Consumer Arbitration Can Help With Credit Card Collections

Most credit card companies insert an arbitration clause deep into their terms and conditions that you agree to whenever you apply for a credit card. They do this primarily to protect themselves from class action suits and to keep you from suing them if a problem arises.

Consumers can use this arbitration clause to their advantage though if they owe money either to a credit card company or a collection agency that purchased or is servicing the debt. Often, it is easier to get a creditor to the negotiating table if the threat of high arbitration fees looms large and many deals can end up with a deletion of the account from your credit report.

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Electing Arbitration for Credit Card Debt

Forcing your creditors into arbitration before they sue you can keep you from having a judgement entered against you. It is important that you elect arbitration before they file a suit since some companies will argue that your right to arbitration is waived if either party files a lawsuit.

When you ask for verification of the debt, if you have an arbitration clause in your contract, you need to exercise your right and tell them you are choosing to arbitrate the dispute with them.

Most credit card companies give you the option of arbitration through JAMS or AAA. Of the two, JAMS is more consumer-friendly and can cause the price of arbitration to get very expensive for the creditor.  

At this point in the process, you probably will not have your creditor coming to you asking for a deal to avoid arbitration. Lots of people elect arbitration, electing it means basically nothing to them.

Writing the Claim and Complaint

After electing arbitration, you will need to send a claim to both the arbitration company and the other party. Claim forms can typically be found on the arbitrator’s website. On the claim form, you will list what you want from the other side. If you have any FDCPA, FCRA, TCPA, or state-specific debt collecting law violations, this is where you need to list them and put the amount of money you are seeking per claim.

The complaint you write will be made up of the details of each claim and why you think you deserve payment. Often, you can have these payments applied directly to any debt you owe to lower the total amount paid. Be sure to include dates and specific laws when filling out the claim.

Paying Your Arbitration Fee

For most people, the maximum amount of money required to file a claim will be $250. No matter what happens, you will not owe any more money to the arbitration company since they have to operate under consumer-friendly laws. Once you pay your fee, they will send a bill to your creditor requesting their fee. Typically, your creditor will have to pay anywhere between $800-$1500 just to get the process started after you send in your part of the payment. Their liability only goes up from here.

Deals Made Before Arbitration Commences

When that bill reaches your creditor they may contact you asking if you are willing to a come to an agreement outside of arbitration. Listen to what they offer, they may be willing to reduce your debt substantially and remove the debt from your credit report, if you agree not to arbitrate. Sometimes, they may even offer to write you a check in addition to wiping out your debt and putting their tradeline.

It is up to you whether or not you want to make a deal if they contact you. If your main goal is to get the trade line removed, taking the deal may be in your best interests. An arbitrator will likely not require them to remove that information from your credit report, even if you have a valid claim, if they determine you do owe them money.

What to Expect During the Meetings

The arbitrator will ask both sides to make their case, you can show proof of your claims to the arbitrator and the other side can show proof supporting their defense. What an arbitrator cannot do is use any offer you made as a deal against you, or vice versa, either before or during the arbitration proceedings.

In some ways, an arbitration hearing is like court but with much more relaxed rules. You can have a lawyer represent you if you want, but it is not necessary.

Making Arbitration a War of Attrition

Always demand in person meetings when possible. Sometimes, your claims will have to be over a certain amount to make this happen, but your creditor will need to either send someone to you, or pay for a local lawyer to plead their case for them. Either way, this can easily run them thousands of dollars.

At the end of everything, the arbitrator cannot give you an award that is more than what you sought, nor can they award your creditor more than you originally owed. Your creditor cannot pass on any arbitration fees to you even if they say they can in their terms and conditions.

After an award is made, either side has the option of appealing, generally starting the process all over again except in front of a three person panel this time. The creditor will be billed again to start the process over, except it can easily run them into the thousands for just the initial fee.

If your creditor was awarded the full amount of what you originally owed, you may want to approach them saying you are willing to pay them if they agree to remove the account completely from your credit report. Staring at the prospect of perhaps losing tens of thousands of dollars during an appeal, there is a good chance they will agree to it.

You can feel free to offer them the same deal – pay in full with the requirement they delete the account – at anytime after you pay your fee, but always put into place a non-disclosure agreement as well, that both of you will sign.

Often, credit card companies will go through the entire process, sometimes spending well into the five figures to collect on a few hundred dollars worth of debt just because they do not want others to think they can get out of paying by electing arbitration. By signing a non-disclosure agreement, and setting penalties from breaking it, they know you will not share your story with others that all you had to do was “file arbitration and they will delete your account if you pay in full”.

What if a Collection Agency or Credit Card Company Never Pays Their Arbitration Fee?

Credit card companies will usually pay their arbitration fee when they receive the bill. If they do not, you might be able to talk with someone in the legal department about making a deal. You will probably be out your initial filing fee, but it is probably worth it to remove a negative mark from your credit report.

Collection agencies are far more notorious for not paying their share of the arbitration fee, which can stall the process before it even begins. If the arbitration company closes the dispute for non-payment, you will have to file a lawsuit to get the ball rolling.

For both credit card companies and collection agencies that do not pay their fee, you can start by filing your claims in small claims court. You can usually do this for under $200 and it will get their attention. Most of the time, they will send someone to the courthouse for the pre-trial hearing. If they do not, you’ll win a default judgement against them for the amount of the claim.

What is more likely than a default claim is that their lawyer will ask for the case to be dismissed due to a small claims court not having jurisdiction over federal matters. Most judges are going to allow this but you may be able to make a deal with their attorney. The agreement can be anything from paying in full with a credit report deletion to the same thing minus the cost of your previous arbitration and court fees.

Can a Collection Agency or Credit Card Company Avoid Arbitration Forever?

No, since even if your case is removed from small claims court, you can still refile it in federal court. You will probably be looking at $400 just for the filing fee at this point and you will have to file a motion to compel arbitration according to the terms of your contract. In addition, you can jump straight to a federal lawsuit if you want to skip small claims court completely.

If a company has gone this far in avoiding arbitration, it means they REALLY do not want to be involved in it, probably because they know it could end up costing them a lot of money.

Any deal you make before a federal judge rules on your arbitration motion (99% of the time, the judge will allow your motion, the other 1% of the time you’re probably looking at a default judgement) should factor in the amount of money you have spent thus far on filing fees for arbitration the first time and small claims/federal lawsuits.

An arbitrator, even if they find completely against you once arbitration is compelled, will likely award you the original arbitration fee and any court filing fees you have incurred. For tiny debts, it can result in either the debt being wiped out, or the other company actually owing you money.

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