Magazine article American Banker

Supreme Court Upholds Mandatory Arbitration in Subprime Card Suit

Magazine article American Banker

Supreme Court Upholds Mandatory Arbitration in Subprime Card Suit

Article excerpt

Byline: Victoria Finkle

A Supreme Court ruling on Tuesday upheld the controversial practice of including mandatory arbitration clauses in credit card contracts.

Credit card lenders and other companies sometimes use mandatory arbitration clauses in contracts to prevent consumers from suing them in court. Consumer advocates have long criticized those clauses, which force customers to dispute fees or air other complaints in an arbitration system that they say is biased towards businesses.

The court's decision came after customers of CompuCredit Corp. and Columbus Bank and Trust filed a class-action lawsuit against the companies for unlawfully marketing a subprime credit card. The card was advertised as a tool to help rebuild credit and was supposed to have a $300 limit. But critics alleged that fees on the card totaled $257 the first year they had the card.

The 8-1 ruling struck down an earlier appeals court decision that the Credit Repair Organizations Act gives consumers the "right to sue" in court and bars consumers from waiving their rights under the law. CROA outlaws unfair business practices at companies designed to help consumers repair their credit.

The decision is the latest high court decision in support of mandatory arbitration, on the heels of last year's closely-watched decision involving wireless carrier AT&T. In AT&T v. Concepcion, the court voted 5-4 that companies can lawfully enforce individual arbitration instead of allowing complaints to be filed as a group. …

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