Federal Trade Commission | consumer.ftc.gov

Debt Collection 

Arbitration

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I

f you don’t pay your bills, a debt collector may begin 

legal proceedings against you. Debt collectors can sue 

you in court to try to collect the debt. Or, if your credit 

contracts require that disputes go through arbitration, 

debt collectors can begin that process to try to collect the 

debt. In arbitration, the parties submit their dispute to an 

arbitrator – a private third party – rather than to a judge. 

While arbitration is generally less formal than going to 

court, the arbitrator’s decision is binding and enforceable in 

court.

Arbitration proceedings can be filed on behalf of original 

creditors as well as debt collectors who purchased the debt.

Arbitration decisions have a significant effect on your 

rights. The Federal Trade Commission (FTC), the 

nation’s consumer protection agency, says it’s important 

to understand how debt collection arbitration works and 

what your rights are. With this knowledge, you can make 

an informed decision about whether you want to enter 

into a contract that requires arbitration to settle disputes. It 

also can save you time, money, and aggravation during an 

arbitration proceeding.

Why do some disputes go to arbitration 

rather than court?

Contracts for some goods and services – for example, credit 

cards, cell phones, and medical services – often require 

people to use arbitration rather than the courts to settle 

disputes.

As a result, when you shop for goods and services, read the 

terms of the contract to see if it requires arbitration in case 
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of disputes. If you want to keep your options open, look for 

a contract that doesn’t require arbitration or one that offers 

a provision that allows you to decide not to use arbitration 

if a dispute arises.

Who are the players?

A company that administers the arbitration process is 

called a “forum” or “provider.” It appoints the arbitrators, 

schedules the hearings and phone calls, and manages the 

flow of information between the parties and the arbitrator 

until the dispute is resolved. A forum “case manager” may 

serve as your point of contact.

A forum and its employees must be fair and impartial. 

They are not allowed to help you present your side of the 

story or recommend a lawyer. You aren’t required to have a 

lawyer represent you in arbitration, but you may decide that 

it’s a good idea: arbitration is a legal proceeding, and the 

resolution can have serious and long-lasting consequences. 

Your local bar association or legal services organization can 

refer you to a lawyer.

How does arbitration work?

If a debt collector believes that you owe money, it may 

begin an arbitration proceeding against you by sending 

you an arbitration notice in the mail or through a delivery 

service. If you don’t understand the notice or recognize 

the debt, call the forum or the debt collector for more 

information. The name of the sender may be unfamiliar if 

the notice is sent by the forum or the debt collector, rather 

than the original creditor. You also may wish to contact a 

lawyer.
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Once you are involved in an arbitration, read everything 

the forum or the collector sends. Contact the forum or 

a lawyer about anything you don’t understand. Keep a 

copy of everything you send to the forum or the collector. 

Send your documents by certified mail, and request a 

return receipt: it’s proof of what the forum or the collector 

received and when.

Rules called “protocols” or “procedures” govern the 

arbitration process, including deadlines, obligations, and 

costs. You may want to ask your case manager for a copy, 

but these rules generally are also available on a forum’s 

website. Ask for a “fee schedule,” too. It explains which 

fees and costs each party must pay. If you can’t afford your 

portion of the fees, ask if the forum offers “fee waivers” 

and how to apply. Ask whether there’s an option to have 

a hearing in writing, by phone, or by email. A written or 

telephone hearing may cost less than an in-person hearing.

At the hearing, each party has a chance to explain its side 

of the dispute to the arbitrator. The arbitrator considers each 

side’s evidence and submissions and then makes a decision. 

The arbitrator’s decision is binding even if you don’t 

participate in the process.

What are the consequences of arbitration?

If the arbitrator issues an award stating that you owe 

money, the debt collector must go to court and ask it to 

“confirm” the award as a court judgment before it can 

collect on the arbitration award. The court judgment can 

be used to try to collect payment from you. The court may 

issue a garnishment order against you that allows money to 

be withdrawn directly from your paycheck or bank account. 
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Certain types of funds cannot be garnished, including some 

federal benefits.

If you disagree with the award, you have two options: 

You can challenge the collector’s request that the court 

confirm it or you can go to court yourself to contest the 

award. Either way, you have a limited number of reasons 

for challenging the award, like arbitrator misconduct, and 

you may have a short period of time to do so. You might 

wish to consult with a lawyer for more information about 

challenging an award.

The results of an arbitration proceeding can have a negative 

impact on your credit report and credit score. That, in turn, 

can affect whether you can get a loan, and how much you 

will have to pay to borrow money.

For More Information

The FTC works to prevent fraudulent, deceptive and 

unfair business practices in the marketplace and to provide 

information to help consumers spot, stop and avoid them. 

To file a complaint or get free information on consumer 

issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. 

Watch a video, How to File a Complaint, at 

consumer.ftc.gov/media to learn more. The FTC enters 

consumer complaints into the Consumer Sentinel Network, 

a secure online database and investigative tool used by 

hundreds of civil and criminal law enforcement agencies in 

the U.S. and abroad. 
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Choosing among arbitration forums

If you can choose among several arbitration forums, do 

your research. Look at each forum’s website, and any 

documents or publications the forums will give you. You 

also can check out a forum by entering its name in a search 

engine online. Read about other people’s experiences 

with the forum. Try to find out how many times a forum or 

arbitrator has worked with the particular debt collector, 

how the forum or arbitrator is paid, how much the 

process will cost you, and how often people got favorable 

decisions from the particular forum or arbitrator.

An arbitration forum and arbitrators should be impartial. 

They should not share any financial interests with the debt 

collector. In addition, the forum should:

● have and enforce rigorous ethical standards; 

● ensure that notices of arbitration and other 

communications reach consumers; 

● ensure that arbitration costs are affordable, disclose 

them clearly and prominently, and spell out which 

costs you may be required to pay; 

● encourage consumers to participate in the arbitration 

process; 

● explain the law the arbitrator used, how the law was 

applied to the facts, and how the arbitrator calculated 

the final award amount; and 

● disclose its procedures in a clear and understandable 

manner.
Federal Trade Commission

consumer.ftc.gov

October 2010