I was reading http://www.creditslips.org/creditslips/2007/08/arbitration-fir.html about arbitration horror stories and was chilled. As one debt collector in this thread: http://www.insidearm.com/forum/messageview.cfm?catid=9&threadid=6714&STARTPAGE=1 says, arbitration clauses are popping up all over because it's been difficult to win cases when the debtor shows up to defend themselves (i.e. they can only win if no one shows up to fight). Several things came to mind while reading these postings: 1) Debt collectors are not very good at math. i.e. if they are winning judgements on 99-some percent of the suits they bring, then why fuss over the 1% that cause troubles? That doesn't add up (or does it? See below...) It would seem to me that it would be more profitable to just spend as little effort to collect as much money as possible (i.e. spend your time on the 99%) 2) I agree that arbitration clauses are a likely result of litigation headaches especially when the arbitrators seem to be in the hip pocket of the creditors. But not because the 1% is just 1%, but because the banks are under pressure to show growth. They've sucked up all the "easy money" through sub-prime credit accounts and default rates (which still show up in the credit card offers I get in the mail) and late fees, etc. so they need another way to keep growing. Adding an innocuous clause to a multi-page contract that sews another loophole shut (you know, something like due process) is just an easy way to squeak out another couple of percent growth for the next couple of years. 3) I'm waiting to see if these arbitration clauses affect FDCPA litigation (not that we would ever know because of the non-disclosure part of the arbitration clause). My guess is that these will never get the chance. Imagine: You're late on the debt (for whatever reason), instead of sending the debt to your friendly collection agency, the creditor files for an arbitration hearing. Even if you show up, chances are still 98+% that the decision will be in favor of the bank. The arbitrator sends the judgement to court for filing and now you'll have a judgement on your record. So, I was applying for a student loan to go back to school and sure enough, there's an arbitration clause (it was worded all friendly and stuff, but it was just as chilling) however it said that you could decline the arbitration clause by sending a letter within 60 days of the first disbursment. (CMRRR would probably be a good idea I'm not sure if I'll get the loan or not, but applying for credit is an increasingly tricky minefield to navigate. My final concern is for the future, and the not-too-distant future at that. We're already starting to see what's happening with the sub-prime mortgage market implosion, but what will happen when more and more people fall victim to these increasingly predatory lending practices. I mean which is worse, be declined for a credit card that you really can't afford or get the credit card and end up in an even worse predicament (albeit with a new plasma TV or set of rims on your car). The problem is that the stores also need to show growth in sales so they are much more inclined to give you the card and make the sale. The problems down the road aren't the salesperson's problem. So it goes... It's like the debt collectors say: There's no such thing as an unpaid debt. Someone will be paying for it one way or another.
