Last month, the Minnesota Attorney General brought an oppressive arbitration regime to its knees. Nation Arbitration Forum handled over 200,000 arbitrations per year. But many of those cases will end up in the 50 states’ district courts, where consumers may fare no better.

This is a shame. Although many creditors’ claims are bogus, the courts may never test them.

No judge sees most creditors’ claims

One of the main reasons creditors were so successful in their NAF claims was that few consumers defended themselves. NAF may have been in bed with the creditors, but in cases where the consumer did not answer, arbitrators did not have to stretch themselves to make consumers lose.

Most courts have even less oversight when it comes to defaults, because judges never see the cases. The creditor simply submits an affidavit saying the consumer was served and did not answer. The clerk then enters a default judgment. No judge ever even glances at the file, and the evidence the creditor has to support its claims is largely irrelevant.

This may not be true in all states, but it is still the typical procedure in most.

Consumers may not know their rights or the true cost of litigation

Consumers rarely answer for several reasons. Some are expecting to have their “day in court.” Unfortunately, most civil litigation (other than small claims court) happens on paper, and a court date—if any—comes only after the consumer has filed an answer and one of the parties makes a motion.

Further, consumers may think they cannot afford court—and they may be right. Other than small claims court, litigation can be expensive. But consumers who do not defend themselves may end up owing the debt as well as the creditors’ litigation costs. If they defend themselves and win, they may be able to recover their costs from the creditor, instead.

Other consumers have simply given up. They may not realize they could win their case if they defended it.

All of this means that creditors’ claims will rarely be tested, even though many creditors have no competent, admissible evidence to prove they actually own the debt, much less that the consumer owes it.

Courts should take measures to safeguard due process

Courts should take a lesson from the NAF case, and institute safeguards to ensure consumers do get their day in court, and that creditors are forced to come up with competent, admissible evidence to support their claims. Otherwise, I do not think consumers are getting meaningful notice of their opportunity to be heard, regardless of what the procedural rules may say.

Until state courts step up, consumers will be no better off than they would have been in NAF. But at least in court, the creditors are not paying the judges.

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears monthly on Consumerist.

(photo: &y)

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