Summary: The arbitration process is a way to take a credit card dispute out of the court system and place it in the hands of a neutral arbitrator who will make an informed decision regarding the issue. If you’re sued for a debt, you should check your credit card agreement for an arbitration clause and file a Motion to Compel Arbitration to avoid going to court. You can find your arbitration clause by reading the fine print, searching for dispute resolution key terms, and using the Consumer Financial Protection Bureau’s credit card agreement database.
If you take the time to thoroughly review your credit card agreement, it is highly likely that you will find a mandatory binding arbitration clause in your card agreement. It is quite common for an arbitration clause to be fairly brief within such a contract, but its effect on your legal rights can be enormous.
Arbitration Clause: What is It?
You should receive a credit card agreement when you sign up for a credit card, and this will provide you with an overview of all of the terms and conditions of being a credit card holder.
A common feature of credit card agreements is an arbitration clause, which is a section of the contract that requires both parties listed on the contract to resolve their disputes through an arbitration process to settle any disputes.
In other words, an arbitration clause requires the consumer and the creditor to resolve any future disputes outside of the court system in the future.
How to Find The Arbitration Clause In Your Credit Card Agreement
You may be curious about how to find an arbitration clause in your credit card agreement, so here are a few tips that may be helpful to you.
There are several things you need to be aware of when considering using a credit card. The first thing you need to do is go over the fine print of the credit card agreement. Many financial institutions do not highlight or feature an arbitration clause in their respective credit card agreements.
The other way to find the arbitration clause is to search for key terms or headers in the document. For example, you might want to look for parts of the document that contain headers, such as the following:
- Resolution of disputes
- Disputes of law
- Options for legal action
- Resolution of claims
A third option is to search online for your credit card agreement through the Consumer Financial Protection Bureau’s credit card agreement database. To quickly locate the arbitration clause and section, you can download the document as a pdf, hit command+F, and search for “arbitration”. If no arbitration clause appears, then the credit card agreement is most likely not to contain one.
The following is an example of an arbitration clause from the American Express Gold Card Cardmember Agreement:
“You or we may elect to resolve any claim by individual arbitration. Claims are decided by a neutral arbitrator.
If arbitration is chosen by any party, neither you nor we will have the right to litigate that claim in court or have a jury trial on that claim. Further, you and we will not have the right to participate in a representative capacity or as a member of any class pertaining to any claim subject to arbitration. Arbitration procedures are generally simpler than the rules that apply in court, and discovery is more limited. The arbitrator’s authority is limited to claims between you and us alone. Claims may not be joined or consolidated unless you and we agree in writing. An arbitration award and any judgment confirming it will apply only to the specific case and cannot be used in any other case except to enforce the award. The arbitrator’s decisions are as enforceable as any court order and are subject to very limited review by a court. Except as set forth below, the arbitrator’s decision will be final and binding. Other rights you or we would have in court may also not be available in arbitration.”
File a Motion to Compel Arbitration To Get Your Case Out Of Court
The thought of going to court over a credit card debt might just send shivers down your spine. Fortunately, if your credit card agreement contains an arbitration clause, you will be able to resolve the matter out of court and into arbitration.
An arbitrator is an independent and neutral person who makes an informed decision about a dispute.
An arbitrator can be appointed by the court or chosen unanimously by both parties. For instance, parties can pick someone with technical expertise or someone with legal qualifications.
Usually, creditors and debt collectors pay arbitration fees if you have an arbitration clause in your credit card agreement. If this is the case, they might rather throw the case out than keep pursuing you for the debt. You can beat debt collectors and get back on your feet by filing a Motion to Compel Arbitration in your lawsuit.
It’s important to note that the arbitrator’s decision is binding, so you can’t appeal it in court. For example, if you had a serious credit card dispute with CitiBank and you weren’t satisfied with the arbitration outcome, you couldn’t go to court to appeal.
