The U.S. Supreme Court on Nov. 9 will hear oral arguments in a case that may determine whether card issuers may handle customer disputes through arbitration or potentially more costly class-action lawsuits, industry experts say.
The potential landmark case, AT&T v. Concepcion, deals with contract clauses, such as those included in many credit card agreements that require customers to settle disputes through arbitration instead of class-action lawsuits.
Arbitration has been a hot topic for issuers in recent years following a 2005 class-action lawsuit accusing Bank of America Corp., JPMorgan Chase & Co., Capital One Financial Corp., Citigroup Inc., Discover Financial Services and others of antitrust violations by conspiring to require cardholders to resolve disputes through arbitration (see story).
Four banks, including BofA, Chase, Cap One and HSBC Holdings PLC earlier this year reached settlements in the case and agreed to scrap arbitration clauses in their cardholder agreements (see story).
But many other issuers maintain arbitration clauses in their cardholder agreements, Alan Kaplinsky, a partner with the Philadelphia law firm Ballard Spahr LLP, tells PaymentsSource. American Express Co., Discover and Citi are among banks that deny any wrongdoing.
“If AT&T wins, it will open up some doors for credit card issuers, especially in states like California, where courts have ruled against class-action waivers,” Kaplinsky says. “Obviously, card issuers want to maximize their opportunities to resolve disputes through individual arbitration because it reduces their exposure to class-action suits, which are potentially more costly.”
Consumer advocates are united in their opposition to bans on class-action lawsuits. The Pew Health Group’s Safe Credit Cards Project last July specifically called for issuers to remove arbitration clauses from cardholder agreements (see story).
In the Supreme Court case, two AT&T customers allege AT&T Mobility charged them a $30.22 sales tax for a phone advertised as “free,” and AT&T claims its contract with the couple prohibits class actions.
A California appellate court ruled that requiring customers to waive their right to collective action was an “unconscionable” violation of state contract law, and the case moved to the nation’s highest court.
AT&T in its argument is citing the Federal Arbitration Act. Enacted in 1925, the act protects corporations’ right to resolve disputes through arbitration even when state law says otherwise. Courts in 20 states have struck down other attempted class-action bans.
“The outcome of this case could decide once and for all whether corporations can ban class-action suits, and it could go a long way toward determining how issuers handle disputes,” Kaplinsky says.
Kaplinsky expects the Supreme Court to render a decision in the case “within three or four months.”
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