A consumer advocacy group on Thursday released a study alleging credit card companies use arbitration firms that they know will rarely rule in favor of consumers.
Nearly all credit card customer service agreements mandate binding arbitration because it is a cheaper and faster way to resolve disputes, industry officials say.
Public Citizen though says the companies hire arbitration firms that almost always rule in favor of the card issuer.
Arbitration firms used by companies such as Mastercard Inc., Visa, Discover Financial Services LLC and American Express Co. ruled against consumers in about 18,000 of 19,000 disputes analyzed in Public Citizen’s study. All of the arbitration cases in the study were handled by the Minneapolis-based National Arbitration Forum.
“This is a system that is unfair to consumers,” Joan Claybrook, the group’s president said at a press briefing.
Sen. Russ Feingold, D-Wis. and Rep Hank Johnson, D-Ga., attended the briefing to say they have introduced legislation that would let credit card customers choose arbitration or civil court in a dispute.
“People shouldn’t have to give up their legal rights just to get a credit card,” Claybrook said.
In 15,000 other cases analyzed, there was either a settlement outside arbitration, the customer or the card issuer dropped their dispute, or a customer filed for bankruptcy protection.
A trade group representing banks, which issue many credit cards, criticized the group’s findings. The report “varies wildly from other respected research on the topic,” Edward Yingling, chief executive of the American Bankers Association trade group, said in a statement. He said arbitration is a faster, less expensive alternative to complex litigation in customer disputes with credit card issuers.
Public Citizen’s study singled out arbitration disputes in California because it is the only state that requires arbitration resolutions be disclosed.