Credit Card Arbitration * Credit Card Agreements * Mandatory Binding Arbitration * Credit Card Disputes

Mandatory arbitration clauses, which essentially strip consumers of their right to go to court, are becoming commonplace, with most consumers completely unaware of their existence or implications. The information is buried in the fine print or worse, simply tacked on to credit card agreements, which most customers don't even bother to read. If you did read through your credit card terms and conditions, beyond the usual definitions of rates, late fees, annual charges, etc., you’ll find some interesting things and probably learn at least one new phrase: binding or mandatory arbitration.

Binding arbitration sounds intimidating, and it can be. By including a binding arbitration clause, the credit card issuer is giving notice that if the cardholder has a dispute with the company (including identity theft, fines, penalty or late fee disputes, interest rate guarantees, etc.) he or she can’t sue the card issuer in court. Instead, the consumer must take the case to an arbitrator or judge.

In arbitration, a dispute is handled by a "neutral" third party, that hears both sides and makes a decision. Just about any type of dispute, whether it's between a worker and an employer, a retailer and a customer, or an insurance company and a policyholder, can be arbitrated. Attorneys agree that arbitration has its advantages. For one, it's faster. The American Bar Association estimates it takes two years for the average court case to be resolved, compared with 8.6 months for arbitration. Expediency can save thousands in legal costs. But for who?

Arbitration critics' concerns are myriad: Consumers may not realize they've agreed to arbitration and aren't in a position to negotiate contracts; unlike court hearings, arbitration hearings aren't generally open to the public, and consumers may be less likely to respond to a hearing notice from an arbitration group they haven't heard of than to a court summons. Furthermore, if binding arbitration applies to your credit card terms, and it probably does, then not only have you have waived your right to a jury trial, but your "arbitrator" will be chosen and hired by the credit card issuer. Herein lies the controversial issue that appears to be having serious consequences to consumers that face mandatory arbitration. Consumer advocate groups claim that arbitration groups are dependent on the goodwill of repeat litigants (in this case, creditors) for their business. Advocates argue that this arrangement provides "incentives" for arbitration groups to create rules that, though neutral when taken at face value, may favor creditors. And based on what we have been able to read and research on this topic, they seem to be on to something.

The majority of big business arbitration cases are handled by the National Arbitration Forum, the American Arbitration Association, and Jams Endispute, all of which employ lengthy lists of professionals in law and other fields. The National Arbitration Forum (NAF), a for-profit company based in Minneapolis and one of the nation's largest private arbitration firms, specializes in resolving claims by banks, credit-card companies, and major retailers that contend consumers owe them money. According to a June 2008 article in Business Week, however, what consumers also don't know is that NAF, which dominates credit-card arbitration, operates a system in which it is exceedingly difficult for individuals to prevail.

The accusations in the Businessweek article contain some shocking reality. It states that some current and former NAF arbitrators say they make decisions in haste based on scant information and rarely with debtor participation. Consumers who have been through the process complain that NAF spews baffling paperwork and fails to provide the hearings that it promises. Corporations seldom lose. The article states that in California, the one state where arbitration results are made public, creditors win 99.8% of the time in NAF cases that are decided by arbitrators on the merits, according to a lawsuit filed by the San Francisco city attorney against NAF. "NAF is nothing more than an arm of the collection industry hiding behind a veneer of impartiality," says Richard Neely, a former justice of the West Virginia supreme court who as part of his private practice arbitrated several cases for NAF in 2004 and 2005.

A July 2007 article in the Christian Science Monitor contains similar serious allegations and data. The article states that analysis of the last year of available data from NAF found that arbitrators awarded in favor of creditors and debt buyers in more than 96 percent of the cases. It also found that the ten most frequently used arbitrators (who decided almost 60 percent of the cases heard) decided in favor of the consumer only 1.6 percent of the time, while arbitrators who decided three or fewer cases decided for the consumer 38 percent of the time. According to the article, "Arbitration work is often very lucrative, and arbitrators know that if they rule against a corporate defendant too frequently or too generously (from the standpoint of that corporation), they will lose the work," wrote F. Paul Bland, staff attorney at Public Justice, a Washington, D.C.-based nonprofit legal services group that opposes mandatory binding arbitration agreements in consumer contracts, in comments for the Congressional hearing.

A devastating report from the Public Citizen, the Washington-based consumer group founded by Ralph Nader, provides a clear and detailed picture of the damage that has been wrought by mandatory arbitration clauses in credit card agreements. Public Citizen found that consumers are "railroaded into mandatory arbitration," an unfair and blatantly anti-consumer dispute-resolution mechanism, even if they are victims of identity theft. In an eight-month inquiry into credit card arbitration, Public Citizen found it to be a "rigged game in which justice is dealt from a deck stacked against consumers." Ouch!

How Can I Avoid Mandatory Arbitration?

Some basic guidelines you may want to consider regarding mandatory arbitration include:

• Educate yourself. Review your credit card terms to find out if you are currently in a binding arbitration agreement. If so, consider switching to a card that does not have such a clause.
• Try a credit union or smaller bank to find a credit card that doesn't require this. AARP says its cards do not require the clause.
• Read the correspondence you recieve in the mail regarding "changes in terms" from your credit card companies so you are not caught off guard.
• If obtaining a new credit card that includes mandatory binding arbitration, sign an arbitration opt-out if one is available or strike the clause from the contract and initial the change.
• Reduce credit card debt as much as possible to avoid costly fees, penalties and credit disputes.
• Contact your local congressman and support the Arbitration Fairness Act of 2007. Introduced as S. 1782 by Sen. Russell Feingold (D-Wis.) in the Senate and H.R. 3010 by Rep. Hank Johnson (D-Ga.) in the House, this bill would help consumers by eliminating pre-dispute binding mandatory arbitration (BMA) clauses in consumer and employment contracts.
• Voice your disagreement and reason for switching credit cards to your bank if applicable.

What Should I do if I am Faced With Arbitration?

If you are faced with a situation requiring arbitration, you may want to:

• Get a copy of your credit report and make sure there are no errors; address any errors immediately.
• Verify that your debt has not passed the statute of limitations for your state.
• Pay close attention to all your mail and any correpsondence you receive from an arbitration group; read and respond immediately.
• Research the arbitrator assigned to your case. Depending on the creditor making the claim against you, you may have the right to object. Consider striking any arbitrator who's a "creditors' rights" attorney.
• Consider hiring a lawyer. An attorney for either a court or an arbitration case may cost more than it's worth if the debt is only a few thousand dollars.
• Try to settle. Neither arbitration nor litigation is cheap. A debtor may have to pay thousands of dollars in attorney's fees tacked on by the creditor. So if you owe the money and the debt isn't old, negotiate with the collection agency or debt buyer. They probably bought your debt at a greatly reduced rate and may agree to a reduced payment.

Binding mandatory arbitration clauses in credit card, employment, and insurance contracts force individuals to forfeit their right to a trial by judge or jury. BMA does not help ordinary people, but benefits big corporate interests like national banks and insurance companies. It is used as a means to evade accountability for any harm they cause or laws they break - laws meant to protect consumers and employees. Protect yourself!

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