Credit Card Arbitration and You: Get Ready to Rumble

We all know the credit card companies aren't playing fair. They’re jacking rates, slashing limits, raising minimum payments, or sometimes cancelling accounts altogether. Did you also know that they've most likely buried a mandatory arbitration clause in your contract, to avoid costly class-action lawsuits?

Arbitration clause

Chances are, your credit card agreement includes an arbitration clause that mandates you must go to arbitration instead of court. Okay, fine, lawsuits are dang expensive and the legal fees would end up costing way more than the disputed credit card amount.

But arbitration has some major downsides, too. It means that once the arbitrator makes a decision about your case, you’ll have absolutely no recourse if they decide in the creditor’s favor – which happens 94% of the time, according to a Public Citizen report. Also, since credit card companies and banks typically pay arbitration costs (which can be up to $10,000 a day), arbitration firms have been accused of being in the pocket of creditors. In addition to being on the payroll, so to speak, credit card companies threaten to take their business away from the arbitration firms that don’t take their side during cases. Hence, 94% of rulings fall in favor of the creditors.

Arbitration is just one more tool creditors eagerly use to their advantage to both avoid costly lawsuits and to aggressively pursue unpaid debts. Congress is investigating the suspicious relationship between credit card companies and arbitration firms, and is looking at pushing forward yet another credit card regulation that would ban arbitration clauses from card agreements. A Congressional committee just met with the President last Wednesday to discuss this practice, which many say should have been abolished as part of the sweeping credit card legislation passed a couple months ago.

Two arbitration firms leave the credit card dispute business

Amidst all of this hubbub, two major arbitration firms have just announced they will no longer be handling credit card dispute cases. Both the American Arbitration Association and the National Arbitration Forum are getting out of the business. National Arbitration Forum cited as its primary reason for abandoning the business the mounting legal costs from defending against government and legal accusations (like from the Minnesota Attorney General). The arbitration firm doesn’t feel that the credit card dispute business is worth the increased level of risk.

Future for consumers

Now that fewer arbitration firms exist to handle the massive credit card dispute caseload, how will new disputes get settled? Fewer arbitrators means that the dispute process will be more frustrating than ever for consumers. On the flip side, credit card companies now have fewer arbitration firms to turn to when they need to pursue consumer debts, so that’s potential good news for debt-strapped consumers.

If Congress does pass legislation banning arbitration clauses from credit card agreements, the increased legal fees of going to court will be passed onto consumers in the form of higher rates and fees from the credit card companies. All of this begs the question: Can consumers ever really win against credit card companies? I fear the answer is no.

Of course, by paying your debts down in full each month and on time, the credit card companies really can't hold anything against you. Responsibly using credit is always the surest way to protect yourself from arbitration, debt collectors, and a sunken credit score.

If credit card arbitration is in your future...

If your credit card dispute is headed for arbitration, take a few steps to have the best chance for a resolution in your favor:

1. Read your mail. It's very important that you read all correspondance from your creditor, debt collector agency, or arbitration firm. Respond right away, even if you think the letter is a mistake. Don't ignore it and hope it will go away.
2. Get your credit report. Make sure all the information listed on it is accurate. If it's not, follow a dispute process to correct it before your case goes before an arbitrator.
3. Consider a lawyer. Lawyers can be hard to find for credit card arbitration cases, and expensive. But they can also provide knowledge of the process that the average consumer doesn't have, such as explaining when a statute of limitation may apply and when to contest a point. So if your case is over a large sum of money that you don't feel you legally owe, you should find an attorney.