Supreme Court could bring arbitration back to credit card agreements

By , CardRatings contributor
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A recent Supreme Court ruling could restore binding arbitration clauses to the terms and conditions of many American credit cards. Eight of the Supreme Court Justices ruled in favor of CompuCredit, a company marketing credit cards for bad credit. The company's customers had attempted to sue CompuCredit for marketing a Visa credit card that only retained $43 of available credit after applying initial service fees and upfront finance charges.

Although the Credit CARD Act now prohibits that kind of "fee harvester" account, lawyers and judges debated whether the arbitration clause in CompuCredit's initial credit card application could prevent customers from suing the company in court.

Larger banks, like Chase and Capital One, had already abandoned binding arbitration clauses in their contracts with customers. SmartMoney's AnnaMaria Andriotis found some industry analysts speculating that the Supreme Court ruling may inspire at least a few banks to bring arbitration clauses back to their standard operating procedures.

Balancing company costs with consumer protection

Advocates of binding arbitration clauses suggest that the practice eliminates the cost of fighting frivolous lawsuits filed by disgruntled customers. Despite concerns that some arbitrators harbor undisclosed links or loyalties to large banks, the Supreme Court Justices failed to find precedent guaranteeing consumers the right to sue over a product or service they willingly requested.

Still, foes of the practice suggest that the ruling could open up new opportunities to strengthen consumer protection laws. In a recent column, the Washington Post's Michelle Singletary reported that incoming Consumer Financial Protection Bureau director Richard Cordray has already been tasked by Congress with reviewing the banking industry's arbitration practices. The CFPB retains the power to impose new limits on binding arbitration clauses, provided it finds such clauses act against consumer interests.

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