Arbitration Firms Pull-out Emphasizes Consumer-Friendly Credit Practices

With the departure of the National Arbitration Forum and the American Arbitration Association, credit unions have an opportunity to emphasize their member-friendly credit card practices.

 
 

With the departure of the National Arbitration Forum and the American Arbitration Association, credit unions have an opportunity to emphasize their member-friendly credit card practices.

Last week, the Minnesota Attorney General, Lori Swanson, announced an astonishing legal settlement with the National Arbitration Forum (NAF). The for-profit company arbitrates credit card debts, among other consumer collection disputers, and will now refuse arbitrating any new cases. The American Arbitration Association also announced last week its departure from managing consumer disputes "until it can develop standards of practice." While other firms may step into the void created by the heavyweight departures, the news can only increase the focus of credit unions' member-friendly practices.

Intense Media and Political Focus on Consumer Issues
In June of last year BusinessWeek published their cover story, 'Banks vs. Consumers (Guess Who Wins)', focusing on mandatory arbitration clauses and the involvement of the NAF. In that article was the astonishing fact: creditors win 99.8% of the time in NAF cases. With an average annual workload of 200,000 cases, consumers won 400 judgments compared to 199,600 for creditors.

Political focus, however, may soon be the final step in dismantling mandatory arbitration clauses. Currently proposed legislation (H.R. 1020) would prevent the use of pre-dispute mandatory arbitration clauses in consumer, employment and franchise agreements while not preventing arbitration itself.

On the whole credit unions never included mandatory arbitration clauses in member contracts. Although these heavyweight departures and political focus on credit issues are a win for consumers, credit unions are seeing their credit products lose key differentiation points. The CARD Act of 2009 will force significant changes in national players, yet credit unions did not use tactics such as double-cycle billing, now banned in the Act.

Furthermore, with the possible creation of the Consumer Finance Protection Agency, as outlined by the Obama Administration, credit unions may see additional regulation on practices that they never engaged in.

Data Indicate Opportunity
Credit unions are seeing growth in their card portfolios, despite increased consumer saving and debt reduction. Card balances topped $31.9 billion at the end of the first quarter, a 5.6 percent increase over the previous year. Credit unions have a 3.45 percent market share as of March 31, up from 3.2 percent in the previous March largely due to credit limit cuts from national lenders.

With the political and media focus on these issues, is now the time for a strong marketing campaign? As credit unions were largely uninvolved in these practices, they are strongly positioned to capitalize on positive momentum as individuals look to establish credit with a financial institution they can trust.

 

 

 

July 27, 2009


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