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Beware the Arbitration Trap the Credit Card Companies Set for You

Earlier this summer, we sounded the alarm about binding mandatory arbitration (BMA) clauses in the fine print of cable bills sent out by Comcast.  Comcast was not the first company to pull this trick on consumers and, sadly, we’ve learned it is far from the last.

Today, Public Citizen releases a ground-breaking report, The Arbitration Trap: How Credit Card Companies Ensnare Consumers [pdf]. It shows how credit card companies rig their contracts with consumers, using binding mandatory arbitration to evade accountability, strip consumers of their rights and enforce their will. In fact, arbitrators rule for business between 94 and 97 percent of the time.

In a nutshell, BMA is private, corporate-dominated secret “court” that overwhelming rules against consumers. In this world, merely by signing your name on the dotted line, you have forfeited your right to a trial by jury. If someone steals your identity and runs out to buy a $4,000 plasma TV – and the credit card company wants YOU to pay for it – the dispute will automatically bypass the public civil justice system. Instead, it goes straight to an arbitrator who may have heard thousands of cases for that same credit card company. 

Arbitrators make all their dough from repeat business, so it’s no surprise that they usually rule in favor of business. Consumers are left with no way out because the decisions they make are final and there is little room for appeal. 

Here is what you can do to stand up to this corporate bullying from credit card and other companies:

  • Pressure Congress: Write your representatives in Congress and ask them to support the Arbitration Fairness Act of 2007 introduced by Sen. Russell Feingold (D-Wis.) and Rep. Hank Johnson (D-Ga.).
  • Protect Yourself: Read our report [pdf] and learn all of the ways you can protect yourself from getting trapped in arbitration.
  • Tell Others: E-mail this post to friends and family.

Have you suffered from binding mandatory arbitration?  Share your story in the comments.   

UPDATE: Watch ABC's coverage of our report here.

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Sandra Kinsler

Not only are credit cards a problem, so are stock brokerage accounts. I spent over $78,000 on legal fees alone (and mandatory arbitration is supposed to save the consumer on legal fees) to go through mandatory arbitration with the National Association of Security Dealers when my stock broker Morgan Stanley Dean Witter refused to sell stock when I told them to do so continuously for 5 or 6 months. I lost about 1.5 million dollars because of this. Every stock account, with every brokerage now requires mandatory arbitration, as far as I can tell. The NASD is the trade association for the brokers. The arbitrators knew nothing about the Securities and Exchange Commission laws. And I was barely able to find a law firm to take the case. Morgan Stanley claimed they had lost my file - even though I was still an active client - and showed up at the hearings without a single original document. The arbitrators said nothing. I was able to prove Morgan Stanley Dean Witter had all information they needed to sell the stock, that they had incorrectly determined that my account was "locked up" and that they were not being truthful about the situation. I was accused of every kind of dishonest behavior imaginable. I wish someone or some organization would help me, and I’m sure there are probably thousands of investors around the country suffering the same way. No one should have to give up their Constitutional rights just to open a stock account. Mandatory arbitration proves that these corporations expect to mess up and don’t want to have to be accountable. Mandatory arbitration means you have all the expense of fighting a legal battle with none of the rights the Constitution grants us.

Jo Lytte

On or about 1995, my husband and I built a home and FP based out of Gainesville, Florida, did the original termite pre-treat of our home. We had a termite policy which stated it would, I believe, do repairs up to $150,000 to $250,000. I forget the exact amount of coverage. The product they used in the original pre-treat was pulled from the market about the same year they used it to pre-treat my home. I guess they are allowed to use up materials they have in stock when they ban something, why I don't know.

FP did an annual inspection of our home every year (at a annual fee, of course) after the home was completed and got my husband to sign an inspection form showing that they came and did the inspection.

On or about 2001, FP said they found a termites in our guest bathroom. They treated our home and came back the next year and inspected as usual. Then in 2003 they did their annual inspection and did not find any termites accroding to their internal reports produced for arbritration. I found the damage a month or two later.

FP came to my home and treated again and started destruction on my home telling my husband the whole time not to worry because we had a policy with them and they would repair our home. They tore out a glass block wall and cut out a fiberglas bathtub. They sealed the windows and walked away and said they were not responsible-it was our fault that the termites got into our home. Our plumber had installed a fiberglas tub partly in the ground and not encased in concrete and said that the termites started in the fiberglas tub that had some stiffening boards encased in fiberglas.

