The next time you check your mailbox, look closely. You may have gotten a notice from your credit company with fine print stating new policies and procedures that you didn’t bother to read. That little pamphlet might be worth a second look, especially if it talks about arbitration or alternative dispute resolution.
Virtually every major credit card company has added mandatory arbitration clauses to their contracts, with the exception of AARP and many credit unions. So what does this mean for the consumer? If you have a disagreement with your credit card company–disputed charges that have gone unresolved, nonpayment or late payments, or interest rate changes–that can’t be rectified by speaking to
a customer service rep, your only option will be arbitration. The American Arbitration Association (www.adr world.com) defines arbitration as an out-of-court means of dispute resolution with a neutral third party deciding the case.Although arbitration is not new, “credit card arbitration started to show up in great numbers at least five years ago,” says Steve Tripoli, consumer advocate for the National Consumer Law Center (www.nclc.org). “A vast amount of Americans holding credit cards have these clauses. They usually cannot opt out. For consumers who are alert enough to look at the fine print, it says you will be bound by it when you use your credit card. It’s called passive consent.”
“This leads to what we call repeat player bias,” says Tripoli. “Arbitration companies handling 20,000 to 30,000 cases a year are more likely to be sympathetic to the credit card company paying them than the individual they will likely never see again.”
Yet, there are those on the other side of the table like Richard W.
Naimark, senior vice president of the American Arbitration Association in New York, who says arbitration is not so bad. He says the typical time limit for arbitration is four to five months while the courts take years.
The nonprofit organization, which provides training for 15,000 arbitrators around the world, takes the position that arbitration is much faster, less expensive, and not so strictly legal as courtroom procedures.
The main benefactors–credit card companies–are quick to defend arbitration: “Arbitration is an efficient way for both American Express and our customers to settle disputes that are not resolved during our routine customer service process. For customers, it provides a quicker form of resolution that does not necessarily require a lawyer and, therefore, they can avoid expensive legal fees,” says Monica Beaupre, spokeswoman for American Express. “In addition, the process can often be resolved by submitting documentation or over the phone, so consumers don’t have to take time from work or other obligations to appear in court.”
Consumers who disagree with mandatory arbitration can contact their state legislator or
go to www.stopbma.com/bma-take action.htm. “We consider this to be the biggest single threat to consumers today. Not just credit card companies,” says Tripoli. “It is OK if both sides decide on arbitration only after the dispute has developed and can’t be resolved, not by passive agreements beforehand.”NCLC says credit card arbitration is not a good idea because:
- It involves passive consent (no verbal or formal written agreement)
- It’s not normally agreed to by both parties (mandatory)
- The nature of proceedings remains secret (wrongdoing won’t be revealed as in court)
- It denies legitimate recourse to consumers with arbitrators’ decisions being final
- The companies generally hire the arbitration agency