The Truth About Arbitration of Credit Card Debt

09 Apr The Truth About Arbitration of Credit Card Debt

A report issued by consumer watchdog group Public Citizen talks about the numerous problems with arbitration clauses in consumer transactions in its comprehensive report, “The Arbitration Trap: How Credit Card Companies Ensnare Consumers”.

Public Citizen’s conclusion? “This report shows that binding mandatory arbitration is a rigged game in which justice is dealt from a deck stacked against consumers.”

Arbitration can be a wonderful way for both sides to a dispute to save money and get a speedy resolution of disputes without resorting to the Court system. In business transactions, arbitration is the norm, and all sides benefit. Unfortunately, arbitration’s record in consumer situations is much less than stellar.

The main problem is that, while in business deals, both parties are usually sophisticated players having roughly equal bargaining power, the opposite is the case in consumer transactions. In the consumer credit world, the credit card companies literally hold all the cards. They set the terms of agreement, can change the terms at any time, for any reason, and (unless forced to) rarely, if ever, change them in a way that is favorable to anyone but them. One of the changes they have made is to require arbitration of all disputes between the card issuer (Capital One, Bank of America, CitiBank) and the cardholder (you). The biggest problem? The card issuer picks the arbitrator who will hear the case.

This is a problem because if an arbitrator doesn’t consistently rule in favor of the card issuer, he or she won’t get any more arbitration cases from them. When credit card arbitrators can earn upwards of $1,000,000 a year for their work, this is a substantial incentive not to bite the hand that feeds them. It is also a substantial incentive to handle as many cases as possible, even at the expense of a careful consideration of the merits of each individual case.

The study notes that one arbitrator, Joseph Nardulli, handled 1,332 arbitrations over a 46 month period. He ruled for business 97 percent of the time awarding $15 million, and for the consumer only 1.6 percent of the time.

Getting this sort of information is nearly impossible, for consumer arbitrations are performed in secret, with no oversight, no review, no appeal, and no explanations. Only one state, California, requires arbitration firms to reveal any information at all about their use of arbitration and the win-lose rate of corporations and consumers. In the others, patterns of abuse, incestuous relationships between the credit card company and the arbitrators, and lack of protections are hidden. The study quotes an arbitration expert as stating, “The business defendant resolving disputes secretly knows all about any successful claims and can guide itself accordingly while his or her adversary negotiates in ignorance.”

This report should be read by all consumers to let them know what they’re up against, and how to fight it.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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