Almost every credit card agreement requires consumers to settle disputes through binding arbitration.
But that may not be the case for much longer.
Earlier this year, Minnesota Attorney General Lori Swanson filed suit against a major arbitration firm, the National Arbitration Forum, alleging that it had deceived credit card customers.
In July 2009, the NAF and another large arbitration organization, the American Arbitration Association, said they would stop accepting credit card arbitration cases.
JP Morgan Chase has already said it was evaluating whether to continue with the mandatory arbitration provisions in its consumer contracts and that it won’t file any new consumer arbitration claims.
Credit card companies used to say that arbitration was cheaper and faster than going to court. But Public Citizen says the cards hire arbitration firms that almost always rule in their favor.
The consumer advocacy group says arbitrators hired by MasterCard, Visa, Discover and American Express took the companies’ side in 18,000 of 19,000 cases it recently studied.
All of the cases were from California because it’s the only state that requires public access to the results of such disputes.
“This is a system that is unfair to consumers,” says Joan Claybrook, the group’s president. “People shouldn’t have to give up their legal rights just to get a credit card.”
Although credit card companies can still push customers into arbitration, the fear of lawsuits like the one filed against the NAF and the fact there are now fewer arbitration companies to work with should start to make credit providers less likely to do so.
If credit providers like Chase remove mandatory arbitration clauses from their contracts, consumers will eventually have a choice: Arbitration, or taking the card company to court.
Not only can cardholders expect to get a fairer hearing from a judge, doing away with arbitration should make credit cards more willing to compromise and settle disagreements to avoid court costs and bad publicity.
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