Credit Card Companies and Arbitration

Public Citizen recently issued a report detailing “the arbitration trap” consumers face when they sign up for credit card accounts (   Public Citizen is a non-profit group that focuses, among other things, on eliminating the use of mandatory arbitration clauses in employment and consumer disputes.  The report details many of the problems associated with the credit card industry’s use of arbitration.  First, consumers are often unaware when they begin using a credit card that any and all disputes they have with the credit issuer will be arbitrated.  Second, the arbitration process is confidential.  Third, the results of consumer credit arbitrations generally favor the corporate interest.  Unfortunately, the report also perpetuates some of the “myths” of arbitration.  Perhaps the most astounding claim in the report is that “[a]rbitrators have a strong financial incentive to rule in favor of the companies that file cases against consumers because they can make hundreds of thousands of dollars a year conducting arbitration.”  While I have written about my concern that arbitrators paid only by a repeat player company would have an incentive to find in favor of that company, I believe that arbitrators’ professionalism weighs against the belief that arbitrators are biased decision-makers.  Further, I know of no arbitrator who makes “hundreds of thousands” of dollars each year.  Most arbitrators hear cases only occasionally.  That Public Citizen throws out a number like this in its report serves only to undermine the overall credibility of the report.  Public Citizen’s claim that “arbitration is shrouded in secrecy” because its arbitrators do not generally issue written decisions also strikes me as an exaggeration.  Arbitrators are paid to decide cases.  I am a strong advocate for arbitrators writing opinions – however, most parties do not wish to pay for a written decision.  Unless companies and consumers are willing to pay for a written decision, it is hard to ask arbitrators to write them.  Although the report does focus on the “stunning results that disfavor consumers”, the report would be more influential if that was the major focus.  Attempting to discredit the arbitration process with exaggerations and misleading information undermines an otherwise worthy effort.


Sarah Cole

4 thoughts on “Credit Card Companies and Arbitration”

  1. A statement such as:
    Further, I know of no arbitrator who makes “hundreds of thousands” of dollars each year. Most arbitrators hear cases only occasionally. That Public Citizen throws out a number like this in its report serves only to undermine the overall credibility of the report.
    would be all the better for some reason to believe your anecdotal evidence is more typical than Public Citizen’s. You obviously know some parts of the industry very well, but they may have done more research on this particular point.

    More importantly, your experience does not contradict PubCit’s statement. Their report emphasizes that a few full-time arbitrators handle most of these cases. That is consistent with your experience that most arbitrators merely supplement their income with occasional arbitrations — but the average consumer is far more likely to land in front of the few full-time “mills” than the many “Sunday drivers.”

  2. I don’t believe Public Citizen’s report was “knee jerk.” A lot of time and effort went into it, obviously. Anyone arguing for the consumer side is far less financially compensated than those advocating for their corporate bosses, as consumer type orgs tend to be on very low budgets. Personal motivation to delve into the issue is necessarily a huge part of why these orgs do what they do.

    As someone who volunteers for a consumer organization I see a lot of consumer complaints where arbitration clauses in house purchase and home warranty contracts harm consumers.

    Few consumers really understand that agreeing to arbitration means giving up your right to file a lawsuit. This alone removes important leverage, and the company isn’t motivated to make the situation right if they know that stalling, or often biased arbitration will be sufficient to make the problem go away. These companies know who the arbitrators are and they do repeat business with them. The consumer doesn’t. If that’s not a huge potential for bias I don’t know what is.

    Arbitration keeps complaints private in 49 states, meaning consumers can’t do adequate “homework” because so many complaints are kept under wraps. It comes as a surprise to many, also, that consumer complaints at BBB’s and state agencies may or may not be public info either. Court records simply do not reflect the number of problems with some companies because arbitration keeps the complaint out of court. We have seen builders with NUMEROUS serious and valid complaints show up highly rated in surveys like JD Power, or the BBB , etc. We feel that arbitration hides so many problems that the bad builders can and often do appear squeaky clean to any average consumer.

    Even in CA where decisions are supposed to be public, a “win” can be for such a pathetic award that it’s really a loss, when it’s reported that a consumer won. We typically see that homeowners for example, who actually win against a builder or warranty company, may get only a FRACTION of their actual repair costs. An arbitrator for a warranty or builder dispute may “order” the builder to “fix” a problem, but they don’t order them to do it correctly. Thus, a builder can send a guy out with a tube of caulk to fix a whole roof that’s not to code and really needs to be redone. In the eyes of the builder, warranty co, and the law–thanks to the arbitration clause–this is a “win,” for the homeowner.

    Until a person has been throught it or has seen someone go through it, it can be hard to grasp just how unfair this system is. While the legal system certainly has flaws, at least there is some oversight, it’s public, and most can have a jury. In arbitration, the arbitrators make the rules even if they’re contrary to law, it’s all private, and it’s essentially the fox guarding the henhouse.

  3. Thanks for your very perceptive reading of this report. It’s frustrating to see knee-jerk criticisms of arbitration like those that Public Citizen puts out. Those of us who work in ADR know that charges like these are exaggerated if not unfounded, so it’s good to see someone blowing the whistle on them.

  4. Welcome to the blogosphere!! Your blog is a tremendously exciting event. I can’t wait to follow it. I’m sure all the other ADR bloggers feel equally pleased that you have joined us. Best, Vickie Pynchon

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