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Can Debt Collectors or Debt Buyers Enforce Agreements to Arbitrate?

Legal14

Arbitration agreements are intended to stop consumers from suing, and if consumers do sue, arbitration can severely limit the amount of money that a consumer can expect to receive from a lawsuit. The obvious solution to this problem is to read the agreements that you sign, and try to avoid signing agreements that have arbitration agreements. However, this may not be so easy in some circumstances.

Problems With Arbitration

Arbitration is a process where your case will not be heard in court, but rather, will be decided by an arbitrator. The arbitrator acts like a judge, but does not have to be an elected judge, sworn to impartiality and held accountable by the judiciary. Arbitration also can severely curtail a consumer’s ability to access vital documents, or to take depositions, all of which are needed to be able to prove liability and damages.

Arbitration agreements are not always enforceable, even when they are signed. But in many cases, they can be enforceable. What happens when the party that seeks to enforce arbitration is not the party you signed the original agreement with?

Third Parties Enforcing Arbitration

This can happen in a number of situations. Assume that you sign a credit card agreement that has an arbitration agreement. You cannot pay, and the debt is sold or transferred to a debt collector or debt buyer (third parties). Can those third parties enforce the arbitration agreement that was agreed to by you and the original creditor? After all, you have no written agreement with the third party.

Sometimes the answer depends on whether the third party is a “third party beneficiary” of the agreement between you and the original creditor. If so, the arbitration agreement is enforceable.

This is exactly the scenario faced in a South Dakota court. The consumer was sued for a debt, and countersued for violations of the Fair Debt Collection Practices Act (FDCPA). The debt buyer—who was not the original creditor—tried to have the FDCPA counterclaim thrown out, claiming that it could enforce an arbitration agreement.

The Court said that because the original agreement between the creditor and consumer was not entered into in order to benefit debt collectors, and because there was no evidence that the third party was an agent of the original creditor, the arbitration agreement became unenforceable as to the third party debt buyer/collection agency.

Language in the Agreements May be Determinative

However, debt collectors and buyers have been able to enforce arbitration agreements in other cases—most notably in cases where the original agreement between the creditor and consumer contains language allowing arbitration to extend to third parties.

Many agreements specifically say that anyone “connected” to the original creditor, or any “predecessor” of the creditor can enforce arbitration.

Whether arbitration is enforceable may depend on the exact language of your agreement or contract. Don’t agree to arbitration or settle for arbitration without having your agreement reviewed by a good consumer attorney.

Get help with your debt collection problems. Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today.

Resource:

lexology.com/library/detail.aspx?g=2da9402a-84ff-4762-b572-22fec126d90b

https://www.jakelegal.com/department-of-education-ignores-a-judges-order/

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