Many consumer contracts, including credit cards, contain mandatory binding arbitration clauses buried in the fine print of the terms and conditions. The clauses are very broad and encompass virtually any dispute between the consumer and the company. Increasingly, creditors are invoking mandatory binding arbitration clauses to collect debts. Rather than sue consumers and pursue a court judgment, credit card companies are forcing consumers into arbitration.
Arbitration is a dispute resolution process that, according to supporters, produces a resolution in less time and for less money than litigating a case in court. Sounds great, right? But unlike a judge, who is publicly elected and accountable, an arbitrator is chosen by a private arbitration company. The arbitrator is not required to issue a written decision, so the parties rarely get an explanation about the arbitrator’s ruling. And unlike a court ruling, arbitration rulings are final and not subject to appeal. The arbitration clause usually mandates what arbitration company will hear any disputes. Predictably, creditors choose arbitration companies that pander to their interests. Since credit card companies provide the arbitration companies with thousands of cases, which generate huge sums of money for the arbitration companies, its not surprising that they rule against consumers the overwhelming majority of the time. There are even stories of arbitrators being blacklisted by arbitration companies for ruling in favor of a consumer.
Arbitration may indeed resolve a consumer dispute faster and cheaper than a court proceeding. But the arbitrator is chosen by your opponent, rules in favor of your opponent the vast majority of the time, is not required to explain his decision, and his decision cannot be appealed. Sounds like kangaroo court to me.
If a credit card company is forcing you to arbitration or is trying to confirm an arbitration award against you, please contact me immediately to discuss your case.
The Senate Banking Committee recently passed the Credit Card Accountability, Responsibility, and Disclosure Act, which strives to protect consumers against some of the more deceptive and unfair credit card practices. Some of the provisions aim to:
- protect consumers from arbitrary interest rate increases
- end “bait and switch” tactics like promising a low interest rate then adding hidden fees and other charges
- prohibit credit card companies from increasing consumers’ interest rates based on their history with other credit cards
- ensure that cardholders are better informed of the terms of their credit card account
- protect young consumers against aggressive credit card solicitation efforts
The Act comes on the heels of FTC regulations that provides similar protections to consumers. But the FTC regulations are not scheduled to take effect until July of 2010. The Senate Act seeks to blunt the inevitable rush by credit card companies to raise interest rates and fees before the FTC regulations take effect. The Act narrowly passed the Senate Banking committee and figures to face stiff opposition from the credit card and banking industry before it reaches the full Senate for a vote. Predictably, the credit card industry has resorted to scare tactics, arguing that the Act will lead to less credit availability and higher prices for consumers.
The Act strikes me as a welcome and necessary piece of legislation. At a time when most major banks are receiving billions in bailout funds, it seems only fair to demand reasonable and common sense consumer protections in return. Stay tuned as this debate is just starting to heat up.