Credit card arbitraton rules challenged

Nancy Marshall-Genzer Nov 26, 2008

Credit card arbitraton rules challenged

Nancy Marshall-Genzer Nov 26, 2008


KAI RYSSDAL: Every time you visit a new doctor for the first time or open a new credit card account or take out a car loan, there’s a pile of papers you have to sign. Usually there’s a document buried deep in there somplace that you don’t really read. It’s the arbitration agreement. When you sign it, you agree to go to arbitration instead of joining class-action lawsuits.

Arbitration doesn’t always work out so well for consumers, so those agreements are being challenged in Congress and in the courts. And defending itself in court is exactly where American Express is going to be this coming Monday.

Marketplace’s Nancy Marshall Genzer has more.

NANCY MARSHALL GENZER: OK, I admit it. I never read the fine print. . . . And, judging from an informal street survey in downtown Washington, many others don’t, either.

SERGIO GUITEAU: No I don’t read the fine print.

ADAM NADER: It’s the same story, I don’t read the fine print on credit cards.

Sergio Guiteau and Adam Nader are busy medical school students. They were surprised to learn that the fine print on their credit card bills may have committed them to arbitration.

G.R. Homa reads every bit of the fine print. No wonder. He’s an accountant in New Jersey. He checked up on American Express when the company promised him a cash rebate on his purchases and balance. Homa claims Amex didn’t deliver what it promised. Attorney Paul Bland helped Homa file a class-action lawsuit.

PAUL BLAND: There are lots of types of cases where companies will cheat large numbers of consumers. And the only meaningful, realistic remedy consumers would have would be to bring the case in a class action.

But American Express said Homa had to go to arbitration. A New Jersey court agreed. Homa appealed. On Monday, a federal court in Philadelphia hears the case.

Bland says if Homa loses, it’ll be the first step toward ending class action lawsuits nationwide — a big loss for consumers. He says arbitration isn’t fair to consumers because companies usually appoint the arbitrators. So, he says, arbitrators have a strong incentive to rule in favor of those firms.

American Express wouldn’t comment for this story. But lawyers who support arbitration say it is fair and it’s faster and cheaper for everyone.

Philadelphia lawyer Alan Kaplinsky writes arbitration agreements for businesses. He says class-action lawyers often get a big chunk of the money, if they win.

ALAN KAPLINSKY: A third to sometimes up to 40 percent of the recovery will go into the hands of the class-action attorney and not to the consumer.

Kaplinsky says consumers are lucky to get a coupon from a class action. Arguments for and against arbitration are also being made on Capitol Hill. Congress is considering at least three bills that would prohibit corporations from forcing consumers into arbitration. Paul Bland says businesses have hired an army of lobbyists to kill those bills.

BLAND: One person in a House office told me that there was a separate lobbyist assigned to each member of Congress to work on them to keep them from reforming the laws that relate to mandatory arbitration.

But if the lobbyist army can’t hold the line and Congress passes the arbitration legislation, the court battles could be moot. Congress makes the laws of the land. Still, arbitration isn’t exactly at the top of Congress’ to-do list right now.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.