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Credit Cards

If you carefully check your credit card agreement, you will likely find a mandatory binding arbitration clause buried in the fine print. This short clause, which you likely unwittingly accepted, strips you of your right to have disputes with the credit card company settled in court. Instead, it forces you into a secretive legal system that relies on referrals from the credit card company for its financial well-being. It is nearly impossible to find a credit card that does not require its customers to agree to this type of clause. Public Citizen has only found two.

The explosion of mandatory arbitration (or forced arbitration) clauses in credit card agreements has allowed debt collection agencies to run wild. San Francisco City Attorney Dennis Herrera wrote in a complaint against Bank of America and the arbitration company National Arbitration Forum (NAF) that NAF “is actually in the business of operating an arbitration mill, churning out arbitration awards in favor of debt collectors and against California consumers.”

In “The Arbitration Trap: How Credit Card Companies Ensnare Consumers,” Public Citizen analyzed nearly 34,000 arbitration cases filed with NAF between 2003 and 2007 and found that creditors won an astounding 93.9 percent of the cases in which an arbitrator was appointed. More than 80 percent of the time, the arbitrator’s decision was based solely on documents provided by the business party (usually a credit card company or debt collection firm). In such “documents only” cases, arbitrators ruled in favor of the company 99.99 percent of the time. In the 2,019 cases in which the arbitrator held a hearing, the consumer prevailed only 1.4 percent of the time.

Story

Donald White, Colorado

Donald had an account with MBNA America. Sometimes he had trouble making timely payments, so they sold his account to a third party collection agency, Scott Lowery of CACV of Colorado. Beginning in 2005, he paid a penalty every month and the penalty kept increasing. He asked them if he could pay it without interest because they had bought his account for just pennies on the dollar. But they only increased their relentless, “strong-arm” tactics. Against FTC rules, they called his job and his family and they threatened to sue him. When he explained that his daughter had a rare terminal condition which contributed to his difficult financial situation, the representative told him, “Well, maybe you’re being punished for not filling your obligation.” The third party took him to arbitration with NAF, reported to be one of the worst arbitration companies. He filled out all of the necessary information, about 15-20 pages, and mailed it to them. They said it was incomplete and did not contact him again. Finally, a month later he got a decision from the arbitrators that notified Donald that they had awarded CACV $17,000.

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