Cards And Unsecured Business

When you sign up for a credit card, you sign up for arbitration

Would you agree to let someone arbitrate your dispute with a credit card company if you knew he or she almost always decided in favor of the company?

Thousands of consumers do that every day when they sign up for a credit card, says Public Citizen, a national consumer group.

Buried in the fine print is an implied agreement to submit any dispute to binding arbitration. That means you can’t go to court and have a jury decide your case.

Instead, you have to accept an arbitrator that the company chooses — and in many cases pays for.

Reviewing data made public in California, the study found that a major arbitration firm, the National Arbitration Forum, ruled against consumers 95 percent of the time.

The study, which reviewed 19,000 of 34,000 cases involving credit card and collections disputes, supports two bills in Congress that propose changes to ensure consumers are treated fairly.

“The results of mandatory arbitration demonstrate a stunning bias against consumers,” said Laura MacCleery, director of Public Citizen’s Congress Watch Division. “These are agreements buried in the fine print most people don’t even know they are consenting to.”

Business officials, however, dispute the findings, contending that they more reflect a bias toward the trial attorney lobby.

“The plaintiffs’ lawyers’ attempt to undermine the arbitration system is not about justice for consumers, it is about growing the size of their own pocketbook,” said Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform.

The American Banking Association said the Public Citizen study fails to say “that arbitration is one of the fairest, most efficient methods for resolving complex disputes between consumers and businesses of all kinds, including lenders.” The ABA said the report varies wildly from previous reports.

In fact, industry-supported studies have found that more than half of respondents find arbitration a faster and more efficient forum for resolving disputes.

But the Public Citizen study is one of the first to focus extensively on mandatory binding arbitration. And while it looked only at credit card cases, it has broad implications because binding arbitration is embedded in many consumer contracts covering everything from cell phones to cars.

For its part, the National Arbitration Forum issued a statement saying: “Consumer outcomes in arbitration are the same as in court.” It also said: “Judges review arbitration awards to make sure they are fair.”

But Mitch Stoddard, a St. Louis lawyer who has had cases before the National Arbitration Forum., disputes that.

It’s hard to appeal or get a court review, he said, mainly because the consumer has already agreed to be bound by a finding. “It really comes down to what role we want the law to play in protecting consumer rights,” said Stoddard, noting that the forums are not bound by traditional rules of evidence.

Even so, there is a valid argument that arbitration, when handled fairly, can be more efficient than going to court.

One problem, though, is that a potential conflict of interest exists when the companies that choose the arbitrators also finance their salaries, said Johnson County real estate lawyer Max Gordon.

But consumers have no way of knowing in advance whether the process is fair because it is cloaked in secrecy.

Indeed, the Public Citizen study is unique because it reviewed data only recently made public in California, which remains the only state that allows public disclosure of arbitration statistics.

Even industry sources agree that binding arbitration should be made more transparent. They say some arbitrators follow consumer protection guidelines. But some don’t.

Michael Geigerman, managing director of United States Arbitration and Mediation Midwest Inc., said consumers should be assured that their arbitrator is neutral. “One question you’d want to ask is, ‘How many cases have you arbitrated for a company, and what were your decisions in those cases,’ ” he said.

Right now, only the companies can know that — putting consumers at a disadvantage.


Paul Wenske's In Your Corner columns appear Sunday in The Star's MoneyWise section. To reach him, write in care of the business desk at 1729 Grand Blvd., Kansas City, MO 4108, call (816) 234-4454 or send e-mail to pwenske@kcstar.com.