What is Credit Card Arbitration?

Credit card issuers and customers can resolve disputes without going to court by using credit card arbitration. Arbitration is generally less expensive than a trial. The goal is to have a decision made by a neutral third party. Like any negotiation, credit card arbitration can present some challenges.

Arbitration does not have to follow the rule of law. Neither side can appeal the arbitrator’s ruling. These credit card arbitration rules can present major problems for some customers who do not agree with the arbitrator’s decision.

Some credit card companies include mandatory binding arbitration clauses in cardholder agreements. By using the card, the customer agrees to these terms. In mandatory binding arbitration, the customer waives the right to sue the card issuer. Arbitration is then the only means of settling disputes.

Binding arbitration requires the customer to abide by the arbitrator’s decision, and stops the customer from seeking remedy in another venue, such as a court. Usually, arbitration rulings cannot be overturned in court. Some rulings can be changed in court, if the customer can prove fraud or a significant conflict of interest on the part of an arbitrator.

Consumers subject to mandatory binding arbitration can hire an attorney during the arbitration process. Hiring an attorney can significantly raise the cost of arbitration. A benefit, however, is that the attorney's presence may help ensure that the arbitrator remains neutral.

In the 2000’s, mandatory credit card arbitration clauses came under scrutiny. Some individuals, local governments, and consumer rights organizations claimed that many arbitrators were not neutral, and sided with the credit card issuers most of the time. Arbitrators strongly disputed these claims. In 2009, some of the largest United States credit card issuers removed these clauses from the cardholder agreements.

When done properly, voluntary, non-binding credit card arbitration may be a useful means of debt settlement. A neutral party can offer a decision and both parties can agree to accept the proposed solution, or not. This process is sometimes cheaper for the consumer than hiring an attorney to negotiate with the card issuer or filing for bankruptcy.

In the United States, arbitrators are certified by individual states. Certification requirements vary by state. Some states require that arbitrators have legal experience. Other states only require a college degree or comparable professional experience. Retired judges and attorneys can work for arbitration companies.

Many times arbitrators are not employees of the arbitration company. Instead, they work as independent contractors. This employment arrangement may help ensure neutrality when making decisions.

Customers can read their credit cardholder agreements thoroughly before using any credit card. The agreement will include information on how to settle disputes, and if binding credit card arbitration is mandatory. Customers who need a copy of the agreement can contact their card issuers.