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Credit Card Arbitration On the Way Out?

by IndexCreditCards IndexCreditCards

Good Riddance

Bank of America and Chase recently announced that they are deleting mandatory arbitration clauses from their credit card terms and conditions. If you're one of their customers, you can now take any disputes you have with them to court.

Given that there's more than a suspicion that many credit card arbitrations have in the past been biased against the consumer, this has to be good news. But the change does have a downside because court cases are almost always more expensive than arbitrations. But at least, in court, the consumer has a reasonable chance of winning.

Credit Card Trends Becoming Positive

Credit card trends have recently been toward issuers being more customer friendly. At least, a few credit card companies have begun to change their offerings in ways that benefit consumers. But many of these welcome moves have been motivated by a need to head off increasing credit card regulation. And the change in arbitration rules appears to fall into this category.

Credit Card Arbitration: A National Disgrace?

The House Committee on Financial Services held hearings earlier this year about consumer arbitrations, and its majority report was--to say the least--unenthusiastic.

Then, in July, Minnesota Attorney General Lori Swanson announced that she had reached an agreement with the National Arbitration Forum (NAF), "the country's biggest consumer arbitration company." That agreement said: "...the company would get out of the business of arbitrating credit card and other consumer collection disputes."

Why the Change?

A 2007 report by Public Citizen, a consumer advocacy group, revealed the extent of the problem. It claimed that over a four-year period, 94 percent of NAF cases in California (where arbitration statistics are made public) went against the consumer. And it went on: "One arbitrator handled 68 cases in a single day--an average of one every seven minutes, assuming an eight-hour day--and ruled for the business in every case, awarding 100 percent of the money requested."

Things became worse when it was revealed that the same private equity company has ownership stakes in both NAF, and a huge firm of debt collection attorneys. The Wall Street Journal reports that in 60 percent of credit card and other debt cases heard by NAF in 2006, that law firm represented the creditor. It also suggests that the parties went to considerable lengths to avoid this conflict of interests being made public.

Published 10/15/09 (Modified 04/22/12)


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