http://www.abanet.org/buslaw/committees/CL230000pub/newsletter/0002/materials/20041102000000.pdf#search=%22bogus%20arbitration%22

ALTERNATIVE DISPUTE RESOLUTION
by Eric Mogilnicki
Wilmer Cutler Pickering Hale and Dorr, LLP
Eric Mogilnicki of Wilmer Cutler Pickering Hale and Dorr, LLP made a presentation to the ADR
Subcommittee regarding the recent proliferation of bogus arbitration providers. Facilitated by
Internet websites and e-mail solicitations, a growing number of "debt elimination experts" are
luring consumers into arbitration schemes purporting to eliminate their credit card and other debt
obligations. See, e.g., http://debteliminationexperts.com/homepage.php. In return for payments
of hundreds or thousands of dollars, these "experts" promise to provide immediate relief from
banks and creditors, eliminate or drastically reduce debts, restore credit ratings, and transform
debts into monies owed to the borrower.
The arbitration schemes operate by first sending "change of terms" notices purporting to add an
arbitration clause to the debt agreement or designating a new arbitration forum. The forum,
which typically lacks a street address and rules, in turn issues an "award" declaring the debt
unenforceable. In many cases, the ruling also finds that the consumer is owed the dollar amount
of the loan as a penalty for unlawful activity. Courts have refused to enforce the bogus awards,
but the schemes often push already financially vulnerable consumers toward bankruptcy by
wasting money and time while their debts continue to accrue interest and fees. At the end of the
process, consumers may have judgments entered against them for attorney’s fees and the original
debt.
Some lenders report receiving more than a thousand change of terms notices in the last year, and
one bank received more than 4,000. Lenders can combat the problem by warning their customer
service representatives to be on the look out for such notices, tracking them closely, responding
quickly to dissuade customers from participation, and challenging the awards through litigation.
As this problem grows, we expect that the Federal Trade Commission, state Attorneys General,
and other government agencies will begin to take action against these schemes.