Friday, February 3, 2012

Supreme Court Finds Binding Arbitration Clauses in Credit Card Agreements Permissible

A recent Supreme Court decision came as a major setback for credit card users and consumer protection advocates, who have been tirelessly fighting for the past several years to obtain stronger protections for consumers.  The 8-to-1 decision in CompuCredit Corporation v. Greenwood held that consumers who sign a credit card agreement containing an arbitration clause do not have the option to dispute any charges or fees in court.  Consumers will be bound to so-called adhesion clauses, which means they will be stuck with the terms laid out in agreements created by big companies.  Such clauses are one-sided and force consumers to bring any disputes to arbitration rather than providing them with the option of suing in court or filing class action lawsuits.

The decision also holds that arbitration clauses contained within credit card agreements trump a 1996 federal law that permitted disgruntled consumers to take disputes with credit card companies to court, reports ForbesChicago bankruptcy attorneys know that most credit card companies bury arbitration clauses in lengthy and complex agreements that customers must sign before they can obtain a credit card.  Because credit card companies design such agreements in their favor and consumers do not have the option to negotiate contract terms, the recent Supreme Court ruling gives credit card providers (as well as companies that provide borrowers with car and student loans) “an inordinate amount of power,” says Michael Calhoun, president of the Center for Responsible Lending.  Those working in Illinois bankruptcy law realize that when consumers do not possess legal recourse to challenge big companies, there is a serious imbalance in bargaining power.

Since the law gives credit card and other loan servicing companies the power to create one-sided agreements, virtually every consumer loan agreement now has an arbitration clause written into it.  Our Oak Park foreclosure defense lawyers know that there is one major exception to this.  Mandatory arbitration clauses in mortgage loan agreements are strictly prohibited.

Arbitration does have some advantages.  It can be quicker, cheaper, and more efficient than court proceedings for some consumers.  On the other hand, it can give banks and big companies a disproportionate amount of power over people who do not have as much influence in the system, including everyday consumers.  One problem, reports SmartMoney, is that there is not a lot of data on cases that go to arbitration because those cases are often kept private, making it difficult to evaluate the true impact of arbitration clauses on consumers.  The data that is available suggests few consumers are successful in arbitration.  For example, Public Citizen, a nonprofit consumer advocacy group, reports that California credit card users won just 4% of cases that went to arbitration while card issuers won 94% from 2003 to early 2007.

In recent years, binding arbitration clauses were becoming less popular, due in part to the efforts of consumer advocates.  After the CompuCredit decision, however, that trend may change.  Unfortunately, the Supreme Court’s ruling allows credit cards providers to adopt a “take it or leave it” attitude when it comes to constructing consumer contracts.  An attitude, it seems, that may be here to stay.

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