Can You Sue Your Credit Card Company?
Written by: Kristy Welsh
Last Updated: June 17, 2016
Chances are you have not read the fine print of your credit card contract because what you were really interested in is the annual percentage rate or the cash back rewards you are going to get. The contract that comes with your credit card looks like a bunch of legal mumbo-jumbo and who really understands any of it anyway? But lurking in all of that legalese is language regarding dispute resolution and arbitration clauses regarding litigation against their company. Of course they want to protect themselves and why not — you know how expensive a lawsuit can be.
For years, consumer advocates have claimed that binding arbitration clauses have quietly but dramatically limited a consumer's right to their day in court. Which is a sad state of affairs when we the consumer are not given our chance to sue someone for infringing on our rights. Recently, a study came out revealing this atrocity and something has been done about it.
Study Done by the Consumer Financial Protection Bureau
Back in March of 2015, the CFPB released a study which showed the majority of banking customers are subjected to arbitration agreements that restrict their ability to join class-action lawsuits. Three-quarters of these consumers were unaware of the agreements, and only 7 percent realized they had a clause in their agreement which restricted their ability to sue in court.
“Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact," said CFPB Director Richard Cordray. “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year. Now that our study has been completed, we will consider what next steps are appropriate."
What is Contained in These Arbitration Clauses?
Arbitration is intended to provide dispute resolution outside the traditional court system. In recent years, many consumer contracts have included a pre-dispute arbitration clause - which means either side can generally block lawsuits, including class actions, from proceeding in court. So hence, these arbitration clauses act as a barrier to class actions in court.
Instead, disputes are heard by an arbitration panel saving money, which in turn lowers consumers’ costs for services. But in actuality, there was no evidence found by CFPB leading them to believe these arbitration clauses were lowering prices for consumers.
Tens of millions of consumers are covered by arbitration clauses. In the credit card market, card issuers representing more than half of all credit card debt have arbitration clauses – impacting as many as 80 million consumers.
Arbitration and Consumer Confusion
As part of this study, the CFPB surveyed credit card consumers to see if they were aware and if they understood the arbitration agreements that were found in the credit card agreements. As stated earlier, over 75 percent of them had no idea there was an arbitration clause. As stated by one consumer advocate;
"Many consumers have no idea that they have been stripped of their rights – until it is too late," said Theresa Amato, executive director of consumer advocacy organization Citizen Works. "It's time for the CFPB to use its power to ban these unfair forced arbitrations and class action waivers to correct the widespread problems their own research reveals."
The Dodd-Frank financial reform bill banned arbitration clause in mortgage contracts, and this precedent lent itself to the CFPB to make rules about their use in credit card contracts. As of the writing of this article, a decision has not been made as to what the CFPB is going to do about these arbitration clauses. Hopefully in the near future, this watch-dog agency will make it harder for credit card companies to add these clauses and give back to the consumer the right to sue them.
Ready for help?
- Free personalized credit consultation
- Free access to your TransUnion report summary
- Free credit report audit on all your accounts
- Free score evaluation and recommended solution