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The use of arbitration clauses

Anyone in New Jersey who uses a credit card or has a bank account could be affected by arbitration clauses. An arbitration clause is an agreement between a banking institution and a customer to resolve any disputes outside of the regular court system. Although arbitration clauses cover tens of millions of consumers, a study by the Consumer Financial Protection Bureau found that a majority of consumers do not understand their implications.

When two parties sign an agreement that contains a binding arbitration clause, any resulting disputes are precluded from being heard in court in most cases. Instead of litigation, disputes are resolved by an arbitration panel. The arbitration process can be less expensive than litigation, but many believe that arbitration proceedings tend to be unfair to consumers.

According to a recent CFPB study, financial institutions obtained favorable outcomes in a vast majority of arbitrated disputes between 2010 and 2011. There were 1,060 cases filed during that time period, and consumers were awarded a combined total of around $175,000 in damages. On the other hand, companies involved in these arbitrated disputes were awarded a combined total of about $2.8 million in damages.

In its study, the CFPB found that credit card companies use the arbitration clause to block about 65 percent of class action lawsuits from going forward. However, companies were less likely to block individual lawsuits by invoking the arbitration clause. A person who has a disputed credit card debt might want to speak with an attorney about whether or not they have a case for bringing legal action against the issuer. Unpaid credit card bills can quickly mount up, and in some cases filing for bankruptcy can bring debt relief to the consumer.

Source: credit.com, "Consumer Watchdog Says You Should Be Able to Sue Your Credit Card Company", Bob Sullivan, March 10, 2015

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