Credit Card Agreement Law Suit

[PZ1478]

There was a lawsuit, I think in Washington, concerning the credit card agreement. The decision was that not all things in a credit card agreement (which we are forced to sign before we can get a credit card) are not legal.

Does anyone know where I can find this decision??

[Debt Guy]

This would be news to me. I would be surprised to discover such a court decision.

A credit card agreement is a "contract of adhesion". That means it is a "take it or leave it" contract.

There are many things in the agreement that are unconscionable. But, no one is forced to sign the agreement. You agree to those terms because you want their money more than you want to not run the risk of a royal you-know-what.

Now, before someone gets picky -- technically, you do not sign the cardholder agreement. You consent to be bound to the agreement when you use the card.

No good ever came from having a pocketful of credit cards. A wise person would take their credit cards and cut them into pieces, burn the pieces and bury the ashes under a pile of dog doo in the backyard.

[jq26]

A contract of adhesion is one that is substantively unfair due to unequal bargaining power. http://dictionary.law.com/definition2.asp?selected=2325 It is hard to make this argument with a credit card.

Terms in a credit card agreement can still be negated, but they have to be unconscionable. For instance, they cannot enforce a clause that if you default on your credit card they can come and take all of your personal belongings. They cannot enforce a clause that you cannot discharge the debt, or try to charge 50% interest. I have read cases in my consumer contract law courses where they have held portions invalid (offhand, many of them had to do with certain arb clauses). Just don't have reference to them. Try to search this site or maybe try to google certain terms to find the case.

I'd say that most clauses in credit card agreements are pretty standard and within the safe harbor of the court. Unless you have some bizarre agreement, I'd be surprised if any court would pick and choose a portion of a modern agreement that are considered invalid.

Good luck.

[Debt Guy]

When I said "unconscionable", I meant that in the non-legal sense. Maybe I should have used a different word. What I really meant to describe was "highly one-sided".

But credit card agreements are contracts of adhesion. As are insurance contracts. They are not negotiable and are "take it or leave it". The bargaining power is unequal -- but that is the way it is. No one puts a gun to the consumer's head and forces consent.

So long as the contract does not contain a clause that otherwise violates the law, there is no problem with the legal status of a contract of adhesion. If the contract calls for a rate of 50% but usury laws would not allow a rate that high, then that clause would be severed.

If I were the lender and it was my money, you better bet I would insist on a contract of adhesion. You want my money, then you take it on my terms. Don't like my terms, then either go somewhere else or do without.

I was guessing that arbitration might be the real subject of the inquiry as it has long been a controversial subject.

I think arbitration a la the credit card companies is grossly biased in favor of the creditor and unfair in both the legal and non-legal definition of the word. The last I read, the Supreme Court was still thinking that the Federal Arbitration Act was not only the law of the land but encouraged arbitration in lieu of litigation. Everything I know about the Act says that the original intent of congress was that the Act would apply to disputes other than consumer credit type disputes -- yet, there you go with another unintended consequence.

Given the makeup of the Supreme Court, I don't expect any changes of opinion in my lifetime. Congress seems incapable of doing anything constructive -- but just maybe if we really really are in a "change election" and the stink over the sub-prime meltdown and the economy in general remains at fever pitch -- then just maybe we will see a revisit of the bankruptcy code and consumer credit laws in general.

If we are really lucky, Congress will bring the FDCPA into modern times. When the FDCPA was written, Jimmy Carter was President, gas was 60 cents a gallon, cars got 12 to 15 mpg, it was impossible to imagine technology where literally everyone carried a phone in their pocket, the internet was merely a figment of Al Gore's imagination, not one person in 100 could have found Iraq on a map, anyone who thought we would have a balance of trade problem with China would have been in a straight-jacket and no one would have predicted this vast sea of consumer debt in which the nation wallows like a sick bloated whale.

Go figure.

[jq26]

When I said "unconscionable", I meant that in the non-legal sense. Maybe I should have used a different word. What I really meant to describe was "highly one-sided".

But credit card agreements are contracts of adhesion.

You are 100% correct. I stand corrected. It has been a couple of years since I dealt with the consumer contract material.