Mandatory Credit Card Arbitration -CFPBDo you know what your options are if you have a dispute with your credit card company? If you are like most cardholders, you are limited by arbitration agreements that govern how you can handle problems that come up between you and your bank. A new study from the Consumer Financial Protection Bureau show that these mandatory agreements do not provide cost savings and can actually be harmful to consumers.
How Arbitration Affects ConsumersMandatory Credit Card Arbitration is a way to settle disputes outside the court system. CFPB found that tens of millions of credit card holders were bound by arbitration clauses. About half of all credit card companies make these agreements a requirement to get a card. But, most consumers do not understand the effects of these sorts of agreements. In a CFPB survey, 75% of respondents did not know whether their cards had mandatory arbitration. And, only seven percent of people who are bound by arbitration clauses realized that this means that they are not allowed to sue their credit card companies. Between 2010 and 2012, more than 1800 arbitration disputes were filed. Consumers only filed about 600 of these; the balance were filed by credit card issuers against their clients. And, the vast majority of outcomes favored banks and credit card issuers. While about $175,000 in damages and $190,000 in debt forbearance was awarded to consumers, arbitrators ordered consumers to pay over $2.8 million to their lenders. Additionally, arbitration clauses prevent consumers from participating in class action lawsuits against credit card issuers. CFPB found that credit card companies invoked arbitration clauses in 65% of class action lawsuits to prevent the suits from going forward. Over 32 million consumers are eligible for relief through consumer finance class action suits each year. Suits studied had over $1.1 billion in payments to consumers. When class action suits are blocked, it can come at a substantial cost.
What to Do If You Are Forced Into ArbitrationIf you wind up in a situation where you must enter arbitration with your credit card company, take action to protect your finances and your credit score:
- Get a copy of your credit report before arbitration. This will allow you to check for any errors that should be handled.
- Make sure that the debt that is being arbitrated hasn’t passed your state’s statute of limitations.
- Consider getting a lawyer. A lawyer can help you navigate tricky financial waters and negotiate a better outcome.
- If it looks unlikely that you will win, try to settle. This can save money over going to court.