Arbitration: "Set up to squeeze small sums of money out of desperately poor people"

Arbitration: "Set up to squeeze small sums of money out of desperately poor people"

Thursday, June 12, 2008


CONFERENCE CALL: The New Voter Suppression and the Progressive Response

WHAT: Voting rights experts and legislators will discuss the history and tactics of voter suppression, rapidly expanding new techniques such as voter ID, and how progressives can respond.
WHEN: 1pm EDT, Thursday, June 12
WHO: Jeanne Kohl-Welles, Washington State Senator
Kristen Amundson, Virginia State Delegate
Michael Slater, Deputy Director, Project Vote
Michele Lawrence Jawando, Policy and Litigation Counsel, People For the American Way
Christian Smith-Socaris, Election Reform Policy Specialist, Progressive States Network


Arbitration: "Set up to squeeze small sums of money out of desperately poor people"

The headline above is a quote from former West Virginia Supreme Court Justice Richard Neely, describing what his role was as an arbitrator at the National Arbitration Forum (NAF), a for-profit company hired to enforce mandatory arbitration clauses for credit card consumer loans.  "NAF is nothing more than an arm of the collection industry hiding behind a veneer of impartiality," says Richard Neely.

In a devastating expose by BusinessWeek, Neely and other former arbitrators describe an arbitration system stacked completely against consumers-- a system where creditors win 99.8% of all disputes involving companies ranging from Bank of America to Sears to Citgroup. Arbitration clauses buried in the fine print of credit card offers means consumers lose the right to have disputes decided in an independent court and instead are forced into corporation-selected arbitration firms.

Elizabeth Bartholet, a Harvard Law School professor and an NAF arbitrator in 2003 and 2004 stated in a deposition that  NAF ran "an unfair, biased process."  Dennis J. Herrera, San Francisco's city attorney, has sued the firm in California state court: "NAF has done an end run around the law to strip consumers of their right to a fair collection process," Herrera said in an interview with BusinessWeek.  And made a healthy profit doing so-- in 2006, NAF had a net income of $10 million, a 26% profit  margin on revenue of $39 million.

 What's shocking is that it's not just critics who describe arbitration as a way for industry to  gain at the expense of consumers-- it's actually NAF's pitch to corporate clients.  A confidiential September, 2007 NAF presentation aimed at creditors promised "marked increase in recovery rates over existing collection methods" and celebrated the fact that 93.7% of arbitrations are decided without consumers even getting to participate in the process.  And if a consumer does respond and files a response, NAF promoted the fact that creditors can use delays and dismissals to manipulate arbitration cases.  

As we described in a Dispatch in March, the use of mandatory arbitration clauses are increasingly being used by large corporations to deny consumers and employees any access to justice in the courts.  While federal law makes it hard for states to ban mandatory arbitration altogether, they do have the power to stop the kind of the abuses of arbitration that companies like NAF promote.  There are a series of  key model state laws states can enact to preserve consumer rights, force arbitration companies to disclose the results of arbitration decisions, and limit any fees imposed on consumers by the process  The kinds of abuses outlined in the .BusinessWeek expose should be a rallying cry for reform of arbitration in every statehouse.

More Resources


New Families USA Report Shows Lack of State Consumer Protections in Individual Health Insurance Market

The Right, including Presidential candidate John McCain, wants every American to purchase their health insurance in the individual market, where a mere 5% of non-elderly Americans currently get their coverage.  As a new Families USA report makes clear, this would expose Americans to even more volatility than they currently experience in accessing health care and health insurance.

Today, Families USA released an extensive 50-state survey and scorecard of the laws governing the individual insurance markets in each state - "Failing Grades: State Consumer Protections in the Individual Health Insurance Market."  They found great variation across states and, overall, little that states are doing to protect consumers from the anti-consumer behavior of insurance companies.

Key findings, as stated by Families USA, are:

  • Only 5 states prohibit all insurance companies from cherry-picking the healthiest consumers and excluding everyone else.
  • In 35 states and the District of Columbia, there are no limits on how much insurance can vary premiums based on health status.  
  • In 21 states and the District of Columbia, insurers can exclude coverage for pre-existing conditions for more than one year.
  • In 45 states and the District of Columbia, insurers can spend less than 75 cents of every premium dollar on medical services.
  • In 44 states and the District of Columbia, insurers can revoke an individual's health insurance policy without advance review by the state.

How does your state shape up?  Check out Families USA's scorecard for a quick comparison of regulations across states.  Most states do too little to protect consumers from the wills of insurance companies.  In a previous Stateside Dispatch, we detail a number of options states have to bring fairness and accountability to health insurance markets, including guaranteed issue, stronger community rating standards, and higher medical loss ratios.

2008 legislative highlights regulating the individual insurance industry include:  

  • Washington State enacted SB 5261 which will restore the insurance commissioner's oversight of the individual health insurance market and requires individual health plans to maintain a 77% medical loss ratio, meaning they must spend 77 cents of every premium dollar on medical care, rather than profits and administrative expenses.  The new law requires insurers to receive approval from the commissioner for proposed rate increases and allows the commissioner to reject unfair and unjustifiable increases.  
  • As the Colorado Consumer Health Initiative reports, the Legislature beat back fierce industry resistance and passed the Fair Accountable Insurance Rates Act (FAIR Act).  The FAIR Act, sponsored by State Rep. Morgan Carroll, requires insurance companies to submit and justify proposed rate increase to state regulators, who will now be empowered to reject unfair increases.  The new rules will apply to both the individual and small group insurance markets and will bring new transparency to rates.

