29 May Arbitration And The Courts: Where Does It All End?
When applying for credit, a consumer has to be very wary of what will happen upon default. I know that only a lawyer would want to consider the possibility of default before signing a contract, but consumers today face a whole host of remedies available to the creditors in case of default. Arbitration is the new A-word in consumer law circles, and is being used more and more as a way of collecting consumer debts. But what many people don’t understand is that an Arbitration award allows the debt collector to circumvent the trial by jury process, which , in my opinion, is one of the cornerstones of American Jurisprudence.
It seems that the United States Supreme Court has said on multiple occasions that they support Arbitration as a means of alternative dispute resolution. So, what are the debt collectors up in arms about now. Well, it seems that the debt collectors are upset because they have to take their arbitration awards to a State Court Judge to have the judge enter a civil judgment so they can enforce the arbitration award, and the State Court Judges are starting to ask questions.
Recently, the National Arbitration Forum, has been pushing a new agenda, or maybe an old agenda, more agressively, by publishing articles that are calling for the State Court Judges to stop asking questions and to stop asking for evidence of the debt. I know this sounds illogical, but you have to remeber what is going on in the debt colllection industry.
When a person defaults on a loan, the creditor has a choice: Do I collect it myself? Or, do I sell the receivable and continue with my core business of lending money? Many opt for selling the receivable and moving on. When the debt is sold to the first collector, they may or may not be successful in collecting the debt. Then it may be sold again and again and again.
Think about this for a moment: Do you really think that your Discover card file is being transferred to each debt collector’s office and then it is input into the new debt collector’s system. No way. Each time your file is sold, transferred or assigned, the new collector receives a few lines of code, probably consisting of name, address, phone number, account number and dollar amount owed. That is all the information that they have on you.
Eventually, the account may be turned over to an attorney to file a lawsuit. The problem with lawsuits is that the Judge will require documentary evidence to prove that the debt is owned by the party trying to collect it and of the amount that is alleged to be owed. So, the alternative is Arbitration. Why is Arbitration a better alternative for the debt collectors? The answer is simple: Most consumers do not understand what Arbitration is and Why they need to be a part of it. So, they simply ignore the Arbitration notice.
If the consumer does not appear at the Arbitration proceeding, they will lose. Likewise, even if they do appear, they will probably be overwhelmed by the process or not have any proof to submit to the arbitrator or panel.
So, why are the State Court Judges and Appellate Judges refusing to rubber stamp Arbitration awards? Because there is usually no evidence that the consumer owes the debts or ever had a contract allowing for the collection of the debt.
Obviously, this has the National Arbitration Forum up in arms. In their opinion, Judges shouldn’t ask questions about evidence, they should rubber stamp whatever is put in front of them.
This will become a heated topic in the future that I will continue to watch.
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