When you sign up for a credit card, you sign up for arbitration

Would you agree to let someone arbitrate your dispute with a credit card company if you knew he or she almost always decided in favor of the company?

Thousands of consumers do that every day when they sign up for a credit card, says Public Citizen, a national consumer group.

Buried in the fine print is an implied agreement to submit any dispute to binding arbitration. That means you can’t go to court and have a jury decide your case.

Instead, you have to accept an arbitrator that the company chooses — and in many cases pays for.

Reviewing data made public in California, the study found that a major arbitration firm, the National Arbitration Forum, ruled against consumers 95 percent of the time.

The study, which reviewed 19,000 of 34,000 cases involving credit card and collections disputes, supports two bills in Congress that propose changes to ensure consumers are treated fairly.

“The results of mandatory arbitration demonstrate a stunning bias against consumers,” said Laura MacCleery, director of Public Citizen’s Congress Watch Division. “These are agreements buried in the fine print most people don’t even know they are consenting to.”

Business officials, however, dispute the findings, contending that they more reflect a bias toward the trial attorney lobby.

“The plaintiffs’ lawyers’ attempt to undermine the arbitration system is not about justice for consumers, it is about growing the size of their own pocketbook,” said Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform.

The American Banking Association said the Public Citizen study fails to say “that arbitration is one of the fairest, most efficient methods for resolving complex disputes between consumers and businesses of all kinds, including lenders.” The ABA said the report varies wildly from previous reports.

In fact, industry-supported studies have found that more than half of respondents find arbitration a faster and more efficient forum for resolving disputes.

But the Public Citizen study is one of the first to focus extensively on mandatory binding arbitration. And while it looked only at credit card cases, it has broad implications because binding arbitration is embedded in many consumer contracts covering everything from cell phones to cars.

For its part, the National Arbitration Forum issued a statement saying: “Consumer outcomes in arbitration are the same as in court.” It also said: “Judges review arbitration awards to make sure they are fair.”

But Mitch Stoddard, a St. Louis lawyer who has had cases before the National Arbitration Forum., disputes that.

It’s hard to appeal or get a court review, he said, mainly because the consumer has already agreed to be bound by a finding. “It really comes down to what role we want the law to play in protecting consumer rights,” said Stoddard, noting that the forums are not bound by traditional rules of evidence.

Even so, there is a valid argument that arbitration, when handled fairly, can be more efficient than going to court.

One problem, though, is that a potential conflict of interest exists when the companies that choose the arbitrators also finance their salaries, said Johnson County real estate lawyer Max Gordon.

But consumers have no way of knowing in advance whether the process is fair because it is cloaked in secrecy.

Indeed, the Public Citizen study is unique because it reviewed data only recently made public in California, which remains the only state that allows public disclosure of arbitration statistics.

Even industry sources agree that binding arbitration should be made more transparent. They say some arbitrators follow consumer protection guidelines. But some don’t.

Michael Geigerman, managing director of United States Arbitration and Mediation Midwest Inc., said consumers should be assured that their arbitrator is neutral. “One question you’d want to ask is, ‘How many cases have you arbitrated for a company, and what were your decisions in those cases,’ ” he said.

Right now, only the companies can know that — putting consumers at a disadvantage.

You know I’ve wondered about that. See, I’m one of those weird folks who, only now and then mind you, really sit down and read EULAs and the “fine print” on CCs. Mostly for sick humor, but still. The first thing that comes to mind - all credit card offerings work this way, so there is no recourse from that angle. Credit cards and lending practices have changed quite a bit in the last few decades.
It used to be considered bad form, although whipping out a Diners’ Club card was also a status symbol. Those with REALLY nicely padded checking accounts get charge cards most of us will never see. Now it seems, credit cards and lending has taken on another round of bad publicity. What the consumer can do is pretty simple - pay off their debts as quickly as practicable and use credit wisely. The companies themselves have a humorous nick-name for those who pay off their bill every month: “deadbeats”; because from their perspective it adds up. It is almost impossible today to function completely without the extension of credit-like money: renting a car or hotel room in many locales and esp. purchases over the phone or internet. If you’ve ever listened to the Dave Ramsey show, he seems to recommend severing all ties to credit cards permanently. While otherwise a great show - it does take drastic action to pull out of a debt spiral but having a payment history really opens doors to consumers in ways that are difficult to measure.

>> ruled against consumers 95 percent of the time...“The results of mandatory arbitration demonstrate a stunning bias against consumers

Well, not necessarily. What if 95 per cent of the complaining CC users are, in fact, at fault? Then the number losing at arbitration is exactly as it should be.

This is like the liberal red herring that “_____ are imprisoned in disproportionate numbers”. (fill in the blank with your favorite victim group.) That’s only true if _____ didn’t actually do the crimes they are imprisoned for in disproportionate numbers.

More fun with statistics, ginning up a victim class.

My advice: pay your credit card bills, on-time. And if you don’t want to pay, or don’t plan to pay, or can’t afford to pay... don’t make the charges.

I too am a chronic fine print reader of CC applications and "Important Changes to Your Agreement" notices. Yeah, all of the CC companies impose arbitration now, so there is absolutely no getting around it. The whole industry is not only crooked but crooked to the core.

I took out my first credit card (from MBNA, before I knew any better) back in 1997 while in college. At the time, the card had a decent interest rate and with good terms, so I thought that it was a pretty good deal. However, in the coming month and years, I regularly started getting "important amendments" to the agreement, so much so that by 2000, the new repeatedly amended agreement did not even resemble the original agreement from 1997. I ended up paying off and canceling that card after I wised up, but in this day and age (and with government complicity), you have to use the damned things just to function in today's society, particularly if you have to travel on business or conduct business over the internet.

Any study of arbitration that explains results in win-lose format is suspect. In court, you typically win on a claim or lose on a claim. But even there, parties often obtain a judgment that is less than what they wanted or that leaves them almost entirely undercompensated. Arbitration is even harder to assess, since arbitrators have wide discretion to craft relief. Thus, if “winning” is defined only as being 100% successful on your original claim against the CC company, then it’s no wonder 95% lose.

These Public Citizen chaps do tend to the screaming liberal. It’s notable they don’t even try to address the question of what proportion of the cases actually had objective merit vs. what the arbitrators ended up doing. But they do point out some bothersome aspects of the existing arbitration system. Business is steered towards arbitrators who favor the creditors more, since large cardcos have compiled a dossier on which arbitrators have favored them in the past, but individuals and small businesses do not have access to such information. Such favoring can include things like imposing far more red tape on the consumer than on the creditor. I’d think there ought to be a way of requiring arbitrators in mandatory binding arbitration to be truly randomly chosen (or else their “batting averages” made public for all to see), and better legal recourse in cases of substantive errors or biased treatment of the parties on the part of the arbitrators. Also, consumers should be required to be warned, when served with an arbitration decision against them, of the time period allowed to contest the arbitration decision.

Public Citizen also suggests looking to credit unions for consumer friendlier card dispute resolution terms, and not necessarily associated with one’s employer — some credit unions grant membership based on geography.

The best way to use these cards if using them at all is to have as few as possible (maybe one each of a limited variety e.g. Visa, Mastercard in the event that a merchant will not honor a particular type) and except for true emergencies never charge more than you can pay up every month. Many cards offer teaser low or even zero interest loan periods. It’s easy to forget about these until the balloon bursts and all the deferred interest threatens as well as the principal.

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