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posted by Bob Lawless

"NAF" sounds like maybe something you should say when you're frustrated. "NAF!, I stubbed my toe." In some circles, NAF may already be turning into an expletive. NAF stands for the National Arbitration Forum, a for-profit business that has twisted the tools of arbitration into a debt collection tool. The discussion about NAF should not be confused with the larger discussion about consumer arbitration generally. NAF is a problem unto itself. This organization's aggressive tactics have been featured several times by different bloggers here at Credit Slips (here, here, here, here) and are the subject of a lawsuit by the San Francisco city attorney.

Paul Bland, over at the Consumer Law & Policy blog, has a must-read post up about NAF's newest tactic: a push in the law reviews and bar journals to argue that courts should not look behind the debt collector's arbitration award to see if it is supported by any evidence. Paul explains why NAF would especially agitate for acceptance of this rule.

Last month, the American Banker magazine interviewed me for a story on the San Francisco lawsuit. The reporter quoted me saying that when lenders use mandatory arbitration clauses to bring claims against their debtors, "it's kind of a ginned-up dispute." In a letter to the editor, managing director of the NAF, Roger Haydock, took objection to my characterization saying "it would be a further disservice to American Banker readers to let stand these allegations about consumer finance arbitration."

Arbitration was intended as an inexpensive and efficient alternative to court litigation to resolve disputes, but in a debt collection action, there is generally little dispute the money is actually owed. Rather, the point of the debt collection action is to get the power of the court to force the debtor to pay. As I put it to my students, the court can send people with guns--people who we normally call the "sheriff"--and they will seize the debtor's property.

Arbitrating a debt collection bypasses the normal procedural safeguards that a court proceeding will give, and before the NAF, the debt collector will almost always win. According to the San Francisco city attorney, in 18,075 cases, the NAF ruled against consumers in 18,045 of them. Under U.S. law, the debt collector merely has to walk the arbitration award to the courthouse and now can get the full panoply of judicial power to force the debtor to pay. If you don't like the characterization of this procedure as a "ginned-up controversy," how about "twisted a potentially helpful dispute resolution mechanism beyond its intended use and, for their own profit, turned it into a tool that abuses consumers."


While I do not disgree and have not done so in my 40 plus years in the consumer credit industry that creditors or debt buyers have an obligation to support any collection of a debt legally owed, I do disagree to data referenced of 18,075 unless comparison lawsuits through local or state court actions before the "arbitration" condemnation comments continue. Consumer ignorance is a poor excuse because in my experiences attempts to collect or resolve the debt by the creditor or debt buyer occured before the lawsuit action. Furthermore, I know of no Court in any forum who forces any debtor to repay a debt. By obtaining a judgement award the recipient then excutes on assets allowable under state law. No assets=no recovery.

If anyone would be interested to know the number of lawsuits I approved, or eventually appeared since 1964 through justice of the peace forums, state court forums,or federal court forums my estmate would be over 70,000 and about 90% of the local and state court actions neither the debtor or debtor's attorney appeared.

Blaming the National Arbitration Forum, lenders, debt buyers, or collection agencies appears to be easy, yet if the debt is legally owed and attempts to resolve the repayment of the debt failed, then where or who is accountable? One more point, I managed a class action lawsuit many years ago when employed in the credit industry but when the case was settled the class litigants received about $200 each(11) but the law firm received $1,100,000. I wonder why the arbitration clause was introduced.

By the time NAF gets these cases, they are almost out of statute and the debtor's contact info is no longer good. But what does that matter? Do a skip trace, find a former address or someone with a similar name, "serve" the documents (which then hit the trash somewhere because the person who got them doesn't have anything to do with the case), run to court with your default arbitration award in hand and get it made over into a judgment (again without proper service), then leverage that into a wage garnishment. Somehow even when they can't find the debtor for service, they always manage to find the debtor for garnishment. Funny how that works.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.