It is quite obvious that the termites started from the exterior wall of our home-most termites come in from the exterior wall. There is extensive damage to that wall. The one piece of wood framing that supported the tub that was left after their tear out was not touched by termite damage. Wall damage was done way above the level of this support wood framing by termites.

We filed suit against FC appx. 4 1/2 years ago only to find out we were forced to go to arbritation. Florida Pest Control was not content to take us under the consumer rules, they had it in their contract that we had to go to arbritation under the COMMERCIAL RULES. We went to a judge in Gainesville and he upheld that we had to go under the COMMERICAL RULES and it actually put us, a consumer, the same as another business going to arbritation against each other, not as a CONSUMER. The American Arbritation Association balked at this saying that we are a consumer, but as I said, that was in our contract and the Judge in Gainesville ruled that, if we went to arbritation, it would have to be under COMMERCIAL RULES. The fees are much higher and the rules change drastically when you can't get due process as a CONSUMER.

In discovery, we found out they had TWO contracts. They miraculously got my husband's signature on the second contract in 2002 AFTER the termites were found in 2001. In 2002, they did not get an inspection report signed proving they did their inspections. I believe that is the only year that they did not get an inspection report signed proving they had done the inspection-maybe the first year, too, when they got the original contract signed. Trust me, my husband would not have signed a new contract for any reason AFTER they found termites.

The arbritator ruled that they had to pay us the $ 5,200.00 to repair our home. He did not award us TODAY'S cost-I think it was mentioned that we should have done the repairs to our home when FPC destroyed the glass block wall and the tub was cut out even though ALL THE EVIDENCE WOULD HAVE BEEN DESTROYED. HE ruled against the four fraud charges so we did not get our attorney's fees and so far we have been ruled against to get our costs by the same judge in Gainesville, Florida. THE FRAUD IN THIS CASE WOULD HAVE BEEN OBVIOUS TO ANYONE.

Arbritation not only takes our ability to go to court - that in itself is wrong but it wrongs us again when an arbritator can do a ruling and answers to NO ONE. This company spent about $400,000.00 to keep from paying a $ 5,200.00 damage claim that they promised to pay (in writing, too) as they were tearing my home apart. They also filed to get US TO PAY THEIR $250,000.00 IN ATTORNEY'S FEES. They had two attorneys the entire proceeding. The judge did not rule for them for their attorney's fees but he did not give us our costs, either.

So, in other words, we were took twice-once by a pest control company and second by our own judicial system-a system which the businesses have figured out how not to be responsible for their own actions and a system that allows them to do just that that and forces the consumer to spend thousands of dollars for a $ 5,200.00 claim because they know we will probably not be awarded anything and if so, it will be very little no matter what the circumstances.

At this point in time I have not specifically named the company involved. I have not ran this by my attorney. I HAVE NO DOUBT THEY WOULD SUE ME.

Jo Lytte

On or about 1995, my husband and I built a home and FP based out of Gainesville, Florida, did the original termite pre-treat of our home. We had a termite policy which stated it would, I believe, do repairs up to $150,000 to $250,000. I forget the exact amount of coverage. The product they used in the original pre-treat was pulled from the market about the same year they used it to pre-treat my home. I guess they are allowed to use up materials they have in stock when they ban something, why I don't know.

FP did an annual inspection of our home every year (at a annual fee, of course) after the home was completed and got my husband to sign an inspection form showing that they came and did the inspection.

On or about 2001, FP said they found a termites in our guest bathroom. They treated our home and came back the next year and inspected as usual. Then in 2003 they did their annual inspection and did not find any termites accroding to their internal reports produced for arbritration. I found the damage a month or two later.

FP came to my home and treated again and started destruction on my home telling my husband the whole time not to worry because we had a policy with them and they would repair our home. They tore out a glass block wall and cut out a fiberglas bathtub. They sealed the windows and walked away and said they were not responsible-it was our fault that the termites got into our home. Our plumber had installed a fiberglas tub partly in the ground and not encased in concrete and said that the termites started in the fiberglas tub that had some stiffening boards encased in fiberglas.

It is quite obvious that the termites started from the exterior wall of our home-most termites come in from the exterior wall. There is extensive damage to that wall. The one piece of wood framing that supported the tub that was left after their tear out was not touched by termite damage. Wall damage was done way above the level of this support wood framing by termites.

