Angry with your credit-card company? Even though many financial institutions have arbitration clauses that prevent you from suing them, surprisingly you can still sue the majority of credit-card companies.
Consumers’ ability to sue financial institutions has been challenged this year, after President Donald Trump killed a proposed rule from the Consumer Financial Protection Bureau that would have stopped financial services companies from putting “mandatory arbitration agreements” in their contracts. The agreements keep consumers from suing companies and force them to settle disputes out of court through arbitration. Companies primarily use them to prevent class-action suits , but they also prevent consumers from suing individually.
And yet despite the companies’ ability to use the clauses, many credit-card companies don’t, according to a new analysis by the credit-card comparison website CreditCards.com .
They studied 30 major credit-card issuers and found that only nine have mandatory arbitration clauses in their contracts. The other 21 either have no mandatory arbitration clause or allow consumers to opt out of it within a defined time period.
Does the contract
include a mandatory
How many days
do consumers have
to opt out?
|Bank of America||No||N/A||N/A|
|Citizens Bank NA||Yes||Yes||45|
|Credit One Bank||Yes||No||N/A|
|Fifth Third Bank||Yes||No||N/A|
|First National Bank of Omaha||
|First Premier Bank||Yes||Yes||30|
|Navy Federal Credit Union||No||N/A||N/A|
|Pentagon Federal Credit Union||No||N/A||N/A|
|State Employees Credit Union||No||N/A||N/A|
|State Farm Bank||No||N/A||N/A|
|USAA Federal Savings Bank||Yes||No||N/A|
|World’s Foremost Bank (Cabela’s)||No||N/A||N/A|
“We ended up being pleasantly surprised that consumers had more ways to avoid these forced arbitration clauses than we expected they would,” said Matt Schulz, a senior industry analyst at CreditCards.com.
The companies’ reluctance to use the clauses may be a matter of public relations, he said.
“It may be an indication of how competitive the credit-card market is,” he said. “They don’t want to introduce terms that are not seen as consumer friendly.”
Bank of America /zigman2/quotes/200894270/composite BAC +1.59% , Chase /zigman2/quotes/205971034/composite JPM +2.53% and Capital One /zigman2/quotes/204480509/composite COF +2.45% , three of the biggest card issuers, have no arbitration clause at all, CreditCards.com found.
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The industry faced a turning point on their policies in 2009, Schulz said.
In that year, the Minnesota Attorney General filed a lawsuit against an organization that handles disagreements between credit-card issuers and cardholders.
In response, the organization agreed to stop accepting new cases from financial institutions, cellphone companies and health care organizations.
Later in 2009, the American Arbitration Association, a trade group, announced it would suspend its consumer debt collection practices, after a meeting with a U.S. House subcommittee.
Chase, Bank of America and Capital One all started eliminating arbitration agreements from their contracts and haven’t reinstated them.
“It might be an indicator other large banks either don’t see it as a priority or don’t see it as being worth the effort,” Schulz said.
American Express /zigman2/quotes/203805826/composite AXP +2.39% , Citibank /zigman2/quotes/207741460/composite C +2.81% and Discover /zigman2/quotes/208747867/composite DFS +3.60% are among the institutions that allow consumers to opt out of the clause. But consumers typically only have 30 to 60 days from the time the card is issued to do this, CreditCards.com found.
“Wells Fargo’s goal is to provide customers with the products and services they want and value,” a company spokeswoman said. “If any customer has a concern, we will work hard to make things right by resolving the issue directly so that formal dispute resolution proceedings are unnecessary. If we are unable to resolve an issue directly, we turn to arbitration.”
It’s unlikely that consumers consider their ability to sue when choosing a card, but it’s a factor to consider, Schulz said.
“If you don’t like your card’s terms, don’t be afraid to shop around and possibly even walk away.”
To be sure, there are other ways of solving disputes with companies. Consumers can try to resolve conflicts with the company directly, or file a complaint to the CFPB, through its complaint database.
Many cards that do have mandatory arbitration clauses have exceptions for disputes that are small enough to be handled in small claims court, CreditCards.com found, with the exception of Fifth Third Bank, and Key Bank, for cards besides its Latitude card. Active military servicemembers and their dependents are also exempt from mandatory arbitration clauses under the Military Lending Act, Schulz said.
But consumers have expressed concern about how time-consuming and challenging resolving disputes can be.
Only about 2% of consumers with credit cards said they would consult an attorney or consider formal legal action to resolve a small-dollar dispute, according to a survey the CFPB conducted when researching its anti-arbitration rule. Separately, 89% of consumers said they wanted the right to participate in class-action suits against their banks, when the Philadelphia-based nonprofit Pew Charitable Trusts surveyed about 1,000 consumers in 2016.
Still, a card that comes with a mandatory arbitration clause doesn’t have to be a deal breaker, said Brian Karimzad, the vice president of research at LendingTree, the parent company of the credit-card website CompareCards.com.
He said in many cases, lawsuits — especially class-action lawsuits — are time-consuming, and it can take years for consumers to see a payout from them.
Escalating a complaint through the bank’s management, perhaps with the help of the CFPB, is a good first step instead, he said.
“You’ll probably get a better result than trying to go to court first,” he said.
Customers should be aware of their card’s terms, he said, and if they do have an opt-out option, consumers should do that as soon as they activate their card, he said.
But there are other factors to consider when deciding on a card, including rewards and interest rates.
“Shop for a card that will save you the most money,” he said.