Arbitration is a conflict resolution process outside of the court system between two entities that agree to be bound by the arbitrator’s decision. Whether arbitration goes on between individuals, companies, unions or nations, it is essentially the same process.
Arbitration is one of the oldest means of dispute resolution in the world. Contrary to popular belief, it was not an American invention, nor was it first created in the early 1900′s. King Solomon and Phillip the Second (father of Alexander the Great) were arbitrators that settled territorial disputes through intelligent conversation, thus avoiding bloodshed.
In England, arbitration is older than the common law that, itself,
was one of the major influences on American jurisprudence. And in
America the Interstate Commerce Act passed in 1887 contained wording
indicating strong government support for arbitration involving issues of
concern to railroad workers.
In signing a major credit card contract, most credit card holders sign off on verbiage agreeing to use arbitration for settling disputes. In doing so, they effectively give up the right to sue the issuing banks, who prefer arbitration outside the court system where the loser has no rights of appeal. Generally, credit card companies – as well as companies that buy discounted credit card debt – enforce the arbitration clause in the initial agreement when delinquency reaches intolerable levels. There are other cases where victims of identity theft have ended up in arbitration over fraudulent charges.
The privately owned National Arbitration Forum (NAF) that collects and publishes data on the arbitration industry contends that consumers prevail in arbitration matters with the same or greater degree of success that they attain in the court systems.
Right now, California is the only state in the union that requires arbitration companies to publish annual reports. However, the information is often sketchy, hard to decipher with any degree of certainty and is often clouded by complex financial terminology.
Biased reporting by consumer watchdog groups has given arbitration an image not unlike David and Goliath. The NAF contends, however, that these reports fail to take into account that the arbitration system holds down excessive costs common in the legal system. They accomplish this by limiting the expensive discovery process, totally eliminating appeals and making both parties free to waive confidentiality. And while consumers can successfully represent themselves in arbitration, as no extensive legal knowledge is required, representing oneself in court is a daunting proposition.
The decision reached in an arbitration proceeding is almost always binding unless fraud has occurred (and can be proven), or in cases where there was a provable conflict of interest on the part of an arbitrator.
To find out if you are subject to arbitration in the event of a dispute with your credit card company, re-read your original agreement (request a copy if you can’t find yours). The section entitled Dispute Resolution would contain the arbitration clause and clearly define your rights and obligations. The only major cards without the arbitration clause are the AARP member Divinity cards issued by Chase Bank and some cards issued by credit unions and other small community banks.