Have You Already Lost?
Think about your next dispute with your credit card company. A mistaken charge? Failure to credit a return? A penalty fee that they promised to waive? Or ratchet it up a little: Identity theft? A lost payment that triggered penalty interest and fees? If you think you'll be protected from mistakes, think again.
Business Week has a cover story this week on how credit card disputes are settled through arbitration, specifically through NAF, an arbitration outfit that, by its own accounting, arbitrated 18,075 cases between a business entity and a California consumer. The score? Business 18,045/Consumers 30. Whether you know it or not, you may have already lost your next dispute with your credit card company--even if they made the mistake and you can prove it.
Read the story for all the details. Reporters Robert Berner and Brian Grow give us investigative reporting at its best. The story is factual, compelling and genuinely scary.
The Business Week story is for everyone who things that, by and large, fairness will win out, for everyone who thinks that a big-name company would never deliberately take advantage of its customers, and for everyone who things that arbitration sounds like a low-cost, fair way to clear up problems.
When Congress promoted arbitration with the Federal Arbitration Act, most people thought it provided a good alternative to expensive litigation for equally powerful parties. But today an arbitration clause slipped into the 30+ pages of incomprehensible language in a credit card agreement will mean that a customer has waived her rights to a class action. Worse yet, as Business Week shows, it means the customer has agreed to submit to a process that the arbitration company markets to companies as a cheap way to collect on debts--whether the company can legally prove their claims or not. Business Week even raises serious questions about whether the most basic procedural fairness--sending notice of the dispute or providing a hearing when a consumer asks for one--is provided.
The City Attorney in San Francisco is suing NAF, and I'm eager to see what documents will come out during discovery. Senator Feingold has introduced legislation that would let consumers decide AFTER a dispute arises if they want to go to arbitration.
These are great moves. We need some protection here so that we don't pre-lose every dispute that comes up.
Comments (11)
Thank you for pointing out these criminal processes employed legally today by our nation's largest creditors. And thank Joe Biden (D- MBNA) for promoting and passing the legislation making it all possible.
June 10, 2008 9:19 AM | Reply | Permalink
Ms. Warren, I saw you in Maxed Out and talk about an eye opener. The next big crisis will be over credit card debt. As depicted in that documentary, a lot of folks are hanging onto their homes by shifting expenses to credit cards. I remember your recounting a seminar with banking big shots (encouraging them to screen out the vulnerable) where one of them told you they make most of their money from high risk borrowers who rack up the penalties and interest. These legit gangsters (and make no mistake, this is just one tiny step away from loan sharks) are STILL making huge profits, even when a significant number of their customers end up defaulting.
June 10, 2008 1:30 PM | Reply | Permalink
Great Post! I wrote about this on my blog at www.thetruthaboutcredit.com in April. My approach is about what you can do about it. If enough of us take action and stand our ground, maybe those who require us to sign arbitration clauses will start to give us the option not to. Take a look at what I wrote on my blog.
Jim
www.thetruthaboutcredit.com
June 10, 2008 3:54 PM | Reply | Permalink
Time to stop using credit cards. Get the debt paid off, some way, and use debit. It's got to stop.
June 10, 2008 7:59 PM | Reply | Permalink
What you trying to bury now, blue guy?
Not that I care, but you RW trolls that parrot the tired old mantra of "personal responsibility" sure have a tough row to hoe.
All I can say to you banker/insurance/CEO /wall street farks is:
You first.
You give up cheap and easy money first. The rest of us will follow your lead. 'Kay?
June 10, 2008 9:26 PM | Reply | Permalink
Giving up credit cards is not a protest against credit card companies, it is something you do for your own well being. It makes no sense to get yourself into an abusive "adhesion" contract with unconstitutional provisions in it.
Jim
http://www.thetruthaboutcredit.com
June 11, 2008 11:29 AM | Reply | Permalink
If you bought a cheap and easy toaster that kept burning your house down, you'd be smart to stop buying that toaster.
Same with Credit Cards. They are a bear trap.
June 13, 2008 2:13 PM | Reply | Permalink
Of course, the arbitration agreement is not the problem by itself. If done in a fair manner (which is where the discussion ends here - these are most definitly not fair arbitrations), mediation and arbitration are reasonable, low cost alternatives to litigation.
That said, when the credit card company stacks the deck, as is fairly obvious here by requiring a specific arbitration provider rather than some sort of panel chosen randomly from a pool of mediators/arbitrators (yes, there are problems with this, but it would move in the right direction), then the system is obviously flawed. At least in a arbitration with a provider who isn't pre-vetted by the credit card company and selected from a random pool of willing arbitrators, the consumer might have the chance to get a fair hearing and the arbitration provider wouldn't be on the payroll, essentially, of the credit card company.
And a legitimate appeal process would make the system better, too. But of course, these agreements take away the appeal rights, too.
Marc
June 10, 2008 11:28 PM | Reply | Permalink
Here is another fun thing I learned about credit card companies. If they have your checking account information they can "make a payment" without your consent. Nice isn't it. I had scheduled a payment for a certain amount and they doubled the amount of the payment. I admit I was behind but trying to catch up. What the fu%k? This little practice is of course completely legal.
June 11, 2008 10:59 AM | Reply | Permalink
I took a Creditors Rights class while in a paralegal program at a university's law school, and many of these practices wouldn't be allowed by a regular creditor, such as no real notice. Arbitration has allowed corporations to bypass or break the law, then hide evidence that they did.
Another perk for corporations is the secrecy. Most of the time arbitrations are private so other consumers have little or no way to find out and avoid bad companies.
I'm glad to see there has been a lot of coverage of the problem lately, in all kinds of consumer contracts, and legislation to make such clauses unenforceable. There has been no new or well thought out argument to preserve these clauses, just the same worn out half truths and baloney.
Probably the most scary place the clauses show up is nursing home and medical care. But they are also in builder contracts, home warranties, some real estate contracts, and many places you would never realize until too late. Many times the clause is never seen or agreed to, it just arrives in warranties, etc, after purchase. Look at the ticket or sticker you get when you pay for a sporting or recreational event. There is sometimes an arbitration clause on the back of a ticket. Did you negotiate that point? Nope! Nor did you negotiate the clause in a home warranty that a builder, seller, or real estate agent buys as a "gift."
The courts should never have enforced some of these. Now that they have, the law needs to be fixed, and the Arbitration Fairness Act needs to pass. Other bills in congress deal specifically with one or another industry and are important, but if the main bill passes it would take care of a lot of problems in one fell swoop.
June 11, 2008 4:21 PM | Reply | Permalink
BOA, the "bank of opportunity" is targeting them younger and younger !
Yeah, some opportunity for a six year old !!
http://abclocal.go.com/wls/story?section=news/local&id=6214177
June 19, 2008 4:22 PM | Reply | Permalink