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Credit Card Arbitration Trumps Lawsuits, Court Says

Jan 10, 2012
Originally published on January 11, 2012 4:45 am

Consumers who sign credit card agreements that feature an arbitration clause cannot dispute fees or charges in court, the Supreme Court ruled Tuesday. The 8-to-1 decision drew immediate fire from consumer advocates.

To get a credit card, a consumer generally must sign a detailed agreement. In the fine print, almost always, is an arbitration clause that says that if consumers want to dispute fees, they must do so through arbitration, not in court.

A 1996 federal law allowed consumers to take their disputes to court. But in its ruling Tuesday, the Supreme Court said arbitration clauses in those agreements trump that law.

Michael Calhoun, president of the Center for Responsible Lending, says the ruling gives companies that provide credit cards, student loans and car loans the ability to exact any fee, because consumers have no legal recourse.

"These arbitration clauses have become a 'get out of jail free' card," he says.

And that's why nearly every loan agreement now includes an arbitration clause. The main exception is for mortgage loans, where such clauses are prohibited.

Lauren Saunders, the managing attorney at the National Consumer Law Center, says the arbitration process itself is unfair because the arbitrators have a financial incentive to rule against consumers.

"Who are you going to favor, the company that might send you more business, or the consumer who you'll never see again?"

The company involved in this case, Synovus Bank, declined to comment. The American Bankers Association said it was not available for an interview.

This may not be the last word on this issue. Consumer advocates say the new Consumer Financial Protection Bureau may study arbitration clauses and could ban them from credit card agreements.

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STEVE INSKEEP, HOST:

In this country, a ruling by the Supreme Court affects many people with credit cards. The high court upheld some fine print in the agreement you may sign to get a credit card. In many cases, people have signed away their right to sue.

NPR's Yuki Noguchi reports.

YUKI NOGUCHI, BYLINE: In order to get a credit card, a consumer generally must sign a detailed agreement. In the fine print, almost always, is an arbitration clause that says if consumers want to dispute fees, they must do so in arbitration, not court. A 1996 federal law states consumers can take their disputes to court. But in its ruling, the Supreme Court said arbitration clauses in those agreements trump that law.

Michael Calhoun is president of the Center for Responsible Lending. He says the ruling gives credit card companies, and car and student-loan companies, the ability to exact any fee, since consumers have no legal recourse.

MICHAEL CALHOUN: These arbitration clauses have become a get-out-of-jail-free card.

NOGUCHI: Which is why nearly every loan agreement includes an arbitration clause. The main exception is mortgages, where they are prohibited.

Lauren Saunders is the managing attorney at the National Consumer Law Center. She says the arbitration process itself is unfair because arbitrators have a financial incentive to rule against consumers.

LAUREN SAUNDERS: Who are you going to favor: the company that might send you more business, or the consumer who you'll never see again?

NOGUCHI: The company involved in this case, Synovus, declined comment. The American Bankers Association said it was not available for an interview. This may not be the last word on this issue. Consumer advocates say the new Consumer Financial Protection Bureau may study arbitration clauses, and could ban them from credit card agreements.

Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.