by Joseph Kenny | 08/3/09

In an unexpected turn, two major arbitration firms have decided to stop resolving disputes between customers and their credit card companies and cell phone providers. This move has made it impossible for unsatisfied customers from filing lawsuits.

The American Arbitration Association has made it clear that it will no longer participate in consumer debt-collection disputes until new regulations are created. The group's decision came just days after another large firm, the National Arbitration Forum, announced it would no longer accept new cases.

The removal of these organizations comes with some serious implications for credit card providers and cellular phone companies-both have policies that require their customers to agree to mandatory arbitration. This is based on the idea that arbitration is less expensive and time-consuming for both parties than taking disputes to court.

The practice of arbitration has long been criticized by consumer advocacy groups who say that consumers often do not understand that they are waiving their right to sue when they sign such contracts with service providers. Even the process itself often favors the companies over consumers.

According to the National Arbitration Forum reported that 94% of the time, companies would win arbitration cases. Obviously, this is a disproportionate amount against consumer. Still, credit card companies have defended such results by saying that in most cases there is a discernable paper trail that proves customers own the amounts that are being disputed.

For the credit card industry, this is just another heavy blow during recession time. Along with rising delinquencies and defaults, the loss of arbitration could mean more problems. In order to deal with its losses, card issuers have been forced to scale back their available credit lines and tighten restrictions on customers who remit payment late.

The credit card industry is struggling to make sense of the new federal law that seeks to reform the out-of-control practices that have been sources of debate for long enough.