Contract and Choice

Article excerpt

This Article contributes to an ongoing debate, afoot in academic, legal, and policy circles, over the future of consumer arbitration. Utilizing a newly available database of credit card agreements, the Article offers an in-depth examination of dispute resolution practices within the credit card industry. In some respects, the data cast doubt on the conventional wisdom about the pervasiveness of arbitration clauses in consumer contracts and the presence of unfair terms. For example, the vast majority of credit card issuers do not utilize arbitration clauses, and by the end of 2010, the majority of credit card debt was not subject to such an agreement. Likewise, while the use of class waivers is widespread in arbitration clauses, most clauses lack the sort of unfair procedural terms for which arbitration is often criticized. The upshot of these and other findings is that consumers, in some respects, have more choice in their contracts than the literature suggests. Our work also responds to the suggestions of some scholars that businesses favor arbitration clauses in their consumer contracts but not their business-to-business agreements. On the contrary, our research suggests that the difference may not be as dramatic as previous research suggests. These results hold important implications for ongoing policy debates, including the proposed Arbitration Fairness Act pending in Congress as well as the work of the newly minted and controversial Consumer Financial Protection Bureau (CFPB). Our findings suggest that the Arbitration Fairness Act may be based on faulty empirical premises and that the blanket prohibition contained in the Act may be overbroad. Our findings also provide a model that the CFPB might follow in conducting its statutorily required study of the use of arbitration clauses in consumer financial services contracts.

Contents

Introduction ....................................................................................................... 2

I. Background & Literature Review ............................................................ 9

II. What Do Arbitration Clauses in Credit Card Agreements Look Like? ........... 14

A. Sample ........................................................................................................ 14

B. Trends in the Use of Arbitration Clauses ..................................................... 16

1. Use of arbitration clauses ............................................................................ 17

2. Carve-outs .................................................................................................. 21

3. Opt-out provisions ...................................................................................... 23

C. Provisions of Arbitration Clauses ................................................................ 24

J. Governing arbitration law ........................................................................... 26

2. Provider rules ............................................................................................. 28

3. Delegation clauses ..................................................................................... 32

4. Minimum recovery provisions .................................................................... 36

5. "Unfair" provisions .................................................................................... 37

6. Arbitration costs ....................................................................................... 41

7. Appeals and court review ........................................................................ 46

D. Arbitration Clauses in Business Credit Card and Deposit Account Agreements ................................................................................................. 49

1. Business credit card agreements ............................................................. 51

2. …