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How Credit Card Arbitration Works

Sarah Edwards | March 31, 2024

Sarah Edwards
Legal Expert
Sarah Edwards, BS

Sarah Edwards is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: If you have a credit card or loan debt like most Americans, it’s vital to understand your rights and those of your creditors. Many credit contracts contain provisions for binding mandatory arbitration. Learn what credit card arbitration is with the help of SoloSuit.

If you’ve ever been in a dispute with a creditor, you may have been subject to mandatory arbitration. Mandatory arbitration is a type of alternative dispute resolution that foregoes a legal trial. While either a creditor or the debtor can initiate mandatory arbitration, both parties try to avoid it since it can be expensive.

During mandatory arbitration, the initiating party asks a third party to oversee the outcome of a dispute. For instance, the creditor might ask a third-party arbiter to review your record of non-payment and rule in their favor, allowing them to collect money from you via a judgment.

You can also initiate mandatory arbitration against the creditor. However, few people choose to do so unless they have a valid reason.

Make a Motion to Compel Arbitration.

Our Motion to Compel Arbitration is the best way to beat a credit card debt lawsuit. Many debt collectors will simply give up after receiving it.

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Why credit card companies opt for arbitration

Credit card companies won’t choose arbitration over a court case unless they have a compelling financial reason for doing so. Credit card arbitration is usually more costly than simply suing you in court. Thus, you’re more likely to receive a Complaint from a creditor than a motion to arbitrate.

The primary exception to this rule is when you owe a significant amount of money to a creditor. For instance, they might arbitrate your case if you’ve racked up a $50,000 credit card debt with a creditor and stopped making payments. The cost of arbitration is more expensive, but there’s less chance of losing their claim against you.

In a court case, debtors can hire attorneys or present arguments that a judge might agree with. As such, the creditor could lose a judgment worth thousands of dollars.

On the other hand, arbitration cases are usually more likely to resolve in favor of the creditors. At least, this is true for California, the only state that publishes arbitration for the public. It can be safely assumed that the results are similar in other states.

It’s important to note that if you lose an arbitration claim, you can’t appeal the outcome unless you have a significant reason.

A minor disagreement regarding the dollar amount of your debt or your repayment history isn’t sufficient grounds for an appeal. Instead, you’ll need to show that your case involved fraud or a conflict of interest on the part of the arbiter.

When you should consider arbitration

One scenario where arbitration may be advantageous is when your account isn’t worth much.

For instance, if you owe $500 to a credit card company and file a Motion to Compel Arbitration, your creditor may simply give in and walk away from the case because of the high cost of arbitration. Arranging arbitration can cost thousands of dollars — much more than you currently owe.

Don’t get too excited just yet, though. A judge will make the final decision about whether arbitration is appropriate, meaning you must have a solid reason for initiating it. Avoiding paying the debt isn’t one.

For more context, consider the following example.

Example: Joan owes her credit card company, Retail Cards for You, $1,000. She can’t make payments anymore, so she decides to force Retail Cards for You into arbitration. She thinks they might write off her debt rather than pay arbitration fees. Joan files a Motion to Compel Arbitration with her local court. After reviewing Joan’s claim, a judge thinks her case is frivolous. He dismisses her claim, and Joan loses the money she spent on the court case. She also still owes $1,000 to Retail Cards for You.


Check out the following video to learn more about how arbitration can help you.

There are two arbitration groups common to creditors: JAMS and AAA

The two main arbitration groups are Judicial Arbitration and Mediation Services, Inc. (JAMS) and American Arbitration Association (AAA).

JAMS is an older organization that requires the initiator to pay fees for its services, while AAA is a newer service that benefits creditors since it’s cheap. According to AAA, nearly half of all cases incur no arbitration fees.

When AAA came along, many creditors amended their agreements to allow their consumers to choose between JAMS and AAA. In most situations, it’s better to require your creditors to handle third-party arbitration through JAMS since they’ll incur fees that may make it inefficient to pursue further action on your case.

How does a Motion to Compel Arbitration work?

Most people don’t seek out arbitration with their creditors. They’d rather pay their debts off or settle them. However, if your creditor sells your account to a debt collection agency, it’s wise to understand the arbitration process, which may benefit you in certain situations.

Upon receiving notice that your account is with a debt collection agency, ask them to validate the debt. If you can afford it, settle the debt or set up a repayment plan. If you can’t, be aware that the debt collection agency may initiate a lawsuit against you.

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Make an Offer

If the creditor or debt collection agency files a legal claim against you, you’ll want to file an Answer with your local court. Include a Motion to Compel Arbitration along with the Answer, but specifically indicate that you prefer resolution through JAMS and ask for the creditor to advance the arbitration fees.

If a judge approves the arbitration, the creditor must pay for the arbitration per your credit card agreement. By electing JAMS, you’re ensuring they can’t choose AAA, which is cheaper.

Your creditor will decide whether paying for JAMS is worthwhile or whether they should simply write off the debt.

It’s important to realize that you won’t always have the opportunity to choose JAMS over AAA. In some cases, creditors don’t have stipulations concerning third-party arbitration. Read your credit card agreement carefully before considering arbitration.

Getting sued for debt? File a Motion to Compel Arbitration to avoid going to court.

It’s essential to understand your legal options with your creditors

You probably weren’t worried about dispute resolution when you first signed up for a credit card. After all, most people obtain credit cards intending to repay the money they borrow.

Still, it’s crucial to understand your rights when it comes to credit cards. That way, you’ll know what to expect if you ever have a dispute with your lender.

What happens in arbitration?

We wanted to learn more about the arbitration process and when to file a motion to compel arbitration, so we asked an attorney. Here are some helpful tips and tricks on arbitration from a debt lawyer:

  • Filing a Motion to Compel Arbitration allows for the transition of a case from a traditional court setting to a private arbitration environment.
  • Arbitration can be beneficial, especially if the arbitration costs for the creditor outweigh the value of the debt, which may sometimes lead to the dismissal of a debt lawsuit case.
  • Arbitration can be expensive since the fees of the arbitrator are typically divided and shared by both involved parties.
  • The arbitration process is similar to a court trial but is generally more informal and does not include the option of a jury.
  • If you're being sued for less than $30,000, arbitration might be a strategic option as the high costs of arbitration could discourage the creditor from pursuing the case.
  • The terms of the contract are key in determining who bears the arbitration fees; if your contract stipulates that you are responsible for these costs, arbitration may not be the best option for you.
  • Showing a clear intent to challenge the case can act as an incentive for creditors, often leading them to consider settling the matter outside of court.
  • Debtors are capable of negotiating settlements for their debts without the aid of an attorney, provided they have a good understanding of their case.

Watch the video below for the full conversation on arbitration with California attorney, Sarah Wolk:

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