Most credit cardholder agreements contain a provision that upon default, the dispute will go before an arbitrator (a private judge) for a decision. As with home mortgages, many consumers in default on their debt will ignore the notices for the arbitration hearing. The arbitrator then rules on the matter with whatever evidence has been presented. Once an arbitrator rules in favor of the credit card company, the company can then sue in court to enforce the arbitration award. These arrangements have come under criticism because consumers cannot negotiate these terms in the card holder agreements (it becomes a contract of adhesion). Also, the credit card companies hire the arbitrator so the perception is that they work for the credit card company.
Now, the two largest players in the credit card arbitration market — National Arbitration Forum and the American Arbitration Association — have announced they are leaving the field. NAF was sued by the Minnesota Attorney General’s office for failing to disclose ties to the collections industry. Their departure from consumer arbitration is to settle that lawsuit (they admitted no wrongdoing). AAA is waiting for new guidelines to be established (odd, given that AAA rules are widely used for arbitrations and they have long been considered industry leaders). Meanwhile, the federal government is looking at the matter of mandatory arbitration clauses in consumer agreements.
I suspect the courts will now be overburdened with credit card default filings with such a huge void in the consumer credit arbitration market. I mediate a good number of these cases for the NJ courts and most of them resolve. Credit card companies would rather be paid and consumers would rather not have bank levies and wage garnishments done to them — plus pay the bank’s legal fees. Anyone can voluntarily enter mediation at any time. Keep that in mind should you find yourself in this situation. The earlier cases are resolved, the less expensive it is for all parties.