Hannah Cagle | December 08, 2022
Summary: Arbitration pushes a dispute out of court and into the hands of an arbitrator: a neutral person makes an informed decision regarding a credit card dispute. If you’ve been sued for a debt, check your credit card agreement for an arbitration clause and file a Motion to Compel Arbitration into the case to avoid going to court. To find your arbitration clause, read the fine print, look for dispute resolution key terms, and utilize the CFPB’s credit card agreement database.
If you take the time to thoroughly review your credit card agreement, there is a good chance you will find a mandatory binding arbitration clause. In many instances, an arbitration clause within such an agreement is relatively brief, but the impact it can have on your legal rights is huge.
Whenever you sign up for a credit card, you should receive the credit card agreement that outlines all the terms and conditions of being a cardholder.
Many credit card agreements contain an arbitration clause, which is a section of a contract that requires the two parties listed on said contract to resolve their disputes through an arbitration process.
In other words, an arbitration clause requires the creditor and consumer to resolve any future disputes outside of court.
If you are curious about how to find an arbitration clause in your credit card agreement, here are some tips.
First, read the fine print of the credit card agreement. Many financial institutions do not highlight or feature such a clause in their respective credit card agreements. Oftentimes, an arbitration clause is buried within a multi-page agreement.
Second, you can usually find the arbitration clause by searching for key terms or headers. For example, be on the lookout for sections containing headers such as:
Third, use the Consumer Financial Protection Bureau’s credit card agreement database to find your agreement online. You can download the document as a pdf, then hit command+F and type in “arbitration” to quickly locate the arbitration clause and section. If nothing appears, then the credit card agreement most likely does not contain an arbitration clause.
Below is a typical arbitration clause example 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.”
Check out this video to learn more about how to find an arbitration clause in your credit card agreement and how it can benefit you:
The idea of going to court over a credit card debt might just send shivers down your spine. Luckily, if your credit card agreement contains an arbitration clause, you can push the case out of court and into arbitration.
As a part of the arbitration process, an independent and neutral person makes an informed decision regarding a dispute. The individual chosen is called an arbitrator.
Arbitrators can be appointed by the court or chosen unanimously by both parties. For instance, parties can choose an arbitrator with technical expertise related to their dispute or someone with legal qualifications. Often, arbitrators are retired judges.
Depending on the arbitration clause in your credit card agreement, creditors and debt collectors are usually in charge of paying fees for arbitration. If this is the case, there is a chance they would rather throw the case out than continue to pursue you for the debt. This is why filing a Motion to Compel Arbitration into your lawsuit can help you beat debt collectors and regain your financial footing.
Notably, the arbitrator's decision is legally binding, and unless in special circumstances, you cannot go to court to dispute it. For example, if you had a serious credit card dispute with CitiBank and you're not satisfied with the arbitration outcome, you cannot go to court to appeal.
The significance of an arbitration clause is due to the fact that it effectively hinders your right to file a lawsuit against a credit card company in a court of law, where there is a public record, transcribed testimony, evidentiary exhibits, and so forth. A binding arbitration clause also generally prohibits consumers from filing class-action lawsuits or similar suits.
Instead, the arbitration clause will require you to try and resolve a legal dispute through a non-public, secretive legal process known as binding arbitration. If that was not bad enough, the arbitrators who routinely handle legal disputes between consumers and credit card companies often rely on referrals from those very same credit card companies to stay in business.
When a consumer is bound by a mandatory binding arbitration clause, the financial institution often retains the authority to select the arbitrator. Bear in mind, the selected arbitrator does not necessarily have to be an attorney or retired judge. In addition, an arbitrator is not bound by the Rules of Evidence, the Rules of Civil Procedure, stare decisis, and so forth.
In fact, because arbitration is a non-public process, an arbitrator does not actually have to consider any legal precedent when arriving at their decision. Furthermore, there is typically no recourse, or a very limited recourse, if you disagree with the arbitrator’s decision and want to appeal.
As of 2022, it is difficult to find a credit card available to consumers that does NOT contain an arbitration clause. For example, an analysis of 29 financial institutions by the Pew Charitable Trust discovered that the percentage of banks relying on mandatory binding arbitration clauses increased from 59 percent in 2013 to a whopping 72 percent in 2016.
Some financial institutions that previously removed arbitration clauses from their credit card agreements have re-inserted them while only providing limited options to consumers who do not wish to be bound by such a restrictive legal clause.
For example, in 2009, Chase Bank removed mandatory binding arbitration clauses from its credit card agreements as part of a settlement to resolve a class-action lawsuit. However, in 2019, Chase Bank announced it was reintroducing the forced mandatory arbitration clause within the terms of service for many popular consumer credit cards. Chase Bank opted to reintroduce the arbitration clause into its credit card agreements because the terms of the aforementioned class-action settlement expired.
Mandatory binding arbitration clauses are not limited to credit card agreements. In fact, such clauses are commonplace in an array of different consumer agreements. For example, if you have an account with Amazon, Groupon, Netflix, and/or Verizon, then you have likely agreed to participate in mandatory binding arbitration, if a legal dispute were to arise. Such clauses are also fairly common in the fine print of terms for auto loans and leases, investment accounts, student loans, and even certain employment and nursing home agreements.
There have been multiple legal challenges brought against the use of mandatory binding arbitration clauses primarily challenging the restrictive nature of such clauses on a consumer’s ability to access the justice system, including the filing of a class-action lawsuit.
A legal challenge to the use of mandatory binding arbitration clauses made it all the way to the Supreme Court of the United States (SCOTUS) in 2013. In its ruling, the SCOTUS determined that a company has the legal authority to utilize its arbitration agreement to half class-action suits, even if the dispute involves a violation of federal antitrust laws.
The Public Citizen conducted an in-depth analysis of nearly 34,000 arbitration cases filed with the National Arbitration Forum between 2003 and 2007. Public Citizen discovered that creditors won nearly 94 percent of arbitration cases. If that was not troubling enough, Public Citizen also learned that, in more than 80 percent of the arbitration cases, the appointed arbitrator’s decision was based exclusively on documents provided by the business party (i.e., the credit card company or debt collector).
In these “documents only” arbitration cases, the appointed arbitrators ruled in favor of the business party 99.99 percent of the time (yes, you read that correctly - consumers have prevailed in 0.01 percent of such arbitration proceedings).
The Consumer Financial Protection Bureau (CFPB) has also conducted an in-depth analysis of arbitration provisions in various consumer agreements. The federal agency reviewed thousands of documents and available court decisions.
Through its research, the CFPB determined that mandatory binding arbitration agreements impact a significant number of consumers, many of whom had no idea they agreed to such a legal restriction in their credit card agreement or cable television agreement. In addition, the CFPB found no evidence that arbitration clauses lead to lower prices for consumers.
So, before you consider arbitration, be confident that you have a good case and chances of winning with an arbitrator present.
Generally, arbitration cases have better results when they are initiated by the consumer. This is because many debt collectors would rather drop a lawsuit than continue with the arbitration process, which can involve fees that are more expensive than the debt in question.
Learn more about the arbitration process here.
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