Arbitration & Debt Collection

Collecting debt through binding arbitration is a relatively new method that creditors and debt collectors have started to use in their attempts to collect defaulted consumer debt.  In fact Arbitration companies are now collecting and arbitrating on thousands of consumer debts each year, so if you have received an arbitration claim form in the mail, do not panic. You are definitely not alone. 

In recent years, creditors have begun to amend their original credit card contracts with new arbitration agreements by sending consumers amended contracts in the mail or in their online statements. These arbitration agreements are used to help creditors avoid lawsuits, which are generally more costly and less favorable to the creditor.  When a consumer decides to open a new credit card account, odds are great that there is an arbitration clause or arbitration agreement contained in the contract.  Typically the arbitration agreement will specify an arbitration firm that will oversee the arbitration process, or the creditor will choose among many arbitration firms.  The firm that the original creditor chooses will most likely be one that serves the best interests of the creditor.  The National Arbitration Forum (NAF) is a good example.  The NAF is one of the most prominent arbitrators in the business.

Rejecting Arbitration Agreements

There are only two recourses that a consumer has if he or she receives a new contract with an arbitration agreement:  reject the arbitration agreement or live with it and continue to use the credit card.  Rejecting the new terms to your contract is not hard, but most likely means that your account will be closed.  To reject the arbitration agreement, you should look at the notice that is mailed to you and the arbitration clause that is contained in it.  The arbitration clause should provide an address to which you can write to reject the arbitration agreement.  In addition to providing an address, creditors will most likely give a date by which a consumer must reject the arbitration clause.  If a consumer fails to respond in the allotted time, he or she must submit to arbitration if a dispute arises.  Also, be careful not to use your credit card if you plan to reject the arbitration clause.