Credit Card Fine Print Can Cost You

Every now and then, I read something that makes me gasp. It happened just recently, when I learned about a Public Citizen report on arbitration in the credit card industry. Here's how it began: "Consumers who seek justice in disputes with their credit card companies shouldn't expect to find it in binding mandatory arbitration (BMA); in cases decided in California by a major arbitration firm over a four-year period, consumers lost 95% of the time." Yowza.

Full Article:

Now, arbitration sounds fair, doesn't it? Here's part of one definition I ran across online: "The hearing and determination of a dispute by an impartial referee agreed to by both parties (often used to settle disputes between labor and management)." See? Fair -- an impartial referee.

But unless the vast majority of card holders with credit card issues are misguided, then something seems wrong. That 95% sure suggested a dirty little industry secret. And the more I read, the more it seemed that was the case. Check out this information from the report:

It gets worse
You might be thinking to yourself, "Fine -- I'll skip arbitration and take any dispute I have to court." Well, think again. It turns out that in the fine print you generally agree to when you sign up for a credit card (and for many other things, including cell phones and even employment), you're agreeing to arbitration. You're also giving up the right to a trial with a jury of your peers.

Making matters worse is the conflict of interest involved. The credit card companies get to choose the arbitrator, which is typically a firm that makes a heck of a lot of money from the credit card company. In such a scenario, the arbitrator clearly has some incentive to rule for the company, not for us.

Can it get worse than this? You bet -- not only are you often slapped with a decision to fork over whatever the card company says you owe, but you also pay to participate in this arbitration system. It can cost $1,000 or more.

Some people, unsurprisingly, are not happy about this state of affairs. "People shouldn't have to give up their legal rights just to get a credit card," says Public Citizen President Joan Claybrook.

Amen.

It gets better
The good news is that Congress is looking into this sorry situation. Sen. Russ Feingold (D-Wis.) and Rep. Hank Johnson (D-Ga.) have introduced the Arbitration Fairness Act of 2007 (S. 1782 and H.R. 3010, if you want to look them up). The act aims to give us a choice between arbitration and the traditional civil court system, "by requiring that agreements to arbitrate employment, consumer, franchise, and civil rights disputes be made after a dispute has arisen." As the folks at Public Citizen have noted, "The act would prevent a party with greater bargaining power from forcing individuals into arbitration through a contract."

Consider yourself urged to contact your congressional representatives and let them know what you think of this topic and the pending legislation.

In the meantime, according to Consumer Reports, here are some credit cards that seem to have decent records for handling consumer problems:

American Express (NYSE: AXP)Discover Financial Services (NYSE: DFS)

And these have not-so-attractive ratings for problem resolution:

Washington Mutual (NYSE: WM)Capital One Financial (NYSE: COF)HSBC (NYSE: HBC)

© 2007 Universal Press Syndicate.