More Resources


How State Attorneys General are Taking Action to Fight Foreclosures

Despite lots of noise at the federal level, families actually facing foreclosure have had to depend on state and local leaders for any of the real help they've received.  And as a new ACORN survey finds, many attorneys general have been heroes for working families-- while others have failed completely to step up during the crisis.  Getting top A+ grades for action were Connecticut's Richard Blumenthal, Iowa's Tom Miller, Massachusetts Martha Conkley, Minnesota's Lori Swanson, and New York's Andrew Cuomo.

The survey highlighted how the leaders among Attorneys General have played a strong role in multi-state efforts such as the bipartisan State Foreclosure Prevention Working Group which produced major reports on the crisis on April 22, 2008, Report and on  February 7, 2008.  The best of these state leaders have pressured mortgage servicing companies to release data to the public, pursued cutting-edge litigation against bad actors in the industry, taken action to help distressed borrowers, and led efforts to reform state law to help consumers.   

It's a good guide for advocates and legislators to evaluate their own state's attorney general and to ask hard questions if they are not taking actions that other states are pursuing.

More Resources

Research Roundup

Maryland PIRG has a new report, Toxic Baby Furniture: The Latest Case for Making Products Safe from the Start, which finds many household furnishings contain formaldehyde ”“ a toxic chemical linked with allergies, asthma, and cancer ”“ that  contaminate indoor air and especially endanger babies and young children

Back in May, Good Jobs First held its national conference and the organization has now made available Powerpoints from most speakers on topics ranging from how organizations are mobilizing for a more just economy, how to create more accountability on economic subsidies, how to make smart growth work for working families,  and how subsidies fuel urban sprawl.

The Commonwealth Fund finds that the Number of Underinsured on the Rise, with 25 million people in 2007 having insurance policies that will not adequately protected them from high medical expenses.  This is a 60 percent increase in the problem of the underinsured from 2003-- meaning that 14 percent of nonelderly adults had policies with massive out-of-pocket medical expenses and high deductibles, often leading them to go without needed care because of the expense.

In a new report by the Mobility Agenda, Work-Life Policies for the Twenty-First Century Econony, highlights radical changes in the economy and labor markets in the last fifty years, even as public policies have not kept up.  To deal with these changes, the report urges new policies to give workers more options for time off from work and more flexibility in the workplace in general to ease work-life conflicts.

Subprime mortgages have gone disproportionately to Hispanics and African Americans, according to a new EPI snapshot.. In 2006, the rate of subprime mortgages for home purchase for Hispanics and Africans Americans was approximately double the white rate according to data compiled by the Joint Center for Political and Economic Studies.

A new report by Election Protection 2008 has analyzed results from the 2008 primaries and found that the good news of record turnouts in many states was tempered by breakdowns in the election infrastructure at many polling places, from undertrained poll workers to election machinery breakdown to problems in the registration rolls to confusion over voter identification requirements.  The report urges a host of reforms to improve the administration of elections going forward.

Our schools often fail the most disadvantaged students for a simple reason: the formulas for funding schools allocate money in ways that hurt poor and minority students.  The Center for American Progress has released a series of reports on how local funding practices hurt those students and how federal policy has made the problem worse.

On the other hand, policymakers should not take seriously the more doomsday pronouncements about our public schools, particularly statistics that Blacks and Hispanics supposedly only have a 50% chance of graduating from high schools.  As a new paper by EPI President Lawrence Michel and economist Joydeep Roy outline,  because the Department of Education does not track students over time, existing graduation statistics are based on estimates that ignore distortions in those estimates from students repeating grades and transfers between schools.  With better calculations, overall graduation rates are 80% and two-thirds to three-fourths of minority students receive a regular diploma.

Please email us leads on good research at


Arbitration: "Set up to squeeze small sums of money out of desperately poor people"

Business Week, "Banks vs. Consumers (Guess Who Wins)"
Progressive States Network, Restricting the Harm of Mandatory Arbitration
National Consumer Law Center - NCLC Model State Law Preserving Individual Rights and Limiting Mandatory Arbitration
Public Citizen - The Costs of Arbitration
Public Citizen - Binding Mandatory Arbitration and Access to Courts

New Families USA Report Shows Lack of State Consumer Protections in Individual Health Insurance Market

Families USA - Failing Grades: State Consumer Protections in the Individual Health Insurance Market
Progressive States Network - Insurance Reforms to Ensure Fairness and Access to Coverage
Progressive States Network - Presidential Platforms: Health Care Reform
Kaiser Family Foundation - Presumptive Presidential Nominees Obama, McCain Discuss Health Care Proposals

How State Attorneys General are Taking Action to Fight Foreclosures

ACORN, Attorneys General Take Action: Real Leadership in Fighting Foreclosures
State Foreclosure Prevention Working Group, April 22, 2008 and February 7, 2008 reports
Progressive States Network, Dealing with the Foreclosure Crisis at the State Level


The Stateside Dispatch is written and edited by:

Nathan Newman, Policy Director
J. Mijin Cha, Policy Specialist
Julie Schwartz, Policy Specialist
Christian Smith-Socaris, Policy Specialist
Adam Thompson, Policy Specialist
Austin Guest, Communications Specialist
Marisol Thomer, Outreach Coordinator

Please shoot us an email at if you have feedback, tips, suggestions, criticisms, or nominations for any of our sidebar features.

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