Hot on the heels of my last post comes a story from Yahoo! Finance (via The Consumerist) about how an elderly woman had her identity stolen -- only to be screwed by mandatory binding arbitration:

Irene Lieber, 61, lives in a dilapidated apartment in Brooklyn, N.Y., where she scrapes by on $759 a month in Social Security disability payments. Sometime before 2006, her MBNA credit card was stolen, and a collection agency began hounding her for charges she says she never incurred.

"I said I wanted to see the signatures -- who had signed for these purchases? And they wouldn't give me that," says Lieber. "They said, 'You're responsible, this is your credit card.' I ignored them because I thought they were nuts."

Lieber sent a letter demanding the agency cease contact -- which debt collectors must do under a 1996 federal law. But they continued to harass her and her spouse, Theodore, who was confined to a wheelchair following a stroke. Frightened by a menacing phone call, Theodore sent a payment to the collection agency.

Because the credit card contract required binding arbitration to resolve disputes, a private arbitration firm -- not a judge -- settled the case and found in favor of the credit card company, awarding it $46,000.

If you think that's bad, prepare to be appalled. It's not an isolated incident: "In an examination of 19,000 binding arbitration cases in California decided by the National Arbitration Forum, watchdog group Public Citizen found that 95 percent of the decisions went against the consumer." Corporations choose arbitration companies that find in their favor. The arbitrators are paid by the corporations whose cases they're arbitrating. If they find against the corporation, they will no longer have those corporations as clients. Isn't this the very definition of "conflict of interest"? In my job, I'm required to disclose if any of many friends or relatives are vendors or clients of my company; should people's lives be adjudicated on less?

The National Arbitration Forum claims that arbitration "reduces costs [...] for all parties," but Judge Neely's article shows that the costs associated with arbitration are more than court costs would be for similar cases.

Thankfully, the article ends with hope, in the form of the Arbitration Fairness Act of 2007, which "requires that arbitration be freely chosen by consumers after the dispute arises -- rather than forcing people to agree to arbitration in advance through a contractual provision." The Arbitration Fairness Act deals with cases like Buckeye Check Cashing through this section:

An issue as to whether this chapter applies to an arbitration agreement shall be determined by Federal law. Except as otherwise provided in this chapter, the validity or enforceability of an agreement to arbitrate shall be determined by the court, rather than the arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.

Under this bill, the question of whether or not an arbitration clause is enforcable is now a matter of law and not jurisprudence. Yay!