Am I Eligible For Credit Card Arbitration?

When you sign a credit card agreement, it usually contains an arbitration clause in the fine print.  The clause states that if consumers want to dispute fees, they must go through arbitration and not through the court system. In most cases, if you don’t sign it, you won’t be able to get the card.  Several banks, Chase, Bank of America and Capital One, have either dropped the arbitration requirement or announced that they won’t enforce it.

CROA

The Credit Repair Organization Act (CROA) of 1996 allowed consumers to take disputes to court and avoid arbitration, but the Supreme Court ruled on January 10, 2012 that the arbitration rules take priority over this law.  This applies to credit cards, car loans, and student loans; mortgages are excluded.

How does arbitration work?

Most of the arbitration cases involve unpaid bills in the range of $5,000 to $20,000.  The unpaid bill is turned over to a collection agency to collect and if they can’t collect, an arbitration firm is hired by the credit card firm. The arbitration firm usually hires retired judges and attorneys to hear the cases.  If the arbitrator rules against the consumer, the collector goes to the courts to seek a judgment to collect.

Lawsuit Disputing Arbitration Clause

The case, which was ruled on by the Supreme Court, involved consumers who disputed the arbitration clause and wanted to have a court trial per the Credit Repair Organization Act. The dispute involved three consumers seeking to represent a class action suit against CompuCredit and Synovus for failing to make required disclosures on a Visa card.  They sued CompuCredit in U.S. appeals court in San Francisco, who ruled in their favor. CompuCredit appealed to the Supreme Court, who overturned the appeals court ruling. The Supreme Court ruled that consumers, who sign an arbitration clause, cannot dispute fees in court.

Consumer advocates believe that this is unfair and that consumers get a more neutral hearing at court, because arbitrators are hired by the defendant and are biased.  According to those that support the ruling, this will eliminate class action lawsuits that only benefit the lawyers; and arbitration is less costly and quicker than a court trial.  What do you think?

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Civil Penalty, Credit Cards, Government, Money & Identity

This post was written by John Ulzheimer