The credit card and debt collection industries are quickly losing their ability to collect using the legal system which is good news for the consumer. When you sign a credit card agreement, you grant the credit industry the ability to settle any debts against you through arbitration. The credit industry uses arbitration because it is almost impossible for a consumer to win.

The debt collector has 1 of 2 ways to collect a defaulted debt. First, they can go about it the traditional way of being persistent and going through the debt collection process. If the consumer still doesn’t pay, they either give up and give the debt back to the original creditor or sell it to another debt collector, or they take legal action.

They take legal action in order to get awarded a judgment against the consumer. Once they have the judgment, the debt collector or original creditor has other avenues of collection available to them. For the consumer, this is the one thing you want to avoid. They can go about getting a judgment through the filing of a lawsuit or through the arbitration process.

Arbitration is much a different process than going through a lawsuit. There are no official papers served to the consumer. A letter is sent to the consumer alerting them that the arbitration process has been started against them. They are asked to respond to the letter. The vast majority of time the consumer doesn’t even show up for the arbitration proceedings. The main reason for not showing up is that they are forced to travel to the state where the arbitration proceedings are held. In addition, arbitration is industry friendly and is a process that always stacks the cards against the consumer.

The consumer doesn’t show up, they lose the arbitration, and then the debt collector or creditor is awarded a judgment through a court of law. It is anti-consumer and another way the debt industry traps the consumer.

The two largest arbitration associations in the country are National Arbitration Forum (NAF) and the American Arbitration Association (AAA). The NAF had a lawsuit filed against them last week for their secret association with a large debt collection firm. Apparently, the arbitration association and the debt collector owned a hedge fund and they were filing arbitration proceedings against consumers right and left. Both parties were owned by the same company. There was no impartiality at all. It was a consumer scam.

As a result, the NAF stated they will no longer participate in consumer based arbitrations. Just this week, the second largest association dropped out of the debt collection arbitration business as well. This takes away the two of the biggest players available to debt collectors, which is a huge victory for consumers. Now, it is going to be tougher for debt collectors to collect through legal means unless they want to file lawsuits.

As a result, consumers might have a better chance of getting through the collection process without the potential of legal action taken against them. As I write in my book, the key to surviving the debt collection process is to stay out of legal problems. In the state of Texas, you have 4 years past the first missed payment (statute of limitation period) to have legal action successfully pursued against you. Now, it looks as if a victory has been scored for those who need it most.

Tags: American Arbitration Association, Arbitration, Bob Brooks, consumer scam, credit card, credit card agreement, credit industry, creditor, Debt, debt collection, debt collector, Deceptive Money, hedge fund, lawsuit, National Arbitration Forum, Prudent Money, statute of limitations