Card customers being pressed to give up their right to sue
By Pat Curry • Bankrate.com

Is using plastic money worth giving up your right to sue your credit card issuer if you have a dispute with them?

That's the question credit card holders need to ask themselves if they get a notice in the mail from their card company that says something like this:

"Any claim shall be resolved, upon the election of you or us, by arbitration pursuant to this Arbitration Provision and the Code of Procedure ("Code") of the National Arbitration Forum ("NAF") in effect at the time the claim is filed."

That's one sentence out of 10 long, legal-style paragraphs American Express sent its cardholders this summer when it added an arbitration program.

No easy resolution
Experts are now saying that while the word arbitration sounds comfy, card users need to educate themselves before expecting easy dispute resolution over coffee and doughnuts.

While arbitration has been used for centuries, and it's been widely used in the financial services industry for about 10 years, it's very new for credit card companies, says Dr. Stephen J. Ware, a law professor at Samford University in Alabama and author of the textbook, Arbitration and Other Forms of Dispute Resolution.

Companies are gravitating to arbitration for three key reasons, says Ware:

• There's a lot more law these days than there was a generation ago.
• The cost of resolving any claim in court has risen dramatically.
• Courts are becoming more favorable to enforcing arbitration clauses.

Ideally, arbitration offers companies and consumers a faster, less expensive way to resolve disputes that can't be solved with a phone call or two to the customer service department.

American Express spokeswoman Judy Tenzer said the company went with arbitration because it could save time. Discover and AT&T Universal cards also have arbitration clauses in their cardholder agreements.

"It's more an efficient way to settle disputes," Tenzer says, than a way to save money. "We try to settle whatever we can through normal customer service channels, and we have great success that way. Now, arbitration is one of the many ways we have to resolve disputes."

An unpleasant -- and costly -- surprise
But wait! If consumers think that arbitration means they're going to sit down across the table from their cardholder's representative, share a pot of coffee and sort out their differences, they're in for a big surprise.

Up-front filing and administration fees can run into hundreds, if not thousands, of dollars -- and most people who go to arbitration also take a lawyer with them.

"I think people often think of arbitration as mediation; I worry about that. It's still a very structured process," says professor Peter Shedd, who teaches alternative dispute resolution at the University of Georgia and also works as an arbitrator for the American Arbitration Association. "It's what I'd call a quasi-judicial process. In the scheme of formality, arbitration is less than litigation, but it approaches litigation."

It also has been deemed "unconscionable" and therefore, unenforceable, in some state courts, particularly if the clause requires one party to arbitrate and allows the other to retain the right to sue.

Hidden, and seldom read
Notification has been one of the issues in previous litigation. Often arriving as a bill stuffer, sandwiched in between ads for products and services, many cardholders don't even look at the densely written information. Plus, there's nothing to sign and send back. The agreement says that using the card after you receive the notice means that you accept the terms. The only way to decline the agreement is to cancel your card.

Ironically, the proliferation of arbitration clauses -- which are supposed to cut down on lawsuits -- has sparked "an incredible amount of litigation," says Paul Bland, a staff attorney with Trial Lawyers for Public Justice, a national nonprofit advocacy organization that litigates public interest cases.

"The reality is that if a consumer is forced into arbitration, they're far less likely to get a lawyer and prevail," Bland says. "Very few, if any, lawyers are willing to take on a case against a bank for moderate damages.

"The only way to get damages is through class action, and many clauses (AmEx included) prevent you from being able to go forward on class action. It has the effect of limiting remedies ... The threat of serious class action has a big role in keeping a big institution like a bank honest. If it can eliminate challenges, it will harm consumers in the long run. If you can eliminate class actions and do a few other things in clauses, you can completely eliminate any legal obligation."

Linda Sherry, editorial director for Consumer Action, a national consumer advocacy group, says that while her organization supports alternative dispute resolution as helpful and less costly than litigation, they are "totally opposed" to binding arbitration.

"There are a number of problems," she says. "The consumer doesn't have a say in who the arbitrator is. When you think about it, companies are the more frequent users of the services. That could have the perception of influencing the decisions. The dispute firms know which side their bread is buttered on."

Consumers learn their choices
Ware says he hopes that the increasing number of arbitration clauses will boost "brand awareness" about arbitration, especially since new arbitration firms are popping up all the time.

"The bigger point for consumers is that there's not just two choices -- court or arbitration," he says. "Arbitration is an infinite number of choices. There are many different rules of arbitration and arbitrators. Consumers will have to say, 'Is my agreement specifying arbitration before a reputable organization?' "

Ware notes, "There is a sense that juries will be more sympathetic to consumers, and arbitrators are more upper-middle class, business types with more sympathy to business. That goes back to consumers being more aware ... I look at clauses to see if it says we're going to arbitrate before the sister of the bank's CEO. It doesn't bother me; it just makes me look for a competitor."

Pat Curry is a freelance writer based in Georgia

-- Posted: Sept. 20, 1999