Warning! Don’t Get Your Credit Report Online!

It has been reported that one or more of the big 3, Experian, Equifax, and Transunion have inserted a mandatory binding arbitration clause into the agreement that you must acknowledge when you get a credit report online. I haven’t had a chance to investigate yet, but if true, you absolutely must not get your credit report online from one of these companies.

Instead, get your credit report by phone or by mail, using the contact information you’ll find on my Credit Reporting Agency Addresses page or by following the instructions on my How to Get Your Free Credit Report page.

Why is Binding Mandatory Arbitration a Big Deal?

When you agree to Binding Mandatory Arbitration, you agree to give up your right to sue in court. Instead, you agree that you will bring any claim you may have to a private arbitrator to decide. As a practical matter, this means that instead of paying a filing and other fees of a couple hundred dollars to file a lawsuit, you will be paying fees of thousands of dollars for the arbitration. In arbitration, you don’t just pay to file your claim, you have to pay the arbitrator several hundred dollars an hour for the work he does on your case. This cost difference alone is more than enough reason for you to avoid arbitration clauses wherever possible, but it’s not the worst part of arbitration.

Worse than the substantially higher cost is the stacked deck that you will face:

Instead of dealing with the rules of civil procedure which have been carefully crafted by judges and legislatures over hundreds of years to ensure fairness for everyone who comes to court, your claim claim will be governed by private arbitration rules drafted by an arbitration company that must compete with other arbitration companies for customers. Because arbitration customers are the big businesses that send lots of their cases to arbitration, guess who the rules favor?

A big example of this is happening right now. Recently JAMS, one of the large national arbitration providers, announced that it would not necessarily enforce bans on class actions that are common in arbitration clauses. At least 2 credit card companies, Chase and Discover, have now amended their cardholder agreements to remove JAMS from the list of arbitration providers they will use. As other companies follow, this will put enormous pressure on JAMS to change its position and to keep the other arbitration providers hewing to the no class action line.

You will likely find that the arbitrator can force you to pay the other side’s attorney’s fees if you lose your case, something that only happens in court if you file a frivolous lawsuit.

You will also likely find that the arbitrator will not allow you to force the business you are suing to produce all the records you need to prove your case, as arbitration rules typically restrict discovery.

Because of secrecy rules, you won’t be able to find out how your arbitrator has ruled in previous cases, but the business on the other side, because they may have submitted multiple cases to a particular arbitrator may know very well what kinds of arguments he finds persuasive. In court, the rules of decision are published in case books so that anyone with access to a law library can look up previous decisions and see how particular judges handled particular situations.

These same secrecy rules will put you at a disadvantage when choosing your arbitrator. Typically, the arbitration company will give each side a list of arbitrators and ask them to each strike names from the list until one remains. Because of its experience with the different arbitrators, the company will be able to strike the ones most favorable to you without you being able to do the same thing. In one study of HMO arbitrations in California, it was found that no arbitrator who ever awarded more than $1,000,000 in damages was ever selected for an arbitration again. Marcus Nieto & Margaret Hosel, California Research Bureau No. 00-09, Arbitration in California Managed Health Care Systems (Dec. 2000).

The Bottom Line: Arbitration is Bad for Consumers

The private arbitration companies are fleecing American consumers. In a case against First USA Bank, one of the nation’s largest credit card issuers before it was purchased by Bank One, it was forced to reveal that its chosen arbitration provider, the National Arbitration Forum, heard 19,705 cases involving claims between First USA and its customers, and that First USA won 19,618 of those cases, a winning percentage of 99.6%.

By hiding arbitration clauses in its internet user agreements, the big 3 credit reporting agencies are trying to pull the rug out from under their customers. Do not let them do that to you. Preserve your right to take them to court!