Ruling supports credit card arbitration policies

In a 5-4 decision that affects anyone who carries a credit card or signs a cell phone contract, the U.S. Supreme Court ruled April 27 that companies can require customers to waive their right to participate in a class-action lawsuit, the Los Angeles Times reported.

The ruling in AT&T Mobility LLC v. Concepcion overturned an earlier decision from the 9th Circuit Court of Appeals generally considered more favorable to consumers. In the original suit, Vincent and Liza Concepcion objected to the fact that AT&T charged them sales tax on the full price of two cell phones that the couple received as part of a discounted package, according to Yahoo News.

The disputed amount was very small--$30--and it would have cost far more to hire a lawyer to pursue a case. So the Concepcions' complaint was combined with a class-action case representing other AT&T users.

So, why the fuss? The Concepcions, and other AT&T Mobility customers, had signed an agreement to use arbitration, rather than class-action suits, to pursue grievances against the company.

What is arbitration?

Arbitration is the process of resolving a dispute with the aid of a third party. It's something most consumers skim over when they're signing a contract or clicking "I Agree" on a website dialog box. In arbitration, both parties present their cases to a third party, called an arbitrator, and agree to abide by the arbitrator's position. It's legally binding, but it's not a courtroom process.

Service agreements with credit card companies, cell phone companies and the like often come with a built-in arbitration clause. This clause requires the customer to give up their right to file or participate in a class-action lawsuit if they feel they've been wronged by the company whose service they're seeking. Instead of a lawsuit, the consumer usually agrees to submit to the process of arbitration.

Arbitration clauses have grown popular with businesses over the years because they save those businesses a lot of money in legal fees and time in protracted legal proceedings.

Consumer watchdogs blast forced arbitration

Modern arbitration practices have been the target of watchdog group Public Citizen for several years. Bills to create an Arbitration Fairness Act were filed in Congress in 2007 and 2010. In a release supporting the 2007 bill, organization president Joan Claybrook blasted the "take it or leave it" forced nature of the clause, the lack of oversight of the process, and supposed bias:

"…(A)rbitration companies are beholden to big corporate players for repeat business, which creates a bias. They do not bite the hand that feeds them. For example, public data show that in the portfolio of one California arbitrator who ruled in 532 cases, 526 were in favor of business - a mere 1.14 percent for the ordinary consumer."

In the Concepcion case, lower courts found that the AT&T arbitration clause was "unconscionable and unenforceable." The Supreme Court's decision addressed a California law that created a loophole permitting the original suit. Justice Antonin Scalia, in writing the court's opinion, nodded to the Federal Arbitration Act (FAA): "States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons."

Credit card holders will see few changes

Commentators already are signing the death warrant of class-action lawsuits. In the ABA Journal, an article tellingly headlined "The End of Consumer Class Actions?" references a declaration from Vanderbilt law professor Brian Fitzpatrick that a ruling for AT&T would "end class-action litigation in America as we know it."

Not every prophecy is so dire. Earlier, Alan S. Kaplinsky and his partners at Ballard Spahr LLP submitted an amicus brief to the court in favor of AT&T Mobility. In response to the April 27 decision, Kaplinksy, chair of Consumer Financial Services for the firm, said of the Supreme Court's favorable opinion, "It is important to note that this opinion doesn't mean that federal law will save an arbitration agreement that is unfair to consumers."

In fact, not much will change for the average consumer. Best credit card practices--and good consumer practice in general--include reading the fine print before clicking "I Agree." Many agreements already require that the customer waive the right to participate in class actions, and, with the Supreme Court's decision, that won't be changing anytime soon.

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