arbitration. The costs of an occasional debtor running up the tab are small compared to being able to avoid class action law suits.  
 

Then you get creditors like Citi.  With the small claims exemption, they get the protection against class action suits while avoiding running up the tab on most is their accounts.  I got around that by filing in JAMS before they filed in court. 
 

Other cards have closed some loopholes that used to hurt them.  Discover is based in Delaware with a 3 year SOL   They rewrote the arbitration provision to use Delaware law except for the SOL  

 

And yes, the big banks will do whatever they need to have their cake and eat it.  After the 2005 bankruptcy law, banks were throwing money around to anyone and everyone because the BK protections were gone and they still had the NAF scam.  When the economy tanked, the banks were bailed out for their mistakes but the customers were left holding the bag  

 

[WhoCares1000]

4 hours ago, BackFromTheDebt said:

At this point the creditors don’t want to remove arbitration. The costs of an occasional debtor running up the tab are small compared to being able to avoid class action law suits.  
 

Then you get creditors like Citi.  With the small claims exemption, they get the protection against class action suits while avoiding running up the tab on most is their accounts.  I got around that by filing in JAMS before they filed in court. 
 

Other cards have closed some loopholes that used to hurt them.  Discover is based in Delaware with a 3 year SOL   They rewrote the arbitration provision to use Delaware law except for the SOL  

 

And yes, the big banks will do whatever they need to have their cake and eat it.  After the 2005 bankruptcy law, banks were throwing money around to anyone and everyone because the BK protections were gone and they still had the NAF scam.  When the economy tanked, the banks were bailed out for their mistakes but the customers were left holding the bag  

 

For removal it depends on the creditor and whether they think the occasional class action is less costly than letting debtors go. Remember that Capital One removed arbitration as soon as debtors started to use it. Many others might keep the parts that are to their advantage while trying to get rid of the parts that are detrimental to them (such as Citi adding a small claims exception).

After the Uber cases were filed and Uber found out how much it costs to arbitrate each individual claim of the same type, the banks and large companies got the arbitration companies to institute a sliding scale fee for arbitrations involving the same claim so the banks/large companies still have a ton of sway in the system and will eventually find a way get what they want out of arbitration without allowing the debtor to have any benefit.

[HueyPilot]

BAPCPA 2005 is new to me as I have no experience with its effect or application. I checked out this link https://www.investopedia.com/terms/b/bapcpa.asp and got a pretty good idea of your concerns and lack of alternatives for consumers. Lets hope arbitration stays in place for a few more years to the advantage of consumers and CIC posters.

[WhoCares1000]

3 hours ago, HueyPilot said:

BAPCPA 2005 is new to me as I have no experience with its effect or application. I checked out this link https://www.investopedia.com/terms/b/bapcpa.asp and got a pretty good idea of your concerns and lack of alternatives for consumers. Lets hope arbitration stays in place for a few more years to the advantage of consumers and CIC posters.

It will stay in place until too many debtors start to use is and becomes costly for the JDB and banking industry. It is at that point when the machine will start to work to change the rules.