07/01/2005
When was the last time you read the fine print in your agreement with your credit card issuer? Or in the new or amended agreement your card issuer undoubtedly sends you from time to time? Or perhaps we should just ask when you last read your agreement, since it's likely all fine print.
Like most people, your answer is probably "never." But even if you did read it, you'd be looking at things like due dates and interest rates. Who ever gives a thought to something like resolving disputes with the card issuer itself, choice of laws, or the like?
You might not be so complacent about not reading these agreements and amendments, though, if you realized that you accept everything in them and every later amendment, whether or not you even notice that there has been an amendment, just by using your credit card once you've been notified of the amendment. (Notification, itself, is a problem here, but we'll get to that later.)
It's safe to say that, even though you may not be aware of it if you haven't done the required reading, most credit card issuers have, for several years now, included a provision that any dispute you have with them is to be resolved through arbitration and that you hereby waive your right to both class action arbitration and to your day in a court of law.
And, over these several years, again possibly without your realizing it, there have been lawsuits because of these and other clauses. By the time you read this, the California Supreme Court will have heard arguments in one of these cases.
Both sides have vocalized the benefits and the evils of the provisions themselves and the means by which they became effective. As far back as 1998, for example, a cardholder sued Bank of America after they decreed that arbitration would be required to settle disputes relating to both future and past transactions if either party requested it. Here's the notification problem: they notified their cardholders of this only by means of a stuffer included with their bill.
The appellate court ruled that that kind of notice was not acceptable.
A 2002 lawsuit against Discover Bank alleged improper charges for overlimit fees and other penalties. Again the insertion of the arbitration requirement, and this time a clause prohibiting class actions, were part of the controversy. The court concluded that the weaker party (the cardholder) was left unable to negotiate, and that the no-class-action provision had the potential to leave millions of customers overcharged without an effective method of redress.
The case now before the Supreme Court also concerns a Discover Bank provision for individual arbitration and a class-wide arbitration prohibition, which the cardholder was deemed to accept because he continued to use his card. This case, again, alleges improper late fees by the bank. Whether the arbitration requirement should stand and whether the class action prohibition should not are what the Supreme Court will review.
Much controversy exists about arbitration instead of litigation and about class action arbitration. On the one hand, some say arbitration is less costly and keeps costs from escalating because of frivolous lawsuits; that it simplifies dispute resolution, in some measure because people either have no access to the judicial system or can't afford a lawyer. Arbitration is also beneficial to consumers, they say, because it is faster. If you were to sue, it would take months or years for your case to be decided. As to the class-action question, they maintain that it's not worthwhile to file suit individually and that the class-action threat helps keep big institutions honest.
Critics hold, for example, that by requiring arbitration, businesses lock the door of the courthouse to consumers and that consumers, by accepting the arbitration requirement, sign away their right to have a judge and jury decide their complaint; that requiring arbitration discourages legitimate class actions where each person's damages may be too small to warrant individual litigation; that the consumer doesn't have a say in who the arbitrator is. They complain that arbitrators' decisions are final and unappealable and the arbitrators themselves may not be impartial, since they are hired by the companies for whom they arbitrate; and that class actions rarely benefit anyone except the lawyers; and that arbitration fees may be more expensive than just filing suit in small claims court.
Bureau President Bill Mitchell does not view arbitration clauses as creating any significant economic or other burden on the consumer. He points out that most disputes probably have to do with collecting. Without arbitration, a company will sue the cardholder and recover attorney's fees and costs, which will cost the cardholder significantly more than the balance due.
Mitchell agrees that the legal system requires having the means to access it. But even if you have the means, he feels the costs can be so high that you may not want to take the risk unless a huge amount is at stake. And even then, a case can--and probably will--take years to resolve, whereas arbitration may take two or three months.
Mitchell also points out some of the advantages Better Business Bureau arbitration offers over arbitration by private companies. First, it is free to the customer. (Indeed, California law will no longer allow arbitration charges to consumers.) But it is also free to businesses who subscribe to Business Arbitration. Nor are arbitrators hired by the company; the pool is maintained by the Bureau, and arbitrators can be completely impartial without worrying about whether being re-hired if they decide too many cases one way or another. Furthermore, neither side should need an attorney.
Whatever the decision by the Supreme Court, if you're a credit card holder, you may want to look over your credit card agreements and amendments from time to time so that you have at least some idea of what terms you agree to when you use your card.
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