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Consumers vs. card issuers

By Martha C. White ·
Thursday, May 5, 2011
Posted: 3 pm ET

Back in 2007, more than 30 million credit card customers were offered refunds from a class-action lawsuit when a court determined that many major credit card issuers and network providers habitually overcharged customers for foreign currency transactions. The court ordered the companies to refund consumers some $336 million. Each refund was a modest $25, but it was a symbolic victory for many consumers.

Now, because to a new Supreme Court ruling, consumers no longer have the right to file class-action suits. This means it's even more important to read the fine print when applying for a credit card.

The high court ruled in April that a company's contract -- in this case, the arbitration clause -- takes precedence over state laws that allow consumers to file class-action suits. The ruling affects all consumer class-action suits, not just those against financial companies.

The dispute that started the case was between a customer and the mobile division of telecom AT&T; however, advocacy group Public Citizen says the new judgement applies to all consumer contracts going forward. Credit card issuers stand to be a major beneficiary of the new ruling, and consumers have less recourse in the event of a dispute. Public Citizen predicts that arbitration clauses prohibiting class-action suits will become the norm in credit card contracts as issuers take advantage of the protection that was granted. Check any credit card offer carefully.

Here's what this means in real-world terms: Previously, if you and 10,000 other customers were charged $25 illegally by your credit card company, you could get together, seek class-action status and hire a single lawyer to file suit. Now, if your contract prohibits class-action suits, you'll essentially have to either hire your own lawyer to get back your $25 or be forced to submit to arbitration. The latter is almost certainly bad news for consumers; in 2007, Public Citizen found that arbitration was decided in favor of the corporation nearly 95 percent of the time.

Advocates hold out hope that the new Consumer Financial Protection Bureau will impose its own rules on credit card issuers to preserve customers' ability to mount a class-action lawsuit. The Bureau will have the authority to limit arbitration clauses in credit card and other financial service contracts.

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