Credit Card Companies and Arbitration
December 28, 2001 -- Consumers must agree to binding arbitration in the event of a credit card dispute if they sign up with any of nine major credit card companies (Knight-Ridder Tribune News, December 18, 2001). Typically, a credit card arbitration clause limits appeals and forces the consumer to give up the right to a jury trial. Arbitration can cover a broad range of conflicts from overcharges to consumer privacy.
According to consumer advocacy groups, binding arbitration discourages small individual claims and its true intent is to prevent class-action lawsuits. A consumer who is overcharged a moderate amount by a credit card company may choose not to make a claim because of high arbitration costs. Also, many arbitrators are perceived to have a pro-business bias as they are hired by the credit card companies repeatedly and derive significant income from repeat business while individual consumers rarely see an arbitrator more than once.
Recently, the chairman of California's Assembly Judiciary Committee, Darrell Steinberg, called for hearings on mandatory arbitration, which is common not only in credit card agreements, but in automobile purchases, leasing contracts, health care agreements, and employment contracts. The committee will investigate whether arbitrators have conflicts of interest that could influence their decisions. "The major focus needs to be on tightening disclosure requirements," Steinberg said. "What concerned me most was reading about the relationships that arbitration firms have with the companies whose cases they hear" (San Francisco Chronicle, November 18, 2001).