Arbitration Disadvantages
You don’t get to file a lawsuit against a credit card company in court if you have a public record, transcribed testimony, evidentiary exhibits, etc. That’s why arbitration clauses are so important. Also, binding arbitration clauses usually don’t let consumers sue in a class action.
As an alternative, you’ll have to try to resolve a legal dispute through a non-public, secretive legal process called binding arbitration. Even worse, most arbitrators who deal with consumer disputes with credit card companies rely on referrals from those same credit card companies to stay in business.
In case a consumer is bound by a mandatory binding arbitration clause, the financial institution usually picks the arbitrator. In addition to not being bound by the Rules of Evidence, the Rules of Civil Procedure, stare decisis, etc., an arbitrator doesn’t have to be an attorney or retired judge.
The arbitrator doesn’t need to consider any legal precedents when coming to their decision because arbitration is a non-public process. Also, if you disagree with the arbitrator’s decision and want to appeal, you usually don’t have much recourse.
Arbitration Clauses Are Very Common In Credit Card Agreements
Consumers will have a very difficult time finding a credit card that does not contain an arbitration clause when it comes to purchasing a credit card. For instance, an analysis of 29 financial institutions found that the percentage of banks relying on mandatory binding arbitration clauses increased from 59 percent in 2013 to a whopping 72 percent in 2016.
A number of financial institutions that had previously removed arbitration clauses from their credit card agreements have now reinserted them, but are still only offering limited options to consumers who do not want to be bound by such a restrictive legal provision.
As part of a settlement in 2009, Chase Bank removed binding arbitration clauses from its credit card agreements. Nevertheless, Chase Bank said it was bringing back mandatory arbitration in 2019 for a lot of popular credit cards. As a result of expiring the terms of the class-action settlement, Chase Bank decided to reintroduce the arbitration clause into its credit card agreements.
It Is Also Possible To Find Arbitration Clauses In Other Types Of Consumer Agreements
An array of consumer agreements include mandatory binding arbitration clauses, not just credit card agreements. Suppose you have an account with Amazon, Groupon, Netflix, or Verizon, and if you have a legal dispute, you’re probably going to have to go to mandatory binding arbitration. Those clauses are also pretty common in auto loans and leases, investment accounts, student loans, and even certain employment and nursing home contracts.
Arbitration Clauses Can Prevent A Consumer From Filing A Class-Action Lawsuit
A number of legal challenges have been brought against the use of mandatory binding arbitration clauses, primarily challenging the restriction that such clauses impose on a consumer’s ability to access the justice system, including the filing of a class action lawsuit to challenge their use.
The Supreme Court of the United States (SCOTUS) heard a legal challenge to mandatory binding arbitration clauses in 2013. Even if the dispute involves a violation of federal antitrust laws, the SCOTUS determined that companies have the legal authority to use their arbitration agreements to half-class-action suits.
Consumers Don’t Always Benefit From Arbitration Clauses
Between 2003 and 2007, Public Citizen analyzed nearly 34,000 arbitration cases filed with the National Arbitration Forum and found that nearly 94 percent went to creditors. The organization also learned that in more than 80 percent of arbitration cases, the arbitrator’s decision was solely based on documents provided by the business party (i.e., the credit card company).
The appointed arbitrators in “documents only” arbitrations ruled in favor of the business party 99.99 percent of the time (yes, you read that right – consumers won in 0.01 percent of cases).
The Consumer Financial Protection Bureau (CFPB) reviewed thousands of documents and court decisions to analyze arbitration provisions in various consumer agreements.
In its research, the CFPB found that mandatory binding arbitration agreements affect a lot of people, many of whom hadn’t realized they had signed such an arbitration agreement. In addition, the CFPB found no evidence that arbitration clauses lead to lower prices for consumers.
So, before you go to arbitration, make sure you’ve got a good case and chances of winning.
It’s generally better for consumers to initiate arbitration cases since many debt collectors would rather drop a lawsuit than continue the arbitration process, which can be more expensive than the debt itself.