How Arbitration Works: Your Guide to Resolving Debt Disputes

Understanding how arbitration works helps you resolve disputes efficiently. You’ll know what to expect and how to maximize every step.

Arbitration is common in business transactions. Credit card agreements, employment contracts, and retail partnerships often include arbitration clauses.

Most consumers rarely pay attention to these clauses when signing agreements. Here’s an example from CitiBank’s credit card agreement:

“You or we may arbitrate any claim, dispute, or controversy between you and us arising out of or related to your Account. If arbitration is chosen by any party, neither you nor we will have the right to litigate that Claim in court or have a jury trial on that Claim.”

Arbitration can resolve disputes without the extra cost and time of litigation. The process is confidential, and you get a decision quickly.

Our partner Solo can help you move your debt lawsuit to arbitration.

What Is Arbitration?

Arbitration resolves disputes between parties in working or personal relationships. Both parties agree to let an independent person make a decision.

The chosen individual is called an arbitrator. They can be appointed by the court or chosen by both parties.

Parties often choose arbitrators with technical expertise or legal qualifications. Many arbitrators are retired judges.

The arbitrator’s decision is legally binding. You cannot go to court to dispute it except in special circumstances.

For example, if you dispute a CitiBank credit card debt, you cannot ask for more damages in court. The arbitrator’s decision stands.

Arbitration differs from other Alternative Dispute Resolution methods like mediation and conciliation. In those methods, parties can accept or deny the outcome.

Rules and Procedures Govern the Arbitration Process

Similar to courtroom proceedings, arbitration follows specific rules and procedures. Contracts with arbitration clauses outline these rules.

If a third party handles the arbitration, they specify their rules and procedures beforehand.

Arbitration’s diverse nature makes it impossible to set universal rules. However, the following aspects must be addressed:

• Number of arbitrators: Parties decide how many people will decide the matter. Complex issues require more arbitrators for fair outcomes.
• Selection method: Parties choose arbitrators from a list, by agreement, or by elimination. Courts choose if parties disagree.
• Timeline: Parties establish timelines from notice issuance to proceeding completion. Duration depends on the matter’s gravity.
• Evidence rules: More evidence is allowed without scrutiny compared to litigation. Both parties need adequate time for presentation.
• Award criteria: Rules dictate how awards are given and arbitrator decision timelines.
• Record keeping: Rules specify who receives and keeps records. Confidentiality of hearings and outcomes must be clear.

With credit card disputes, you may have limited input. Credit card companies assign arbitration firms that issue the rules and procedures.

Investigations have examined whether credit card companies work with arbitration firms that favor creditors.

Weighing Arbitration Pros and Cons

Arbitration is chosen after weighing advantages and disadvantages against litigation, mediation, or conciliation.

Advantages of Arbitration

• Hearings are private and confidential. Transcripts aren’t public records.
• Simplified procedures save time and money.
• Decisions are mostly final. Parties can move on quickly.
• Both parties must agree on the arbitrator.
• Cases are heard faster than litigation.
• Cost-effective method depending on the case.

Disadvantages of Arbitration

• Arbitrator serves as both jury and judge. Outcome reflects one individual’s perspective.
• Rules and procedures can be costly for parties.
• Difficult to appeal even when arbitrators make mistakes.
• One party can be forced into arbitration by contractual agreement.
• Arbitration can take longer with multiple arbitrators and complex disputes.
• Rare cases can be more costly, especially in non-binding arbitration.

How Debt Collectors Use Lawsuits Despite Arbitration Clauses

Did you know debt collectors can sue you even when your agreement has an arbitration clause? You can force the lawsuit out of court.

File a Motion to Compel Arbitration into your court case. Our partner Solo can help you draft this document quickly.

Here’s how it works in practice:

Example: Travis owed CitiBank $9,500 for two years. CitiBank sold the debt to First Credit Collections (FCC).

When FCC sued him, Travis researched online. He discovered CitiBank had an arbitration clause.

Travis filed a Motion to Compel Arbitration. FCC didn’t want to pay for the arbitration process.

FCC requested Travis settle for $4,500. He negotiated down to $3,000 and signed a written agreement.

The Five-Step Arbitration Process

Before arbitration begins, parties try to resolve issues through meetings. If discussions fail, one party may initiate arbitration.

In consumer disputes, you raise the complaint with the company first. If unresolved, you can start arbitration if your agreement includes the clause.

Step 1: Filing and Initiation

One party gives notice to the other about their intent to arbitrate. The notice outlines the nature and basis for the proceeding.

The other party receives a timeline to respond and state agreement. Once agreed, they move forward.

Your contract states which arbitration firm to use. If not specified, file with the American Arbitration Association or local firms.

Be prepared to pay filing fees.

Step 2: Arbitrator Selection

The arbitration firm helps parties identify and choose arbitrators. Both parties can suggest names and decide together.

Some firms suggest and invite arbitrators to preside. You must discuss with the other party whether to accept.

If you disapprove, they’ll suggest another person. The process repeats until you reach unanimous agreement.

Before recommendation, arbitrators review your case, check for conflicts, and submit signed oath documents.

Step 3: Preliminary Hearing and Information Exchange

After agreeing on an arbitrator, they conduct a preliminary hearing. The hearing discusses critical issues and procedural matters.

Topics include depositions, witnesses, and information sharing. Parties prepare their cases separately and exchange information.

After exchange, you can respond and object to received information.

Step 4: Hearing Stage

Both parties present their case before the arbitrator. You’ll give arguments, call witnesses, and present evidence.

Rules and procedures dictate the hearing process. Time for cross-examination and questioning may be limited.

Arbitration hearings take one to three sessions unless complicated. You’ll submit a written brief and closing statements.

The arbitrator receives a timeline to decide the case.

Step 5: Award Stage

After all parties present their cases, the arbitrator closes the case. No new evidence is accepted.

A date is set for giving the award orally or in writing. Most arbitrators explain their decision to minimize errors.

The award is legally binding. Courts can force compliance on parties that fail to honor the ruling.

Appeals are rare in arbitration cases. Courts may allow appeals if the agreement states it or arbitrators made legal errors.

Using Arbitration Clauses to Your Advantage

Arbitration lets you settle disputes quickly and avoid lengthy litigation. You’ll save money and prevent relational strain from aggressive court hearings.

Consumers with outstanding debts can force lawsuits out of court using arbitration clauses. File a Motion to Compel Arbitration to move your case.

First, respond to the suit with an Answer. Responding prevents debt collectors from receiving a default judgment against you.

If your agreement lacks an arbitration clause, you can still settle the debt. Our partner Solo helps consumers negotiate debt settlements with collectors and creditors.

Collectors may accept your offer because they don’t want a lengthy legal process. They’ll often settle when they realize you know your rights.