An appeals court in New Jersey says you may not be able to drag your credit card company into court if you have a beef with its policies. Instead, the company can turn the dispute over to arbitration, where they have much better chances of winning.
It's the second highest court to make such a ruling on the hot-button issue.
The case in the Garden State surrounds G.R. Homa, an American Express cardholder, who wanted to file a class-action lawsuit over the marketing of its "Blue Cash" credit card. Homa alleged Amex pulled a "bait-and-switch" when it described the "cash rebates on purchases and card holders' balances on the card," according to court documents.
Homa wanted to bring a class-action suit against the company, but the court ruled that arbitration was the way to go. Its decision was backed up by a ruling earlier this year by the Supreme Court. In January, the Supreme Court ruled that credit cardholders who signed arbitration clauses can't take issuers to court over fees or charges.
It's hard to avoid arbitration clauses like this, Michelle De Mooy, senior associate of national priorities at watchdog group Consumer Action, told me after the Supreme Court ruling. Most credit card agreements include this arbitration clause in the fine print (a.k.a. the Terms and Conditions). By using the credit card after receiving the agreement, a consumer essentially agrees to the condition.
She explains that arbitration is less expensive for card companies, and they win more often, according to several studies on arbitration. These cases also can be a huge burden on consumers who often have to travel to the arbitration on their own dime.
Fortunately, consumers have a dog in this fight. In April, the Consumer Financial Protection Bureau, or CFPB, launched its own study of arbitration clauses for financial products. The study will look at the popularity of these clauses, who tends to bring arbitration cases, the results of those claims and the impact of these clauses on consumers outside of arbitration proceedings.
The period for public comment has closed, but you can still read the arguments for and against arbitration clauses on the CFPB's website. In the meantime, we await the results of the agency's study.
What do you think the CFPB should do?
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