Monday, July 22, 2013

Federal Arbitration Act (FAA) and credit card debt suits


Most credit card agreements contain arbitration clauses, which typically provide that any qualifying claim, i.e. one that falls within the scope of the arbitration clause, is governed by the Federal Arbitration Act.

Texas has its own arbitration statute, the Texas Arbitration Act (TAA), sometimes referred to as Texas General Arbitration Act (TGAA). It is a version of the Uniform Arbitration Act and is codified in the Civil Practice and Remedies Code. To the extent there is conflict between the two, the FAA trumps the TAA under the doctrine of federal preemption.


The Texas counterpart to the FAA rarely comes into play, however, because most credit card agreements not only expressly reference the FAA, but additionally have a choice of law provision that specifies that the law of another state as applicable to the agreement to the extent federal law does not control. So, if the arbitration agreement does not expressly invoke the FAA, the arbitration statute of the choice-of-law state would apply instead; and that will rarely be Texas.

That said, the choice of law issue can be waived, just like the right to arbitrate is often waived. If neither party insists on application of the law specified in the choice of law and/or arbitration provision of the card agreement, Texas law may be applied simply by default, or the court will assume that the law of the applicable jurisdiction is no different than Texas law. The courts of appeals bless this approach even if the trial judge is aware of the presence of the choice of law clause in the relevant contract.  See -- > Choice of law; Presumption that other’s state’s law does not differ.

It is the courts that determine whether a claim is subject to arbitration because it is considered a “gateway” issue. When the court answers that question in the affirmative, all other issues are decided by the arbiter or by the arbitration panel, unless the parties agree to have them resolved by litigation, and thus waive the right to arbitrated in lieu of litigating.


The Federal Arbitration Act does not require that an arbitration agreement be signed, so long as the agreement is written and agreed to by the parties.  Because arbitration agreements governing credit cards are either embedded in the cardmember agreement or incorporated into them by reference, they are subject to the same proof requirements regarding contract-formation without signature.  

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