Arbitration - An Unfair Collection Practice

Summary:  Arbitration provisions in your loan documents strip away your right to challenge the lender in court. You are generally required to defend an arbitration proceeding in another state where the arbitrator is selected and paid by the lender or credit card company. Because of the legal fees involved, you may have to pay the award or eliminate the debt with a bankruptcy filing, unless you can afford to fight the arbitration proceeding.

Arbitration is an Unfair and Deceptive Trade Practice in Colorado

Mortgage lenders and credit card companies now include mandatory arbitration clauses in their loan agreements.

The purpose of these mandatory arbitration requirements is to prevent you from having your day in court to defend against illegal charges and collection tactics. Even if you did not make the charges which appear on your bill because you were a victim of identity theft. And even if you made your payments on time.

The typical arbitration requirement states that all disputes will be handled in a different state by an arbitrator which the lender selects. This means that you must participate in an arbitration proceeding in California or Florida, even though you live in Colorado.

The arbitrators are paid by the lenders and credit card companies. The result is that the lenders and credit card companies win the arbitration disputes.

After the arbitrator rules in favor of the lender or credit card company, an attorney will register the award in a Colorado court, requesting a confirmation of the arbitration award. Then your wages may be garnished and/or your bank account will be attached.

Also, when the arbitration is held in Colorado, the lender selects an arbitrator that it knows will be biased in favor of the lender.

The arbitrator is biased and rules in favor of the lender so that the lender will steer more arbitration business to that arbitrator.

In order to successfully dispute the arbitration proceeding, you must show in court that:

1. The arbitration provision was adopted in such a manner that it is procedurally unconscionable; and

2. The provisions are so one-sided or unfair as to be substantively unconscionable.

Often your attorney fees and other costs will make it practically impossible for you to challenge the arbitration proceeding.

Too often all you can do is enter into an agreement with the lender or credit card company to pay a settlement of the bill.

Or you can discharge and eliminate the debt in a bankruptcy filing.