We filed suit against FC appx. 4 1/2 years ago only to find out we were forced to go to arbritation. Florida Pest Control was not content to take us under the consumer rules, they had it in their contract that we had to go to arbritation under the COMMERCIAL RULES. We went to a judge in Gainesville and he upheld that we had to go under the COMMERICAL RULES and it actually put us, a consumer, the same as another business going to arbritation against each other, not as a CONSUMER. The American Arbritation Association balked at this saying that we are a consumer, but as I said, that was in our contract and the Judge in Gainesville ruled that, if we went to arbritation, it would have to be under COMMERCIAL RULES. The fees are much higher and the rules change drastically when you can't get due process as a CONSUMER.

In discovery, we found out they had TWO contracts. They miraculously got my husband's signature on the second contract in 2002 AFTER the termites were found in 2001. In 2002, they did not get an inspection report signed proving they did their inspections. I believe that is the only year that they did not get an inspection report signed proving they had done the inspection-maybe the first year, too, when they got the original contract signed. Trust me, my husband would not have signed a new contract for any reason AFTER they found termites.

The arbritator ruled that they had to pay us the $ 5,200.00 to repair our home. He did not award us TODAY'S cost-I think it was mentioned that we should have done the repairs to our home when FPC destroyed the glass block wall and the tub was cut out even though ALL THE EVIDENCE WOULD HAVE BEEN DESTROYED. HE ruled against the four fraud charges so we did not get our attorney's fees and so far we have been ruled against to get our costs by the same judge in Gainesville, Florida. THE FRAUD IN THIS CASE WOULD HAVE BEEN OBVIOUS TO ANYONE.

Arbritation not only takes our ability to go to court - that in itself is wrong but it wrongs us again when an arbritator can do a ruling and answers to NO ONE. This company spent about $400,000.00 to keep from paying a $ 5,200.00 damage claim that they promised to pay (in writing, too) as they were tearing my home apart. They also filed to get US TO PAY THEIR $250,000.00 IN ATTORNEY'S FEES. They had two attorneys the entire proceeding. The judge did not rule for them for their attorney's fees but he did not give us our costs, either.

So, in other words, we were took twice-once by a pest control company and second by our own judicial system-a system which the businesses have figured out how not to be responsible for their own actions and a system that allows them to do just that that and forces the consumer to spend thousands of dollars for a $ 5,200.00 claim because they know we will probably not be awarded anything and if so, it will be very little no matter what the circumstances.

At this point in time I have not specifically named the company involved. I have not ran this by my attorney. I HAVE NO DOUBT THEY WOULD SUE ME.

William Peirce

Binding Mandatory Arbitration, the secret corporate for-profit justice system, will take a long time to make fair or voluntary. I made a little headway in Maine by helping to pass a state law aimed at arbitration. I did it as a solitary citizen - a advocacy group of one person – by presenting my case in a legislative committee with the help of an elected official and a state attorney. Perhaps you could do the same in your state.

I asked my talented state senator, Peter Bowman, to sponsor L.D. 1489, which was based on Jon Sheldon's (NCLC) Model Arbitration Law. His law was rewritten in committee with the help of a concerned Maine state attorney, William Lund, who adapted the law to match Maine's ability to enforce it, as well as our political reality. It will allow the government to begin monitoring the activities of arbitrators. Later, we can act on those findings.

Hopefully, Senator Finegold’s bill will pass at the federal level and make the system fair. But change in government occurs at a glacial pace. His bill could be watered down, delayed or not pass at all, as is the case with most bills, in Maine at least. Consumer action is the best way to foster change. A list of companies that require BMA and those that don’t would be useful. On their equipment rental forms, Home Depot requires BMA and Lowes doesn’t, for example.

On this useful link to “Protect Yourself” http://www.citizen.org/congress/civjus/arbitration/articles.cfm?ID=17163 it suggests striking out the BMA clause in contracts and initializing the change. I thought that “Take It or Leave It” contracts do not permit such changes. Am I wrong?

Robert Coss

Believe it or not there are corporations out there providing more and more citizens with alternatives to the games big business plays. 1. Lawyers are now more readily accessible through services like PrePaid Legal. They can review contracts and help look out for your interest before you sign. 2. Liberty Dollar is providing a businesses with real currency that strengthens the local community while by-passing worthless dollar bills. It is catching on to the point where even Paul Harvey stands behind it. 3. A 100 lawyers got together to form the Federal Debt Relief System to help cancel out debt created fraudulently by the banking industry. They tell me banks settle out of court not wanting their evil deeds to be exposed.

