Study indicates bias favoring credit card issuers in arbitration

Consumers face an uphill battle when disputes with their credit card companies end up in arbitration, according to a new study by the Durham-based Center for Responsible Lending.

Most consumers don't realize the fine print in their credit card contracts calls for "forced arbitration" in the event of a dispute, said Joshua Frank, co-author of the study released Thursday by the consumer advocacy group.

Auto loan and other loan contracts also often require arbitration.

"The report shows there is an absolute bias in arbitration forums" that favors credit card issuers and other businesses over consumers, Frank said.

The study comes at a time when the credit card industry is facing a wave of criticism. A new law signed by President Barack Obama restricts the fees of credit card companies and limits their ability to change contracts.

The Center for Responsible Lending is urging Congress to ban forced arbitration in credit card and auto loan contracts.

The American Bankers Association had no immediate comment on the study.

But in response to a similar report previously released by another consumer group, Public Citizen, it pointed to research by Ernst & Young that found that consumers are more likely to prevail than businesses when a case goes to arbitration.

The Center for Responsible Lending's report is based on data involving rulings in California on about 34,000 cases from 2003 to 2007 by an arbitration firm, the National Arbitration Forum. The group chose California because arbitration rulings typically aren't made public, but that state's law requires disclosure.

The vast majority of the cases involved credit card issuers seeking to collect money allegedly owed by consumers.

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