Debt Collection Arbitration: 

The Who, What, Why and How

October 2010

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 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. 
or the debt collector, rather than the original 

creditor. You also may wish to contact a lawyer.

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. 

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 

Arbitration proceedings 

can be filed on behalf of 

original creditors as well

as debt collectors who 

purchased the debt.

2 FTC Facts For Consumers
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. 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 has free information about dealing 

with debt at ftc.gov/credit. Check out:

n Debt Collection FAQs: A Guide for Consumers

n Creditors Seeking Federal Benefits in Your Bank 

Account? Understanding Your Rights 

n Need a Lawyer? Judge for Yourself

Visit ftc.gov/moneymatters for short and 

practical tips, videos, and links to reliable sources 

of information on debt collection, credit repair, 

job-hunting and job scams, vehicle repossession, 

managing mortgage payments, and foreclosure 

rescue scams.

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 new video, How to 

File a Complaint, at ftc.gov/video 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.

FTC Facts For Consumers 3
4 FTC Facts For Consumers

For The Consumer Federal Trade Commission

ftc.gov 1-877-ftc-help

Federal Trade Commission

Bureau of Consumer Protection

Division of Consumer and Business Education

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:

n have and enforce rigorous ethical standards; 

n ensure that notices of arbitration and other communications reach consumers; 

n ensure that arbitration costs are affordable, disclose them clearly and 

prominently, and spell out which costs you may be required to pay; 

n encourage consumers to participate in the arbitration process; 

n explain the law the arbitrator used, how the law was applied to the facts, 

and how the arbitrator calculated the final award amount; and 

n disclose its procedures in a clear and understandable manner.