Arbitration Provisions in Credit Card Agreements and in Related Litigation

ARBITRATION AGREEMENTS IN CREDIT CARD DISPUTES 

Which credit card issuers have contracts with arbitration clauses? 

All but a few of the major issuers of credit cards draft cardmember or account agreements with arbitration clauses. Typically, they take up several paragraphs and have their own subheadings.

If a credit card agreement has a table of contents (such as a typical CARDMEMBER AGREEMENT of Discover Bank), "Arbitration of Dispute" or "Dispute Resolution" will be one of the items on it, with a reference to the corresponding page on which the relevant paragraphs are located. Typically, the arbitration agreement extends over several paragraphs, which makes the terms arbitration "clause" technically incorrect.

Sometimes, the arbitration agreement is a separate document that is referenced by the card member agreement. Capital One Customer Agreements pre-dating 2010, for example, consist of two pages, with the last paragraph on the second page referring to an arbitration agreement and incorporating it by reference. The arbitration agreement itself consist of a single page of fine print.

When Capital One sues, it typically produces both documents. Agreements from 2010 and later, however, will likely not contain any arbitration provisions, and do not reference any in the form of a separate document either. For older accounts, this raises an intriguing issue: Can a new version of a cardmember agreement that omits any reference to arbitration eliminate an arbitration agreement that was part and parcel of the prior agreement, the one that was in effect when the superseding one was issued?  

Stand-alone arbitration agreements 

The reason some creditors have separate arbitration agreements may be the absence of an arbitration clause in the original cardmember agreement. Some accounts may have been established long before the insertion of arbitration clauses into cardmember agreements became widespread industry practice.

Credit card banks may, of course, change the terms of the account agreements. They do so with change of terms notices, and sometimes such a notice is utilized to add arbitration clauses to existing agreements.

But a stand-alone arbitration agreement must be supported by consideration different from the existing agreement. Therefore, such stand-alone agreements must be reciprocal, i.e. subject both parties to mandatory arbitration if one party elects to arbitrate.

In rare cases, a consumer may even have elected to reject arbitration if they were given that option at the time the bank announced its plan to add arbitration provisions to the terms of accounts held by existing customers. See-- > Opt-out from arbitration.

Many Discover Bank Cardmember Agreements, for example, contain language in the first paragraph of the cover page informing the card holder of the right to reject arbitration, and the procedure for doing so. Change of terms notices from Citibank have similar opt-out provisions.

Credit card issuers that eschew arbitration clauses 

One major card issuer whose credit card agreements are silent on arbitration is Target National Bank. It files its own lawsuits on defaulted account (some of which were originated by Retailers National Bank, a predecessor).

In such suits, arbitration is not an issue, because the right to arbitrate is a creature of contract, and as such requires an underlying arbitration agreement.

BLOG POSTS ON RELATED TOPICS:

Benefits and Drawbacks of arbitration of debt claims as opposed to litigation
Arbitration Clause as a defense in a credit card collection suit
Waiver of the Right to Arbitrate in credit card suit
Motion to Compel Arbitration and Motion to Abate the Lawsuit Pending Arbitration
Implications of Seeking Order to Compel Arbitration in a credit card debt suit
Motion to Dismiss based on Arbitration Clause vs Motion to Abate
Interlocutory appeal of order denying arbitration in the trial court
Judicial confirmation of arbitration award
Motion or suit to set aside arbitration award

EXAMPLES OF ARBITRATION AGREEMENTS EMBEDDED WITHIN CARD AGREEMENTS: 

US Bank NA ND: North Dakota Arbitration clauses from 2008 Agreement 

Wells Fargo Bank N.A. Arb provisions in customer agreement 

WAIVER OF RIGHT TO ARBITRATION IN A CREDIT CARD CASE 

Like any other contract right, the right to arbitrate under a valid arbitration agreement may be waived. It happens routinely, even though arbitration offers certain benefits over litigation. Typically, waiver does not result from a conscious tactical choice, not to mention an express statement in a pleading.

For the plaintiff, the decision to file suit constitutes a choice in favor of litigation rather than arbitration, which makes it likely that the plaintiff would oppose litigation if the defendant wanted to go that route.

But most defendants do not make an issue of arbitration. They waive the right to arbitrate that they may possess, by failing to take any action to enforce it. This can be done in a number of ways: By asserting the existence of an arbitration clause as an affirmative defense; by filing a motion to dismiss based on arbitrability of the claim, or by filing a motion to compel arbitration.

Each option is the subject of a separate blog post.