Fight back by informing and educating others about these services.

Don't forget the words of Thomas Jefferson, "Educate and inform the whole mass of the people... They are the only sure reliance for the preservation of our liberty."

And on a final note, what von Nothause said is probably ultimately true.

"...only by banding together and adopting a free and independent currency that provides us with "just weights and measures" will we be able to throw off the yoke of a manipulated monetary system and generate a peaceful and prosperous society." ~ Bernard von Nothause

Peace and prosperity to thewatchdogblog.org and all their work - it is greatly appreciated!!!

Kari

My Husband was in an automobile accident where the other party was clearly at fault and also received a ticket and there was also a witness statement backing up my husband and his innocence. Needless to say our insurance company denied her claim, so her insurance company took it to arbitration. Despite all evidence and what should have been an open/close case, ended with my husband getting 80% liability, and her getting 20%. We are (including our insurance company) are at a complete loss as to how this could happen. The arbitration system is so corrupt it's unreal and scary!!

Jeanne

We received to a claim. Don't know what to do-I have been so terribly ill & almost died sev times We don't have enough to live on & now hit with this. Of cause MBNA is growing-look what it is doing to us & I am handicapped. Our insurance is $700 month.

Fred333

Man that is a rought situation. Hang in there.

Mary

I'm in the middle of an ugly divorce and fighting over separation of debt. My ex is not paying his half of the debt so therefore I am getting harrassing phone calls from the credit card companies. I can handle them but now they have resorted to calling and making extremely offensive comments to my young children. My 12 year old was in tears when I returned home from work and when I asked what happened she informed me that this credit card lady yelled at her over the phone said things that were very upsetting to her. Not only that these people have the nerve to call me at work which I am told by an attorney is a violation of my rights! Any ideas as to a defense against them until I can settle the divorce. My attorney is helping but says we need to wait until the divorce is final to do anything about them.

Sharon

I posted a comment on The Arbitration Forum Blog. I think they are afraid to let consumers who actually have a problem with arbitration post anything! They made comments about Public Citizen.... that your statistics about California Arbitrations were in fact lies! Following is the comment I tried to leave and as yet they have not posted... so I have decided to post it anywhere online that I can. This is what is happening to my husband.

I saw this and had to leave a comment! My husband was recently sued by Chase Bank who wants a judgment against him because of an arbitration agreement, which by the way he never agreed to. (This supposed legal binding arbitration is in your credit card contract in very tiny print that most people do not see, including my husband.) My husband does not disagree that money is owed to Chase Bank, we are just having some really difficult financial times and turned our debts over to a credit council company. Instead of working with the credit council company, Chase Bank went for the "Arbitration". This supposed better alternative to going to court might cost us an extra $6000 tacked onto a bill in 1 years time! Now you tell me if this is better than hiring an attorney, which the previous comment says you have to do anyway, and not be able to have your day in court. There are some pretty hefty charges added on here. Chase Bank's attorney and my husband, representing himself, attended the pretrial hearing today for Chase to obtain their judgment against my husband. The Honorable Judge told Chase's attorney he would not grant the Motion for Summary Disposition and gave Chase's attorney 60 days to produce documents showing a brake down of the fees granted. There is still justice in our court system and we as Americans still have our legal rights and one of them is our right to a day in court to present our case before an unbiased judge with or without an attorney!

I would truly like to see our country protect consumers from these predators, but upon checking where the Arbitration Fairness Act of 2007 stands right now does not look very good! What can we do to see to it that this law is passed? Please help!!!!

A concerned citizen!

dax

nice post! keep up! im looking forward to read more from you!

lucena nicolas

I need help badly..... I recently paid of a balance in full (about $10,000) to Chase in June 2008. Never ever late and had a spotless history, yet to my dismay my July statement had a finance charged of $66.00 and some change.... so from June to July I was charge an interest on a zero balance...... they also slap a late fee of $29.00.... how rediculous is that? Actually I paid a little more in june then what I actually owe to avoid any finance charged. please tell me who could help resolve this issue... thanks

J.R. Jackson (a.k.a. MLM's $8-Million Man)

I cannot believe the cc companies can get away with this.

J.R.

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