Published: November 2007

The Arbitration Trap: Credit Cards Companies Ensnare Consumers

Consumers who seek justice in disputes with their credit card companies shouldn’t expect to find it in binding mandatory arbitration (BMA); in cases decided in California by a major arbitration firm over a four-year period, consumers lost 94 percent of the time, according to a new Public Citizen report .

In the report, Public Citizen pulls back the curtain to reveal the cozy and dangerous relationship between credit card companies and the private arbitration firms that decide their binding mandatory arbitration cases. Their eight-month investigation provides analysis of data on nearly 34,000 arbitration cases in California.

The findings provide a glimpse of how arbitration traps consumers throughout the country in unfair, secret proceedings where for-profit arbitrators make the rules. Public Citizen's research uncovered consumers who spent years fending off collection agencies, cleaning up identity theft messes and struggling to bounce back from credit rating hits.

Buried in the fine print of millions of customer-service agreements for everything from credit cards to cell phones, are binding mandatory arbitration clauses that require customers to agree to settle any grievances through arbitration, thereby forgoing their right to a trial by jury.

Most people don’t realize that by accepting the credit card or computer, says Public Citizen, they are giving up their right to go to court if they have a dispute with the company, and in fact will be forced into a system in which the company holds all the cards. Not only do the companies hire the arbitrators and drive millions of dollars of business to arbitration firms – giving arbitrators a financial incentive to rule for the company – but proceedings are costly to consumers, and typically kept secret.

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The Arbitration Trap: How Credit Cards Companies Ensnare Consumers.

 

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Banking   ♦   Credit Cards   ♦   Insurance   ♦   Money Management   ♦