Three major credit card issuers are defending themselves this week against allegations that they colluded to force cardholders to resolve disputes through arbitration rather than going to court.
American Express, Citigroup and Discover began presenting their case on Monday in Manhattan in the U.S. District Court for the Southern District of New York, according to a report from Reuters. U.S. District Judge William Pauley is hearing the case. There is no jury.
Two antitrust lawsuits claim that the companies colluded to include arbitration clauses in their credit card agreements as a condition of getting a card. These clauses stipulate that consumers can't file a lawsuit against the company to settle a dispute. Instead, they must turn to arbitration.
The lawsuit originally included Chase, Capital One, Bank of America and HSBC. Those four settled in 2010 and agreed to not include arbitration clauses in their credit card agreements for 3.5 years, a deadline that expires this year, according to the report.
Consumer advocates argue that arbitration favors credit card companies. For example, it costs consumers more to pursue their complaints through arbitration than class-action lawsuits. And consumers often must pay fees and have to travel to the arbitration location, says Michelle De Mooy, senior associate of national priorities at consumer advocacy group Consumer Action.
"It's really a big deterrent for many people," says De Mooy.
Arbiters are also hired by the credit card companies, creating a conflict of interest, says De Mooy. She says a few studies show that consumers overwhelmingly lose arbitration cases. And these cases typically are not public record, so consumers can't depend on previous cases for support. Companies contend that arbitration is a cheaper and faster way to settle disputes.
Recent efforts by consumers to sue companies despite having signed arbitration clauses have failed. An appeals court in New Jersey and the Supreme Court last year upheld the sanctity of these clauses.
However, the Consumer Financial Protection Bureau last year launched a public inquiry into these clauses, which can show up in gift cards, checking accounts and employment agreements. The federal watchdog agency is studying how these clauses affect consumers and how effective arbitration is in resolving disputes. The CFPB said it could implement rules regarding arbitration to protect customers depending on what its report finds. There is no date yet for the report's release.
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