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When you're mad as heck at your credit card issuer, I bet you at least once thought about screaming into the phone …"I'll see you in court!"
I hate to prick your bubble, but it's probably an empty threat. The Supreme Court ruled Tuesday that consumers who sign credit card agreements with arbitration clauses can't fight fees or charges in court. The clause trumps a 1996 federal law that allows consumers to take their issues to court.
The Justices ruled in favor of the arbitration clause 8-to-1.
An arbitration clause stipulates consumers must settle fee disputes through arbitration rather than in court. These clauses are found in the fine print of credit card agreements that are typically in legal jargon and spelled out over numerous pages.
(The federal watchdog, the Consumer Financial Protection Bureau, recently unveiled a shorter, simpler credit card agreement prototype for the industry to consider.)
These days, most agreements include an arbitration clause, says Michelle De Mooy, senior associate of national priorities at consumer advocacy group Consumer Action.
"There isn't a whole lot that we can tell the consumer. If you want a credit card, you'll find that clause," says De Mooy. "The best thing is to read the fine print, so at least you are providing some kind of informed consent."
De Mooy says issuers prefer arbitration to court because it's cost-effective and their chances of a favorable ruling increases. She noted a study by Public Citizen that found consumers lost 94 percent of the 34,000 California cases decided by a major arbitration firm from 2003 to 2007.
De Mooy also noted that arbitration isn't subject to the same rules and recording requirements as court hearings, and often consumers will have to travel on their own dime to the arbitration site.
Consumers who would prefer to see this clause made illegal to include in credit card agreements, as it is with mortgages, can write their Congressmen and Congresswomen in support of the Arbitration Fairness Act, which aims to give consumers a choice whether to arbitrate, De Mooy says.
Otherwise, the ball is in the issuer's (arbitration) court.
Emails for comment from the CFPB and the American Bankers Association weren't immediately returned.
What do you think about arbitration clauses in credit card agreements?
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Deane Messy: Your comment that "consumers have no choice" is simply wrong. Of course they have a choice. They can choose not to accept the credit card. Last time I checked, there's no law requiring people to spend more than they can afford. Also, what exactly is everyone wanting to sue the credit card company for anyway? Candidly, it's usually someone who owes the money, and can't pay it back, and is looking to stall. Isn't it? (my comment is not meant to be ironic, I'm seriously asking.)
Can't believe the Court went with this. They act like you have a choice as a customer, which you don't, and then the fact that a customer must pay to travel to an arbitration and then the 6% chance of winning...
Sounds like a classic example of Unconscionablility to me. Thanks for taking more rights from us.
Arbitration clauses are a mute point. Unless a huge amount of money is involved, there is no way it is worth the time, expense and aggravation of suing a lender.
Agreements need to be easier for the average consumer to read. Consumers NEED to read them.
What we need are simpler agreements. Ordinary transactions such as getting a credit card or another line of credit should not involve an agreement longer than one page. Today, almost everything we buy comes with such a long list of terms and agreements that if one were to read each agreement for every product purchused, every online transaction, and every credit line, the economic productivity of the nation would fall to a point where we may not have any transactions to conduct anymore.