Minnesota has filed a lawsuit against the National Arbitration Forum, alleging fraud, false advertising, and deceptive trade practices.

The lawsuit alleges that NAF is a biased forum for resolving disputes, and claims that NAF has business ties to collection agencies that prejudice its arbitrators. A Business Week article last year uncovered materials showing that NAF marketed its arbitration services to companies as more likely to collect on debts than litigation.

From the AG’s website:

The company tells consumers, the public, courts, and the government that it is independent and operates like an impartial court system. In fact, it has extensive ties to the collection industry-ties that it hides from the public,” said Attorney General Swanson.

The lawsuit alleges that the National Arbitration Forum, while holding itself out as impartial, works behind the scenes-alongside creditors and against the interests of ordinary consumers-to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and then appointing the Forum to decide the disputes. The lawsuit alleges that the Forum pays commissions to executives whose job it is to convince creditors to put mandatory arbitration clauses in their customer agreements. The suit alleges that the Forum does this to generate arbitration filings in the Forum-and hence, revenue-for itself.

San Francisco sued NAF last year, alleging similar biases and complaints.

Consumerist readers know how much we dislike forced arbitration, and we’re glad to see action being taken in courts, and in Congress, to curb its abuses.

Minnesota Sues a Credit Arbitration, Citing Bias [Business Week]
(Photo: nfarley)